The Wall Street Journal has an important story up this month by reporters Anne Tergesen and Gretchen Morgenson on how unions receive kickbacks from companies peddling high-fee 403(b) accounts to teachers. Here's just one story:
Teacher David Hamblen said a recommendation by the National Education Association was a key reason he put 403(b) savings in an annuity before his 2010 retirement from the El Dorado Union High School District in Placerville, Calif.
The NEA is the nation’s largest teachers union, with some three million members. “I thought that if they were recommending it, it must be a very good product,” Mr. Hamblen said.
Around 2007, he read an article that mentioned payments an NEA affiliate received from an insurance company. With another public-schools employee, he sued the union, as well as insurance company Security Benefit Corp. and others. The suit, filed in federal court in the Western District of Washington in Tacoma, alleged that 403(b) participants were harmed by an arrangement in which the NEA and an affiliate endorsed high-cost investments from providers....
Mr. Hamblen in California lost his lawsuit challenging the NEA subsidiary’s deal with investment providers. A federal appeals court said the union and its subsidiary didn’t have a fiduciary obligation to make sure that fees on retirement-plan products were reasonable. Generally, public-school teachers’ 403(b) plans are exempt from federal pension law requiring 401(k)-plan sponsors to act in participants’ best interests.
Although teachers should consult with their own financial advisors before making any decisions, they can check out the nonprofit website 403(b)wise for more personal stories like this one, plus suggestions on how to get out of a bad 403(b) or avoid getting into one in the first place.