Debunking the Lies that 403(b) Advisors Tell About the PERA 401(k)

 

PERA has an excellent 401(k).  Colorado is only one of a handful of states that gives teachers access to a 401(k).  Most teachers, in other states, are stuck with lousy 403(b)s.  Why do Colorado teachers have access to a 401(k)?  It’s due to the forward-thinking people at Colorado PERA—they created the plan and made it available to teachers!  Due to the large number of members, Colorado PERA can offer the 401(k) with some of the lowest fees in the nation!  403(b) salesmen know it’s an excellent deal, so they have to make up lies to make their lousy offering look better.  I’ve listened to enough of their sale pitches to know the routine.  Here’s what they say, and why it isn’t true.

1) The 401(k) is managed by Voya and Voya is a lousy company.  Not true.  The 401(k) is managed by Colorado PERA—I might add that it is VERY well managed!  Voya is only the record keeper.  Colorado PERA selected Voya to be the record keeping company because they gave PERA the lowest bid.  If your 403(b) salesman starts trash talking Voya, tell them Voya is only the record keeper and that PERA does an excellent job of managing the 401(k) as demonstrated by the rock bottom fees.  NOTE: Soon, Empower will take over as the record keeper for the PERA 401(k).

2) There are not very many choices.  Not true.  PERA offers a menu of 7 broad index funds (U.S. Large Cap, etc.) and 10 target date funds.  While this lineup may be smaller than the 403(b) lineup, it is done on purpose to prevent analysis paralysis.  Simply put, too many choices can cause people not to invest at all, and this is actually one of the techniques used by 403(b) salesmen.  That is, “This is too complicated and you need ME to decide for you.”  In the case of investing, having less choices, with low fees, is superior to thousands of options with high fees.  In addition to the 17 choices provided by PERA, experienced investors can select ANY fund they desire by using the direct invest option through TD Ameritrade.  This isn’t necessary, but be prepared to share this information with your 403(b) salesman to stop them from lying to you.

3) My fee is very small.  Not true.  Using a 403(b) salesman, is going to cost you a lot, especially over a 30 year period!  Investing 15% of your salary with a 403(b) salesman could easily cost you a quarter of a million dollars, with no guarantee that they will do any better than a simple target date fund.  Besides that, they may get you into to other high fee products, like actively managed 529s, Roth IRAs with high expense ratios, and even whole life insurance.  Teachers do NOT make enough money to fork over 25% of their earnings to a salesman!  While one or two percent may sound small, those compounding fees, over a 30 year period are going to add up!  Keep that money in your pocket instead of handing it over to a salesman.

4) You are not smart enough to do this.  Not true.  You just need to fill out a salary deduction form, mark PERA401(k) on the form, and indicate how much to direct to them each month.  That’s it!  You don’t need to do anything else!  Colorado PERA will put you into the Target Date Fund that matches your approximate retirement date.  You don’t need to do anything else, period!  However, if you would like to select a different fund, which is not necessary, you can log into the PERA website and select which ever funds you prefer.  Voya even comes with a free digital advisor that will recommend which funds to use and which percentages.  If you educate yourself by reading a book such as, “The Simple Path to Wealth,” you may decide to select a different fund that fits your risk tolerance.

5) You need a financial advisor.  Not true, at least not a 403(b) financial advisor.  As previously mentioned, you can simply use the Target Date Fund that PERA automatically enrolls you into.  This is like using your very own high priced financial advisor without the fees.  The professionals that assemble target date funds are the best of the best.  They likely have PhDs in economics from the best universities in the nation.  Most of the financial advisors, in your staff lounges, have been coached just enough to pass the series 7 exam.  Beyond that, there are no education requirements to be a financial advisor.  Most are trained to parrot the talking points of whatever company they work for.  They have no fiduciary responsibility to you.  They are only required to apply the “suitability” standard, which is basically a joke.  If you need a real person to talk to, you can use an hourly/flat fee advisor from the XYPN network.  Instead of slowly siphoning money off your retirement investments for the rest of your life, they will work with you to create a plan, for a flat fee, which could save you hundreds of thousands of dollars over the course of your life, especially since they won’t get you into terrible whole life insurance products and other unnecessary products. 

6) I’m a nice guy.  Not true.  Would you consider someone who is willing to funnel 200k+ from your retirement a nice guy?  They may give you free food and compliments.  Most are masters at small talk and making you feel good.  They have more misleading, glossy brochures than they can fit in their brief cases!  Your uninformed teacher friends may have even recommended them to you.  This is the last reason you should go with them! 

7) The annuity feature protects your money.  Largely not true.  The annuity that comes with your 403(b) is largely useless.  It has been compared to buying an umbrella that you only plan to use indoors.  It’s so bad, that even the SEC recommends the buyer beware.  If you need the type of protection offered by a variable annuity, you can get it elsewhere for a much lower cost. 

The next time a 403(b) salesman begins to trash talk PERA 401(k), be prepared to share these facts with them, and politely say, “No thank you.”

Nothing presented is to be construed as investment advice. Investment advice can be secured from a vetted Certified Financial Planner (CFP®).When working with a CFP®, it is recommended that s/he sign a Fiduciary Pledge. More information, including questions to ask a planner and a downloadable Fiduciary Pledge, can be found here: https://403bwise.org/education/professional