Billions at Stake as Coalition of Educators and Administrators Shakes Up the 403 Retirement Marketplace

Business Wire, April 10, 2008

Other States Eye Model Plan as Deadline for Compliance with New IRS Regulations Nears

TALLAHASSEE, Fla. -- Billions of dollars may be at stake for the 90 or more investment companies that currently offer tax-sheltered 403(b) accounts to Florida educators, as a first-of-its-kind "preferred provider" program nears adoption in Florida's 67 school districts.

The program is sending shockwaves through the investment marketplace, as school districts across the nation struggle to meet new IRS regulations that take effect next January 1. These new regulations not only require significantly greater oversight and monitoring by the districts, but invalidate all current plans not in compliance with the new regulations. The change potentially affects more than 1 million Florida educators and their families.

"It shouldn't come as any surprise that Florida is the incubator for a change of this magnitude," said Wayne Blanton, Executive Director of the Florida School Boards Association. "A plan of this caliber has been a long time coming for school employees. We've got the best vendors offering the best products at the best prices. In terms of shaking up the marketplace, on a scale of 1 to 10, I'd rank this a much-needed 11."

Dubbed the "Model Plan," the five investment companies selected by the state's "Big Four" education associations -- the Florida Education Association, the Florida School Boards Association, the Florida Association of District School Superintendents and the Florida Association of School Administrators - were vetted by two independent consulting firms, the association representatives and a group of school district risk managers.

The state's K-12 teachers and education staff professionals (ESPs) currently contribute about $380 million annually to their 403(b) retirement accounts. The balance in these accounts is said to be in the billions of dollars in Florida alone. District employees will not be permitted to make any new contributions to unauthorized plans after the January 1 deadline.

"Educators, and the school districts themselves, are sometimes overwhelmed by the sheer number of investment plans they have available to them and may not necessarily have the time or resources to discern which offer the best value," said Blanton. "The new IRS regulations present a golden opportunity for school districts to approach investment plans with a simpler, more cost-effective process that offers the highest quality investment plans."

Florida's education associations were among the first in the nation to recognize the impact of the pending regulations. Coming together under the umbrella of the Independent Benefits Council (IBC), the associations set an ambitious agenda:

* Development of a Model Plan that would meet the IRS requirements and decrease or eliminate the cost of compliance to local school boards.

* Begin with a clean slate and select a handful of "Best in Class" investment companies that would be authorized to offer products to local school districts.

* Negotiate favorable rates for teachers and ESPs, who have been paying markedly higher fees than other professionals.

* Ensure that the plans offered to teachers would offer a wide range of investment options.

The school boards in Dade, Broward and Palm Beach counties soon will be deciding whether to adopt the Model Plan, to amend and adopt the Model Plan, or to go it alone. A great deal is at stake for educators, as the Model Plan is predicted to put billions of dollars into their investment accounts over the next 20-30 years that otherwise would have been paid in vendor fees.

While some of the larger districts may have had the clout to negotiate lower rates than smaller districts, no existing plan in any of Florida's 67 districts offers teachers and ESPs anything comparable to the Model Plan.

All five of the Best in Class vendors, which include AIG Retirement, AXA, PlanMember Financial Corporation, American Century Investments, and Waddell & Reed, have signed Letters of Commitment, which adopting school districts can rely on and reference in executing individual agreements with Model Plan vendors. Commitments include:

* Providing the best plan available in Florida K-12.

* Upgrading all existing contracts to newer, enhanced products.

* Selling only the products they bid under the Model Plan (no bait and switch).

* Reduced fees to all adopting school districts as statewide plan assets grow.

* Guaranteed rates for three years.

Additionally, the Best in Class vendors demonstrated the ability to provide superior performance in the following categories: plan conversion and implementation, administrative services, account administration services, investment options, participant services and expense charges. They also were evaluated on company experience. During the evaluation process, each of the Best in Class vendors provided full fee disclosure broken down by proposed investment and were scored on their average total expense ratios.

"This is the first time in the nation that a plan this comprehensive and with such outstanding terms will be offered to educators," said Tom Herndon, IBC spokesperson and former Executive Director of the State Board of Administration. "More of educators' dollars - perhaps billions more in Florida, alone - will be available to them when they retire."