Public Sacrifice: Spreading the Gospel of Better Retirement Plans

2016-11-03 17:52:15

 

Public Sacrifice: Spreading the Gospel of Better Retirement Plans

There are untold numbers of crusading Roman Catholics in the annals of world history, but there probably has never been one quite like Mary Brunson.

Her cause is the tens of thousands of diocese employees who are saving money in workplace retirement plans. That issue may not have attracted a lot of attention, but it is a serious problem nonetheless. That is because many of the plans not only cost too much, they also invest in companies that do not align with the church’s values.

Ms. Brunson spends her days tracking down local church officials, one by one, trying to persuade them to do things differently.

It’s an uphill struggle, and it is one that is shared by any nonprofit shopping the market for 403(b)’s, the 401(k)-like retirement plan that nonprofits usually adopt. Insurance companies that have traditionally sold the plans often try to include complex savings vehicles with unclear terms. Harried executives of short-staffed charities or religious organizations often do not have the time or expertise to pick the details apart.

For an organization that has no retirement plan but wants to add one, moreover, the diverted staff time and cost can affect whether, say, more clients learn to read. “Every dollar we spend towards administration, we don’t spend on programs,” said Meg Poag, executive director of the Literacy Coalition of Central Texas in Austin.

Given the difficulties, many smaller organizations simply throw up their hands and let their employees fend for themselves with individual retirement accounts at whatever brokerage firm they can find. But nonprofit workers, who are already underpaid, may put themselves at severe financial risk by not saving for retirement at all if they don’t have an easy option to do so at work.

“Other directors and I have had the conversation where we talk about the irony that some of our own employees may need our services,” said Ms. Poag, who did manage to add a 403(b) plan recently. “It’s an irony that is painful.”

Not all nonprofits face this challenge. Universities and hospitals have full-time human resources staff to select and monitor 403(b) plans. Public schoolteachers have 403(b)’s too, even if many of them are of questionable quality and unquestionable complexity.

Employees and leaders of smaller nonprofits, however, are left to fend for themselves, and they muddle through in a variety of ways.

Some of them are fortunate to happen across investment advisers like Ms. Brunson. About a decade ago, she was a stay-at-home mom with a side job ghostwriting financial newsletters for investment advisers.

Unlike advisers promising to deliver outsize results by chasing one hot stock after another, she was so convinced by the cheaper, more measured approach that Dimensional Fund Advisors uses that she went to work full time for an adviser who used those funds. There, she vowed to spread the gospel of rational, low-cost investing to as many Catholic dioceses and their 403(b) plans as she could.

What she found when she started smiling and dialing, and eventually offering up advice in her book, “Tending the Flock,” was a real hodgepodge. Every diocese around the country was making its own decisions about what sort of retirement plans to offer. Some of the insurance companies providing the plans were locking people’s money away for years before allowing them to switch. A few of the plans she saw had remained unchanged for decades, with money parked in mutual funds that had been hot for a moment in the 1990s.

“There was not a lot of effort, not a lot of energy and not a lot of oversight,” said Tom Burnham, director of human resources for the Orange County diocese in California, a former pharmaceutical executive who came out of retirement to help it straighten things out. “There were way too many choices, the costs were too high and the investment choices were not aligned around any Catholic values.”

He worked with Ms. Brunson, becoming one of 11 dioceses so far that have done so. She had helped persuade Dimensional to expand its offering of funds to satisfy those like Mr. Burnham who wanted their dollars aligned with their religious principles. In practice, this meant avoiding investments in the manufacturers of military weapons, companies in the pornography business and others that have anything to do with abortion or contraceptives.

The Orange County diocese moved to its new plan in September, lowering its costs from about $1.30 for every $100 in the plan to about 60 cents.

Kristen Gartman Rogers, a lawyer with a nonprofit law firm, took more of a blunt force approach, though it took her half a decade to ultimately succeed. A frequent reader of the Bogleheads online forum, where fans of index funds and low-cost investing hang out, she realized that she had no idea what she and her colleagues were paying for their 403(b) plan. “I could not see what our fees were,” she said. “It was completely impenetrable.”

A colleague had made the same observation, and their boss supported their efforts to try to make a change. But they spend their days representing low-income clients for the Southern District of Alabama Federal Defenders, work that can eat every available hour and still leave lawyers feeling guilty for not doing more. Nevertheless, Ms. Gartman Rogers said she spent hundreds of hours, sporadically, over about five years, mining Google for fresh ideas and reading 403bwise.com, which helps demystify the plans.

The turning point came when her board realized that they might have personal liability for maintaining a subpar plan. The organization turned to Bert Carmody, an Atlanta accountant and investment adviser who has developed a specialty in extracting nonprofits from problematic 403(b) plans and the insurance companies that maintain them.

Eventually, Ms. Gartman Rogers and her colleagues were able to switch to a plan with a lineup of basic index funds; they pay Mr. Carmody a flat fee to handle a variety of administrative tasks. “This is what’s supposed to be going on,” Mr. Carmody said. “I go down there now and we’re having a party.”

While many nonprofits never consider starting a 401(k) plan or switching to one from a 403(b), a growing number are beginning to do so. One reason for the move is a desire among growing nonprofits to attract workers from the for-profit sector, where 401(k) plans reign.

Lisa Kenney, the executive director of Gender Spectrum, an education and research organization, had a more basic reason for starting a 401(k) plan: It seemed obvious to her that insurance companies and other big 403(b) providers couldn’t be bothered with the likes of her small operation.

“If you’re a small nonprofit with very few assets, nobody really cares,” she said. “You can often tell by their websites if they have any interest in you, and it was clear they weren’t looking at brand-new plans.”

Instead, she turned to ForUsAll, one of a handful of start-up firms pitching 401(k) plans that involve little trouble and upkeep, dead-simple index fund menus and modest administrative fees.

In Austin, Texas, 22 nonprofits have spent the last few years banding together to create the kind of negotiating leverage they lacked on their own. They originally came together in search of a better health insurance plan. But insurers wanted them tied together in other ways, too, so that it would be harder for the coalition to break up later, which could cause the insurance companies to lose business.

So the group decided to shop for a joint 403(b) plan, too, a task that fell to Aaron Pottichen, president of retirement services for CLS Partners in Austin. His requests for proposals for the multiemployer coalition’s plan caused many providers to scratch their heads and turn the business away because it seemed too complex or they did not have the right systems set up to service them.

It got messier before it got easier. A lawyer working on plan documents for the group disappeared with some of its money, which led Mr. Pottichen to show up at her home to try to get it back. “It was one of the houses where you can’t tell if anyone lives there at all, with all the shades down,” he said.

He also reviewed the 403(b) plans of the nonprofits that had them. People who worked there were not sure how they had ended up with their incumbent providers, some of whom had sold them high-cost annuities. But he was pretty sure he knew why the insurance companies were interested in their business in the first place.

“They’re only selling to the nonprofits to get to the board members and get their money,” he said. “The salesmen use the retirement plans as a prospecting tool.”

The new joint plan will be mostly index and similar funds, and overall costs will have dropped by over one-third, with Mr. Pottichen’s firm collecting a continuing fee for its work. Newly emboldened, he now hopes that others will be inspired to dig deep on the details and move their 403(b) plans from the likes of Mutual of America, Axa and other insurance companies if necessary.

“I can only imagine,” he said, “how many annuity professionals would be at my door waiting to burn my house down.”

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