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Help, My Public School Employer Won't Offer NEA Direct Invest
They offer Security Benefit, but not Direct Invest
The overwhelming majority of public school employees do not have access to low-cost, high-quality products for their 403(b) retirement plan. Many don’t realize they have a hidden gem available to them. (See this article on hidden gems Secret Low-Cost Provider).
I’m not a fan of Security Benefit, a company that, in my opinion, sells high-cost products, but they do offer one option that is quite good.
The National Education Association (NEA) has long partnered with Security Benefit to push high-cost financial products. While I am pro-union, and my wife is a member of the NEA, this apparent blind spot continues to hurt educators across the country.
Technically, the NEA Member Benefits Corporation (NEAMB) operates the 403(b) program. NEA Member Benefits is a for-profit subsidiary of the NEA and, in my opinion, doesn’t always pursue partnerships that are in the member’s best interest. That’s another story.
It’s not all bad news. Most school employees don’t know that the NEAMB developed a low-cost product with Security Benefit in the mid-2000s.
The product is called NEA Direct Invest, and while few have ever heard about it, it’s a very reasonable product.
You are unlikely to hear about this program from your local NEA/Security Benefit Registered Representative because they can’t make money selling it. The NEA Member Benefit’s department has assured me that if Security Benefit is a vendor on your school employer’s approved provider list, you have access to the NEA Direct Invest product.
There’s just one problem, several school employers are blocking access to the NEA Direct Invest product, despite Security Benefit being an approved vendor. This is not the fault of the NEA; it’s usually a misunderstanding with the school employer.
In most cases, the school district is not purposefully being difficult. They honestly believe something that likely isn’t true. When they become informed, they often change their mind and allow the NEA Direct Invest 403(b) product.
What should you do if your school district offers Security Benefit but not Direct Invest?
First, you need to determine the reason the product is not allowed.
Most school employers allow all 403(b) products of vendors. It’s an exceptional situation when a district actively disallows a specific product. Once an employer adds a vendor, they don’t usually care which product your money goes into (as long as it meets 403(b)) requirements).
The reasons I’ve heard for restricting access are:
1. We require an advisor on every account
A school employer refused to offer Direct Invest in one situation due to the lack of an advisor connected to the account. They required, without explanation, an advisor for any 403(b) product. The IRS has no rule or regulation that requires an advisor to be connected to a 403(b). There is no special fiduciary exemption the employer receives by having an advisor connected to the account (quite the opposite). The irony is that Security Benefit doesn’t employ any advisors, at least in the technical sense. Security Benefit contracts with Registered Representatives who may or may not also be registered as Investment Advisor Representatives (IAR). Even if the rep is an IAR, they are likely prohibited from acting in that capacity when representing the Security Benefit products. So the employer, in this case, was violating its unwritten policy.
It’s a challenging situation if this is the reasoning. One approach is to ask the district to define the policy in writing, explicitly describing what the term advisor means and the reasons for such a requirement. Suppose the purpose is to relieve the district of an administrative burden. In that case, you are unlikely to make progress (though suggesting a competent third-party compliance administrator might be a good idea). Suppose the reasoning is to protect the employee from unscrupulous sales practices. In that case, the employer might realize they’re doing the opposite. Few of their employees are working with a fiduciary. The employer could require all advisors to act in a fiduciary capacity when recommending a 403(b) to the employee.
2. The Security Benefit representative appointed to our school employer says we can’t
This is the most common complaint I’ve heard or read about in message forums. Some representatives have close ties to the school employer, the local union, and the compliance administrator. The reps use those connections to mislead. Often, the Security benefit representative has the relationships they have because of their ties to the NEA Retirement Program. Using this connection to deny employees the right to the NEA Direct Invest product, they abuse their power.
Unfortunately, suppose the rep is so close to the employer that the district takes the representative’s word over yours. In that case, you are going to have issues. Telling your employer that the rep is taking advantage of their position won’t likely win you.
Suppose your employer is willing to make a call to NEA Member Benefits. In that case, they will find that Direct Invest was always intended to be offered alongside the other options. Member Benefits can be reached at 1-800-637-4636.
3. It’s an administrative burden
While I can understand the objection here, there isn’t an additional administrative burden on the school district. They have already approved Security Benefit as the provider. They do not need to do anything different when processing your contribution to NEA Direct Invest than they do with any other Security Benefit product. If they can send money to Security Benefit, they can offer NEA Direct Invest.
This objection is rare. Selling financial products is an obvious conflict. Some smaller compliance administrator firms make their money by selling products for fees and commissions. They restrict vendors based on whether they can get paid from the vendor. If this is your issue, you have to convince the school district of the conflict and hope they can use their leverage with the compliance administrator to force the change.
5. Misunderstanding of how vendors are approved (usually the vendor, not the product)
Traditionally, it’s the vendors that get approved, not the vendor’s products. The IRS cares about both.
Every product that 403(b) money flows into must meet specific regulatory requirements. Often, the compliance administrator will not verify each product is qualified; they will make the vendor sign an agreement stating such.
Once Security Benefit becomes an approved vendor, there is no reason to restrict money going to any Security Benefit product that is IRS qualified. The NEA Direct Invest is an IRS eligible product. It’s literally the only Security Benefit product with a reasonable fee structure (in my professional opinion). If the school employer prohibits which products 403(b) contributions should go to, it’s not the Direct Invest option that should be restricted.
I realize this is not necessarily an argument. Still, Direct Invest is an eligible 403(b) option; not offering access to it when offering access to other Security Benefit products is bordering on the cruel. It’s compliant, available, doesn’t add to costs or administrative burdens, and is likely the only reasonably priced option available.
6. There is no fiduciary on the NEA Direct Invest product
One objection I’ve encountered is that allowing participants to invest in the NEA Direct Invest will increase the school district’s liability. This is not true. If anything, the school district increases its liability by NOT offering Direct Invest.
Suppose a school employer restricts access to certain vendors they are taking an active role in the 403(b) program. In that case, this may mean they could be held liable for the outcomes (this is dependent on state law). High-cost products are cannon fodder for plaintiffs’ attorneys. Even if we haven’t seen high-fee lawsuits come to school districts yet, it’s not impossible to imagine they could. When an attorney realizes that the school employer actively restricted access to a low-cost vendor in favor of a high-cost vendor, the plaintiff’s attorney might have a case.
The school district should also understand the representatives are not acting in a fiduciary capacity at all times (sometimes ever) when distributing Security Benefit products. In fact, the NEA Retirement Specialists contracted by Security Benefit are only allowed to offer Security Benefit products. Restricting what a representative can sell to a single company precludes that “advisor” from being a full-time fiduciary to participants.
“NEA Retirement Specialists, when making recommendations to an NEA member, offer only Security Benefit products.” (NEA Member Benefits website on 1/18/2022 https://www.nearetirementprogram.com/nearep)
7. No employees have expressed interest, so we don’t offer it
I’ve heard this objection a few times. When I’ve spoken to employers with this objection, I ask them what additional time and resources would it take to offer it anyway? Since Security Benefit is already a vendor, the answer is always none. It costs the school employer nothing to add the product. At worst, it’s a phone call or an email, but that takes less time than responding to the employee begging for Direct Invest to be added. Usually, the light goes on at this point.
Often, the employer will spend more time and resources fighting to add the Direct Invest product than if they just added it. It shouldn’t matter that only one person is asking for it. By making it available, others might use it in the future, and since it costs nothing, the district has nothing to lose.
If you are a district reading this, add Direct Invest and get on with your day! You have an essential job; this shouldn’t take up your time. It’s a quality product, and it’s already available from the vendor, give the green light and move on! Be a hero for an employee.
If All Else Fails
Suppose the reason you are denied access to the NEA Direct Invest product is listed above. In that case, hopefully, you’ll be able to demonstrate why your employer should change their mind. Often times it’s not enough, so here are some additional ideas.
First, explore and use the resources available at 403bwise.org/advocacy.
Provide a chart from 403bwise.org demonstrating the potential for much lower account balances over time if you are forced to contribute to higher-cost vendors. https://403bwise.org/education#fee-impact
The adage “you catch more flies with honey than vinegar” applies here. Do your best to be polite and provide factual, objective information about why this option should be made available to you. But first, you need to understand why you’re being denied access. Ask the people in charge of the plan to explain to you the reason(s) you are being denied access to a product that is available from an approved vendor.
Provide news articles from the New York Times and other sources (under the Must-Read 403(b) Articles in the Advocacy section of 403bwise.org).
Ask your union or association to get involved in the situation. You may need to educate them as well.
Have a joint conference call with Security Benefit or NEA Member Benefits (not the Security Benefit representative) and the school employer. My experience with both is that they will confirm that if Security Benefit has a payroll slot, they are required by their agreement with NEA Member Benefits to offer the NEA Direct Invest product. I am not saying the school employer is required to offer NEA Direct Invest, simply that Security Benefit can’t deny you access if your employer decides it’s allowed.
Talk to the compliance administrator (usually a third party) and ask them to help explain that it is standard industry practice to allow NEA Direct Invest with the Security Benefit payroll slot.
If you have a relationship with any of the leaders of your employer, present your case to them and see if you can enlist their help.
If all of the above fails, your last option is to go to the board. This is the nuclear option and one that I would hope you could avoid. Believe it or not, this move can work. I once stopped a $600,000 contract by taking my concerns to the board of a large school district. I wasn’t even an employee of the school employer, and they listened to me. It would be best if you were factual, polite, and earnest. My hope is you never end up at this point. As an employee, taking an issue to the board is a last resort. If you take the issue to the board, do not disparage the employees who said no to you along the way.
It’s entirely possible and even likely that nothing in this blog post will work for you. Some school employers simply won’t budge. Don’t give up. It might take time, but persistence is vital. It took nearly two years for one of our Facebook members to get the district to change its mind. They were kind, patient and provided educational resources. It wasn’t easy, but the employer eventually relented and allowed the NEA Direct Invest as an option. It’s the only low-cost 403(b) option in that district. Keep the faith; good things happen to those who persist.