There is only one thing more scary to the insurance 403(b) industry than the word Fiduciary, auto-enroll.
This is my opinion.
Back in 2012 I spoke at a Town Hall in North Carolina to announce a new statewide 403(b) program that was just passed by the state legislature (yes, North Carolina did pass one law that we can all get behind). The audience was a group of insurance companies and insurance agents and they were angry, very angry. They did not like that the state wanted to offer a fiduciary based 403(b) program for teachers and they made their displeasure known.
None of this surprised me as the 403(b) industry has always been more concerned about themselves than their clients, but what shocked me was when one agent stood up and asked the state to pledge "...not to ever allow or endorse auto-enroll". The state declined the pledge, but that moment stuck with me.
How could someone who claimed to be working to better retirement outcomes for individuals be against auto-enroll? Had they not read the research? The answer was pretty simple, it would affect the agent's bottom-line, they'd lose commissions. And so it goes with the rest of the insurance industry that serves the 403(b) community (I use the term "serve" loosely, sort of like how Bonnie and Clyde serviced banks), they are against auto-enroll because it hurts their bottom-line, even though it's better for the client.
If the industry was smart they'd support auto-enroll as it would create more potential clients, but forward thinking is not something 403(b) vendors have ever been accused of (unless it's forward thinking about the next luxury trip they'll earn for selling that indexed annuity).
Last week the industry once again revealed themselves as the bottom feeders they really are when they sent a letter to the California Senate's "Public Employment and Retirement Committee" to oppose a bill that would help smooth the way for auto-enroll in California for public employees (mind you, auto-enroll is allowed currently, but must be bargained). The bill would help to reduce liability of the employer for offering auto-enroll as long as they followed certain rules.
The industry, led by their lobbying organization the National Tax-Deferred Savings Association (NTSA, a division of the American Retirement Association (ARA)) and several big industry names (VALIC, American Fidelity, Lincoln Investments and PlanMember Services) sent the letter and then lobbied ferociously to kill the bill, succeeding on April 11th without the bill even receiving a discussion.
Stranger still is that at least one of the companies mentioned seemed to have supported auto-enroll in K-12. In January of 2015, John Kevin of VALIC posted an article titled "Public K-12 Auto Enrollment" where he argued for the feature. At the bottom of the page of that post there was however a disclosure that read:
"Statements provided herein are based solely on the opinions of the author and are being provided for general informational purposes only. No representation or warranty, express or implied, is made by the Company or its affiliates. These statements are made as of the date of this document and are subject to change without notice."
I'm assuming VALIC changed their mind, they'll need to explain themselves to the many employers out there that want auto-enroll and from whom VALIC supposedly wants business. Publicly opposing auto-enroll or the ability to auto-enroll should be an act that is punished by the markets. I think the public school employees deserve not only an explanation from VALIC, but an apology.
The NTSA is an organization that represents vendors who service the 403(b) market and though they pay lip service to representing public school employees, their actions don't support this notion. In an ironic twist the NTSA used a form of auto-enroll themselves to increase membership numbers in an attempt to look bigger than they really are.
The letter sent to the California Senate committee proved to be enough to kill the bill, at least for now.
Perhaps the committee needs to hear from the people affected and whom support the bill? Stay tuned on that front.
For now, the companies who opposed this bill should be ashamed of themselves.
Those companies are:
VALIC (an AIG company)
The lobbying organization is the National Tax-Deferred Savings Association or NTSA. Some of their partners are:
If your firm is on this list of NTSA "Strategic Partners" and you disagree with the NTSA on this, it's time to make your voice heard. I will tell you now that opposing auto-enroll legislation will not win you business long term, it will lose you business and potentially lose you business in the very short-term.
Scott Dauenhauer, CFP, MPAS, AIF