April 20, 2005
Teachers, check up on your retirement plan immediately. The latest Forbes reveals that big insurance companies are peddling bad retirement plans to teachers - often with their unions' support. These variable annuity plans - mutual funds wrapped into a life insurance policy - feature exorbitant fees and low historic returns, yet have managed to get 1.5 million teachers as investors with a total of $120 billion in funds. How are they doing it? Insurers cut million-dollar deals with unions to gain union endorsement and exclusive access to union members. According to Forbes, the NEA took in $3 million annually from the insurer Nationwide through 2000 - then put its contract on the market. One company, Great-West Life, had a great bid: no variable annuity, low 0.15 percent annual fees, and no surrender charges. But Great-West refused to buy off the NEA for its endorsement. Thus, the NEA now exclusively endorses Security Benefit's "NEA Valuebuilder," which features 5.6 percent annual fees, a "mortality and expense risk" charge of up to 0.9 percent, and a whopping 7 percent cancellation fee if you quit in the first year. Daniel Puplava, a former NEA Valuebuilder salesman, describes the life thusly: "When I did work at the union, I had to pay for tables, provide door prizes, and dine labor people to market in their territory. . . . I felt like a whore." Strong words from an insurance salesman.
"Costly lesson," by Neil Weinberg, Forbes, April 25, 2005