Join Scott Bennett & Dan Otter for today's episode on 403bwise; an organization that Dan founded to help K-12 educators navigate and make the best of a very flawed 403b system. In this episode, they discuss different resources available, things to look out for in your plan, and questions to ask your plan administrators - insights that can be applied to not just 403b's, but all employer sponsored plans.
403bwise.org
Join Scott Bennett & Dan Otter for today's episode on 403bwise; an organization that Dan founded to help K-12 educators navigate and make the best of a very flawed 403b system. In this episode, they discuss different resources available, things to look out for in your plan, and questions to ask your plan administrators - insights that can be applied to not just 403b's, but all employer sponsored plans.
403bwise.org
How's it going everyone. My name is Scott Bennett and thank you for listening to the 3rd Decade podcast today. I'm joined by Dan Otter. Who's a founder of 403B wise. They're a website and nonprofit dedicated to helping teachers understand the ins and outs of their 403B plans. One of the core goals of the 3rd Decade is to ensure that participants understand the different retirement accounts they are eligible for, including employer sponsored plans. 403B's are a type of employer-sponsored plan for certain public employees and tax-exempt organizations. And they are the most common type of defined contribution plan for teachers, which teachers also happen to be the most common profession in the 3rd Decade program. So we thought Dan would be an excellent resource to share with you all. He has a really interesting story and is really a wealth of knowledge of all things having to do with 403b plans. You can also apply some of this knowledge to some of the other types of plans, like a 401k. 403b plans do have some more complexities in those. So it could be a really good starting point for anybody who's in an employer-sponsored plan that they think could be a little bit better. So here's my conversation with Dan. I hope you'll enjoy it. Dan. Thanks so much for being with us.
Dan Otter :It is my pleasure to be here.
Scott Bennett:So as I said, kind of in the intro, you're, you're an educator, but you seem to have kinda carved out this niche and have a real passion for the investment and retirement side of the profession and education as a whole, which is pretty unique. Could you tell us a little bit about your background and how you came to be such an expert on 403b plans?
Dan Otter :Yeah. If you had told me 30 years ago that in 2021, I would be an expert on some arcane portion of IRS code. I would think, you know, my life has gone terribly wrong<laugh> but it it's the opposite. Um, I love helping teachers. I am passionate about disrupting the, what we describe as the broken K12 403B. And it was, um, sort of serendipity the way I got into this. I was a first year teacher. The kids had left for the day. Uh, it was probably my third month on the job and I'm at the front desk, um, frantically getting ready for the next day's instruction. As a, I think new teachers can relate to when a woman appears at my door and she pokes her headed and says, and I'll never forget this."Do you care about your financial future?" I mean, that's a jarring comment, right? Yeah. To get any time. And so I look up from my stack of papers and I'm like, um, in my mind, I'm like, I think there's only one answer, right? Yes. So she took it as an invitation to come into my room and she starts talking about this investment she has and how she helps, you know, the third grade teacher next door, the sixth grade teacher down the hall. And Scott, I have no idea what she's talking about. You know, I have some vague notion that I'm now part of a pension system and I've sort of heard, oh, it's formula based, basically teach for 30 years and you get this, this pension, that's all I knew. And, you know, there was so many shocking things about this. She had the paperwork all filled out all as I had to do was sign it. And something like, you know, very nominal amount, like$150 would come out. And so I politely listened and I just said, and I'm really glad I did this. I said, you know, thanks. Thank you very much. If I'm interested, I will get in touch. And I'm really glad I didn't because I began to self-educate myself about saving for retirement. And I learned what she was selling were high cost variable innuity products. Yeah. And I also found out many of my colleagues had been sold these. And so I learned that it wasn't just my school. It just wasn't my school district, that this was a national problem that the majority of teachers only have high cost insurance based products. So now we're at about, you know, six, seven years later, we're about year 2000 and you're young and you probably don't remember this, but the internet, it was, you know, it kind of suddenly seemed accessible. Like anyone could start a website, start a business. So in 2000, a friend and I law launched 403b wise and we were a.com at the time. And we launched it, I think in March, 2000. And the whole goal was just simply education and advocacy. We wanted to be a place where teachers and school employees could come and get unbiased information. And then we also wanted to be a place to help them advocate for lower cost investment choices. Cuz that's something I learned the power of indexing, the power of low cost. And so, you know, we launched the website literally from my garage in Southern California and then slowly people started reaching out to us and we got connected to a teacher in Los Angeles who had been a 403b wise advocate there. It just so happened to be that he was g onna be interviewed by a reporter from US news a nd world report. And he said, I'm gonna give, uh, you, I'm gonna give the reporter your contact information. And the reporter contacted me. He interviewed me. And so three months after our launch, our website was listed, uh, as a resource in this article that went into US news and world report. And I took that and then reached out to this NPR radio program. I used to listen to cuz again, no podcast back then. W as the radio. A nd it was a Saturday morning show called"Sound Money." And I basically organized my Saturday morning around that. So I c ould be home to listen to it and I emailed them and I said, look, I love what you do. You know, you never talk about the 403B, you should do something on that. Oh, by the way, I have this website and we were just mentioned in US news a nd world report, they emailed me an hour later and said, would you like to be interviewed next Tuesday? A nd I remember immediately getting nervous, like, oh my God, I'm gonna be on NPR. And somehow I survived that interview and then things just started happening. U m, you know, so anyway, that's the origin story.
Scott Bennett:That's so amazing. And it's, I felt so many parallels when you were talking to kind of why we were created. It's like, here's, here's an issue let's, let's try and be a positive influence on this issue and you had personal experience with it and you're your story is not very unique. I would, I would guess to a lot of teachers where it is unique is the fact that, you know, you, you did something about it. You had the wherewithal and the ability to, to say, oh,"I wanna learn more about t his. And, and this doesn't seem right." Which is, is awesome. And it's just people are very lucky that you w ere able to do that. I think c uz now look at how many people have used your resource and continue to. So you touched on this a little bit when you were talking about this high cost variable annuity, which, you know, even when I say that to a lot of 3rd Decades they probably don't even know what that is. I think even some of the financial advisors that I talk don't know much about anuities. I'm a C FP, I'll be the first tell yo u a nnuities are one of the more complicated things you can look into. As a whole 403b plans are notorious for their higher costs. Why do you think that's the case? Have you done any research into how we got here?
Dan Otter :Yeah, I, I have actually and I really think there's, you know, I would say there's three factors. The first is at its founding in 1958. And this is a little surprising to people. It predates the 401k by 20 years. Okay. So the, the 403b was created in 1958 and at its outset, only insurance products could used. So the industry kind of got its meat hooks, you know, into, into the participants at that point. But in 1974. So this isn't like yesterday, this is pretty long time ago. I mean, I think Gerald Ford or Nixon was the president. This is how long ago, you know, we're talking, uh, mutual funds were permitted in something called a 403b custodial count. So they've been available for a long time. But I think the biggest factor Scott is that K12 403b plans fall outside of ERISA, the employee retirement income security act, which, you know, requires a fiduciary duty on the part of the employer. And again, I have empathy for school districts. They have so many missions. Uh, teachers generally have a pension, the 403b is a supplemental plan. So they take a very hands off approach. Now, not all school districts do that. You know, the majority are not, um, great at the 403b. One of my old school districts I used to work at in, um, Montgomery County, Maryland. They do it right. They have one low cost vendor, uh, Fidelity. So it can be done if school districts want to do that. But I think people, humans respond to incentives and employers right now, don't in my, you know, my mind have enough of an incentive to really do what's best for employees. And then I think the third part is, and this is where I think your organization, can make a difference. We're not educating young teachers about this. They're not learning it in their credential program. I used to be a professor of education. I taught social studies methods. My last class was always dedicated to teacher retirement plans. I still get emails from my students from the University of New Mexico,"I remember five years ago, our last day of class, you talking about something and I think you said, don't do'this company' and I feel like I might have anyway signed up with them." And so I just wish more teachers would do that. If we could teach them about their choices, their retirement plan choices before they go to the classroom, then they're not gonna be susceptible to the sales agent in the staff lounge with the free sandwiches. Cuz I know, I taught elementary school for almost a decade. It is easily the most exhausting job I've ever done. And I was in my twenties in, you know, early thirties when I taught you're a teacher you've been working with elementary kids for four hours. You walk into the staff lounge and there's someone in a suit with free sandwiches and you know, they're selling something that you don't know and they make it sound like a really good benefit. Yeah, of course you're gonna sign up. And that's how most teachers, you know, this is what happens to them. And that's where we, we really hear from teachers about five years into their career or having their 403b, they get wind that something's amiss. And so they'll come to us and you know, we're now a nonprofit. Um, and we have just a very robust Facebook group and you know, we've got close to 4,000 teachers from around the country, so they'll come on, they'll post and then our community jumps in and helps them. But that's, those are really the three factors. Scott
Scott Bennett:Yeah, that it's so interesting, I mean the history behind 403b's, I had no idea. Your point of this ground up a pproach, that's what we(3rd Decade) have. We talk about it to all of our participants. Ca use w e as k t hem to upload their investment choices. We wanna know that information so as they meet with th e me ntor, they can talk through those choices and the mentor can help educate them on here is y our lowest cost. And here's the most diversified choices. That's an easy thing to, to change, and we've seen participants change it. We have seen them go to their one HR professional in t he privately owned company that has 20 employees. However you're gonna need a lot of teachers to go to HR and say,"Hey, this is wrong. We demand it to be different" if you're gonna af fect t he 403b. It really is an uphill battle. I would assume to get the 403b plan changed be cause o f the history of these retirement accounts, but you, as you said, you have school districts that are already stretched thin, and it would be easy to be put on the back burner.
Dan Otter :No, a hundred percent. And again, it's, I mean, the irony is it's of education. Teachers don't know what they don't know. And when they contact me either through the Facebook group or an email, they, they feel, uh, apologetic almost. They feel like it was their fault. Um, and almost the first thing, you know, outta my, uh, keyboard is, do not beat yourself up. You did not know what you did not know. And that's part of it too. I have yet to meet a teacher when we explain the difference in cost that think that's cool. They start to get really mad and then they get really motivated. So it's, it's a, it's an obvious problem when it's, when it's laid out to people.
Scott Bennett:For sure. So in that same vein, if you had a young teacher who reached out and, and they say let's start at the very beginning,"I don't even know if I'm in a 403b p lan" or something like that. Where do y ou, where do you usually tell teachers to start? What's w hat do you, if you can have an audience of a young teacher w ho w ants t o do the best thing in terms of their financial future, where do you tell them to start?
Dan Otter :You know, I, I would start by understanding, begin with your pension, understand how that's gonna work for you. Um, most pension agencies have excellent online resources, calculators. You can do assumptions about if I teach for 30 years, here's what I think I might have at retirement. But then this is a surprise to a lot of teachers. They have not just one, but two supplemental retirement plans available, you know, the 403b, which we've been talking about. And then the 457B. So I would begin with find out your vendor list. This is the list of financial companies. So start with the 403b. Get that list again. Unlike 401k employers, where there's usually one vendor, most less lists are gonna have three to where in my city, where I live in Southern California, we have 42 choices. 39 of them are high cost and terrible. So find out who your vendor list is. Um, the companies on this, and here's what I'm hoping that you have one of the following companies aspire financial services. Now they are more like a supermarket of financial companies. They have hundreds, thousands of financial companies that you can invest through, including low cost ones, which I'm gonna mention fidelity and Vanguard. So you can access them for a small fee through a, the spy financial services in Southern excuse me, in California, Calsters pension t wo, the state pension agency actually created a 403b a low c ost, 403b. O h, a mazing. And they are in probably 90% of the districts and they will go into any district. They're not curly currently available a nd in Southern California. S o a spire financial services, C alsters pension t wo in California, Fidelity investments, ICMA, R C, T. R owe Price, TIAA a nd t hen Vanguard. So the hope is you have one of those companies. So what we tell people is take your vendor list, post it on the 403b Wise Facebook group. And our community is gonna jump in and let you know. Yeah. Several of the high cost companies actually have secret low cost options available.<laugh> security benefit. One of the biggest offenders, um, which is, has this relations ship with the national education association, which we deplore, the NEA lends its name in exchange for financial compensation. So they had a product called the NEA value builder. If you're a teacher and you've never heard of the 403b, but you've heard of your union and you see you, you might wanna go for that. And again, I'm not anti-union unions do tremendous things for teachers. Yeah. Um, so that's again, part of the landmines that teachers face, right? Um, so post that on the Facebook group, and let's say you have no good choices. So what we would do then is a couple things we would say, lobby your employer. And what we tell people to do is, you know, build an army, don't go by yourself, right? Share this information with colleagues, cuz again, as I'd said earlier, most people, when they understand this, they start to get pretty agitated. So get, you know, more advocates, um, go to our website 403bwise.org. We have an advocacy section. And in that advocacy section, we have, um, uh, form letters that you can adapt, um, to send to your, uh, district, to your benefits office. We have short presentations that you can show, um, colleagues, you can show your employer. We have teacher created, um, presentations that you can use. Um, in your advocacy efforts, we have a 403b um, calculator you can use, we have short videos you can use. So we have all these tools. And then I would tell teachers, look at the 457B plan mm-hmm<affirmative> Scott. It is actually we think now because of a recent change superior to the 403b, it has two really appealing features that the four oh B doesn't have your employer has to allow this, but it's permitted under the 457, B three years prior to a retirement age designated by the plan. So let's just say it's 63. Yeah. You're allowed to double your contributions into a 4 57 B for three years. That's amazing. Yeah. Right now it's 19,500 times two. If my math is right, that is$39,000, you could sock away a tremendous amount. And then the second provision, which is probably really appealing to the fire community, you know, financially independent retire early, when you leave your employer, you can access your 457B tax penalty free. So there's a, usually a penalty imposed for accessing retirement plans early, early. Yeah. With the 457 B. That's not the case. Now you still have to pay taxes. Right. If you take out 50,000, it's gonna look like you earn thousand, but what a tremendous, um, asset, if you are retiring at age 50, you can, um, actually use that money. Maybe you wanna hold off, you know, getting your pension. So we think, oh, and plus it's the 457B requires a little bit more fiduciary site of the employer. So consequently, the plans are generally better. And one of the real good bonuses is the 457B covers um, state employees, firefighters, police officers, these kind of, um, kind of jobs states have state-based 4 57 B plans. Yeah. And it is just the perfect example of economies of scale. I'll take New York state as an example, they have something called the New York state deferred compensation plan. It's a 457 B plan. It has 23 million of assets under management. Wow. So they are able to make available an S and P 500 fund that charges 0.008. And that is not a, a mispronunciation. That is how cheap. That is amazing. So if you're a teacher in the state of New York, I would look at the a 457 B before I looked at the 403b. And then finally, what we tell all teachers, you almost want to, you might even wanna begin with a Roth IRA, right? As you know, the beauty of the Roth IRA is you pick any financial company. You want, you want Vanguard, you can sign up with Vanguard in a matter of hours. Right? So maybe start with that plan, cuz teacher salaries aren't that large at the beginning, they might not need the tax deferral. So anyway, those are the steps that we tell people. So, you know, if you have a bad plan, there are options.
Scott Bennett:Yeah. That's, that's so helpful. And I think, you know, I'm, I'm glad you brought up the Roth part at the end, cuz that is, something. We always say, if you have a match, you gotta get up to that match first. But what these pensions, aren't gonna have a separate match within their 457 or 403b. Um, however, then we say, okay, if not go to the Roth, but to, to your point of the advocacy, you know, the people who do understand this and, and who are, who get mad enough about it, maybe even have a little bit of a responsibility to make sure the next 24 year old teacher just starting out, doesn't have this as well. Yeah. You can go out and start a off, but don't, don't forget about kind of your system's broken. And I think that's, what's so cool about your Facebook group and what you all have started. It's this ground up movement to say, no, this is broken. Um, we're here. We know, and we know it's broken, so let's fix it. And, and I think that's a really helpful attitude to have. Um, and you, you've all obviously already seen some success there and educating and stuff. So thanks so much for the work that you're doing and making this issue so much more known to, to teachers. I'm biased, my wife's a teacher, it's our most important profession we got out there.
Dan Otter :No, I agree. And I appreciate that. And it's, um, it's what most motivates me getting that email from the teacher who has been taken advantage of it just, it, it sparks something in me that makes me want to help to change this, this system. And I feel like we're making some progress.
Scott Bennett:Thanks to everybody who listened. I hope you found that as helpful and interesting as we did as a brief note, we are going to be taking a break this summer in terms of our recording. So for the next few months, we will not be releasing new episodes. We're gonna go back and look at the different topics and everything we want to revisit at the end of the summer. Continue to record and, and have new episodes for you here in a couple months. So if you haven't gone back and listened to all of the 3rd Decade podcast episodes thus far, this is your chance. If you've already listened to them all, um, thanks, mom. This is your chance to listen to them again.
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