Andrew Katz-Moses: DCPS retirement plans are costing educators millions. We can fix it.

Published in DCLine, April 9, 2019

The teachers and staff at DC public schools work hard every day for students, families and the future of the District. While they spend their careers putting others first, their retirement plan providers make millions through unnecessary fees and predatory sales tactics. Our educators deserve better, and the school system has the power to fix it.

Imagine you’re a new teacher in DC Public Schools (DCPS). Your to-do list is miles long: Build relationships with your students, plan lessons, grade assignments, make sure you arrive to your lunch duty post on time …

Now imagine you get the following email (Note: This is a real email sent to a new employee in August.): 

Good afternoon [New Teacher Name],

I hope this email finds you well. I want to take a moment to congratulate you on your new teacher position with DCPS! My name is [removed] and I work with AXA Advisors as a financial advisor and retirement planner contracted through DCPS. It is my job to meet with DCPS employees to explain their retirement benefits or review existing benefits. This would include the DCPS 401(a) plan, 457(b) plan, the tax deferred 403(b) plan, and the DC teachers’ pension plan. Additionally, I help facilitate the process of consolidating old employer retirement accounts to DCPS. I don’t believe we have had the opportunity to meet yet and I would welcome the opportunity for a formal introduction. Please let me know if you have availability in the next couple weeks, thank you!

If you’re like thousands of DCPS employees, your reaction might be: “401 what?” or “Teacher pension plan who?” and then, “Well, I know I’m supposed to save for retirement and I don’t have any time to research this but … if he’s with DCPS I’m sure it’s fine!”

Oops! You just made a $200,000 mistake. Here’s what the email doesn’t mention:

  • The person sending it doesn’t work for DCPS.
  • He’s a salesperson who makes commissions selling his company’s products. He works for that company, not as a fiduciary focused on your best interests.
  • His company is one of eight retirement savings providers available to DCPS employees. If you sign up with him or another 403(b) provider, you’ll pay up to 20 times more in fees than you would with a lower-cost alternative — on average, about 2 percentage points more each year.
  • If you consolidate or roll over your accounts to his company as he recommends, your money will now be subject to a “surrender fee.” That means if you want to roll it over later, you’ll be forced to pay a fee of up to 10 percent of your account balance!

So what does this mean over the course of a career?

Simply put: A teacher who chooses the wrong plan will lose hundreds of thousands of dollars in investment returns to fees.

Account balances over time for two teachers, each contributing $200 per paycheck to retirement. One uses a high-fee plan and one uses a lower-fee alternative charging 2 percentage points less per year.

Unfortunately, the pushy sales pitch for overpriced plans is everywhere in DCPS. On any given school day, sales reps approach teachers during their planning periods or set up in work rooms with a sandwich platter and colorful graphs to sell their plans. Earlier this year I was meeting with a school staff member when a salesperson walked into her office to interrupt and say, “I’ve been assigned to you to help explain your retirement benefits. Have you started saving for retirement yet?”

When I share this information with employees who enrolled in a plan not knowing how much it would cost, the responses are always the same. “Why doesn’t DCPS share fee information?” “Why do they let predatory providers sell products to us in the first place?” “What can we do to fix it?”

In the short term, there are two easy solutions. First, DCPS should publish all fee information online as well as anywhere retirement plan information is shared. This should include a simple breakdown of annual fees, expense ratios, surrender fees and any other fees providers charge annually or on a one-time basis. Second, this information and financial planning support should be offered during the onboarding process for all new DCPS employees and as an ongoing resource for veteran employees.

In the longer term, DCPS should decide it is unacceptable for its employees to be ripped off by District-endorsed retirement plans. School system officials should immediately begin consolidating the seven existing high-fee 403(b) plan offerings into one low-cost offering. The state of North Carolina grappled with a similar issue in 2014 and now offers one low-fee option to all teachers in the state.

If DCPS is truly a national leader in innovation and teacher compensation, it should show its employees they are appreciated and protected for the future. Providing retirement plans that work for educators and not for private corporations would be a great start.

Andrew Katz-Moses is a former teacher and DC Public Schools employee who, after four years working for the District, is raising awareness about educator retirement options and advocating for better plan offerings for DCPS employees. He also runs a financial coaching practice serving DC educator clients. For further reading, take a look at The New York Times’ series “Think Your Retirement Plan Is Bad? Talk to a Teacher.” He can be reached at katzmoses@gmail.com.