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Fees to drop for teachers' savings

School employees' tax-deferred retirement accounts have been eroded by high charges.

By Helen Huntley, Times Personal Finance Editor
Published March 2, 2008


Dozens of investment companies are about to get the boot from school districts around the state. Teachers and other school employees should be celebrating because it means they'll have more money to spend in retirement.

School employees in most Florida counties pay ridiculously high fees for their tax-deferred retirement savings plans, the 403(b) and 457 plans that are their equivalent of the corporate world's 401(k)s. The reason: relatively little oversight of a confusing market with nearly 150 companies jockeying for a share of teacher paychecks.

That's about to change thanks to a coalition of state education groups and some pressure from the IRS. Last week, the Independent Benefits Council createda model plan featuring five vendors that have agreed to charge low fees and to abide by a set of consumer-friendly business practices.

The plan offers Florida teachers the potential to save billions of dollars over many years, said Tom Herndon, a spokesman for the council and former executive director of the Florida State Board of Administration.

The council said expenses for investment options in the model plan will run about 1 to 1.5 percent of assets each year compared to typical expenses of 2.5 to 3 percent of assets under existing options. Over 30 years of regular savings, a teacher who paid fees of 1 percent would have a third more money at retirement than one who paid 2.5 percent.

The vendors selected are AIG Retirement (VALIC), American Century, AXA Equitable, PlanMember Financial Corp. and Waddell & Reed. School boards that adopt the model plan can include additional vendors, although these five vendors offer more than 600 investment options.

School boards don't contribute to the savings plans and historically have preferred a hands-off approach, said Steve Banks, chief administrative officer of TSA Consulting, which is a consultant to most Florida school districts and the council. The plans mostly have been viewed as a convenience for employees; about 130,000 contribute.

In recent years some larger school districts have taken an interest in the plans and negotiated lower fees. However, Banks said that unless a district has been through the process in the past few months, as Hillsborough has, its employees likely are paying higher fees than will be available through the model plan. In addition, smaller school districts have not had the negotiating clout to get low fees.

A major impetus for creation of the model plan was a change in IRS rules, effective next January, making districts responsible for record keeping the companies handled in the past. The five companies in the model plan will pay the school districts $12 a year for each participant to offset those administrative costs.

Teacher representatives were part of the process and say they are enthusiastic about the results.

"Management and labor can sit at the same table and work together to make a huge difference in the lives of our unsung heroes in the classroom," said Aaron Wallace, chief of staff for the Florida Education Association.

Teachers who participate in plans that lose their spot on the school board's approved list can keep those accounts, but cannot add to them after Jan. 1.

[Last modified February 29, 2008, 21:19:54]

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