Monday, January 6, 2020

No. 347: 403(b) Retirement Plans for Teachers: An Investigation by the New York Department of Financial Services

The Journal Articles
On October 2, 2019, The Wall Street Journal (Journal) carried online an 816-word article entitled "New York State Officials Open Probe on 403(b) Sales to Teachers; Officials concerned about annuity fees and disclosures to teachers." The reporters were Leslie Scism and Anne Tergesen. Here are the first two sentences:
New York Department of Financial Services Superintendent Linda Lacewell wants to ensure teachers are properly informed about the costs of so-called 403(b) retirement-savings programs. New York's top financial-services watchdog on Tuesday dispatched letters to a dozen major insurers seeking details on how they market retirement-income products to teachers, opening a probe of industry practices, according to people familiar with the matter.
On November 16, the Journal carried a 454-word article entitled "SEC Chairman Warns on Teacher Retirement Plans." The reporter was Dave Michaels. Here are the first two sentences:
A sweeping federal enforcement initiative aimed at sales practices related to retirement savings for teachers began after town halls across the country where the nation's top securities regulator heard things that worried him. Securities and Exchange Commission (SEC) Chairman Jay Clayton said Thursday that interactions with everyday investors convinced him teachers and other government workers were especially vulnerable to biased financial advice.
On December 11, the Journal carried a 1,318-word article entitled "Costly Plans Dent Teachers' Nest Eggs." The reporters were Gretchen Morgenson and Tergensen. Here are the first two sentences:
Hidden financial ties exist between some administrators hired by school districts for their teacher retirement plans and the companies whose investment products those administrators promote, The Wall Street Journal found. The ties can encourage administrators to promote higher-fee investments that leave teachers with smaller nest eggs than they might otherwise have had.
On December 19, the Journal carried a 1,912-word front-page article entitled "Unions' Tactics Hurt Teachers' Nest Eggs—They get paid to endorse providers of investments, including ones with high fees." The reporters were Tergensen and Morgenson. Here are the first three sentences:
The pitch from the president of the Indian River County teachers union couldn't have been clearer. Liz Cannon, who heads the Indian River chapter of the Florida Education Association, urged union members to buy retirement investments from Valic Financial Advisors Inc. through a firm owned by the union. That way "we also make money," she said in a November 2017 newsletter, through regular dividends. What Ms. Cannon didn't mention was that investments from Valic, a unit of giant insurance company American International Group Inc., can carry high costs that may translate to a smaller nest egg when teachers retire.
My FOIL Request
On November 5, I submitted to the New York State Department of Financial Services (NYDFS) a request pursuant to the New York State Freedom of Information Law (FOIL). I asked for a sample copy of the request letter that NYDFS had sent to the insurance companies.  On December 12, the agency said that it
requires additional time to respond to your request because the potentially responsive records contain highly sensitive information and require specialized review. DFS will endeavor to make its determination of your FOIL request by February 7, 2020. We appreciate your continued patience. Thank you.
The NYDFS Requests
Instead of waiting until February, I made other efforts to learn about the NYDFS requests. I learned the letters went to several major insurers by email in early October on the subject of "Request for a Special Report Pursuant to New York Insurance Law §308." NYDFS asked the companies for the production of information and supporting documentation in connection with its inquiry into annuity contracts offered through 403(b) retirement plans in New York State or to New York residents. NYDFS directed the companies to provide the information and the documents within three weeks.

The NYDFS request letters consisted of 15 numbered points. They are in the complimentary package offered at the end of this post.

My Second FOIL Request
On December 20, because the companies' responses apparently had already been received, I submitted to NYDFS a second FOIL request asking for the responses. On December 23, NYDFS denied my second FOIL request. The denial letter is in the complimentary package offered at the end of this post. I do not plan to appeal the denial of my second FOIL request. I still await a response to my first FOIL request.

General Observations
The NYDFS requests for information from the companies were so extensive that I think the companies must have been under severe pressure to respond in only three weeks. Also, it is my understanding that buyers and owners of 403(b) retirement plans do not enjoy the protections afforded by the Employee Retirement Income Security Act of 1974. If that is the case, the NYDFS and SEC investigations would assume special importance. I hope those agencies will make the results of their investigations available to the public as soon as possible.

Available Material
I am offering a complimentary 5-page PDF consisting of the 15 numbered points in the NYDFS requests to the companies (4 pages) and the NYDFS letter denying my second FOIL request (1 page). Email and ask for the January 2020 package about the NYDFS investigation of 403(b) retirement plans for teachers.