Education

Savings Shock

April 01, 2001 3 min read
  • Save to favorites
  • Print

Beth Wilkinson, a reading specialist in the Oklahoma City Public School System, used to dream about the day she would retire. And at 54, Wilkinson says that day is inching closer. But now, because of a mistake she made in her 30s, she’s looking ahead to financial disaster.

Wilkinson joined a 403(b)—an investment plan for employees of public schools and certain tax-exempt organizations—25 years ago, after an insurance company targeting teachers came to her school. The company convinced her to sock away $100 a month in a tax-sheltered annuity. Then, four years ago, when she received a notice that the company managing her plan had been bought by another, she checked up on her investment. Her first discovery: The company had changed hands several times before, and she hadn’t been notified. “When I finally started asking questions, I couldn’t find anyone who knew anything that was going on,” she says.

The new company eventually dug up her original contract, and she got a second shock: The plan’s management fees—8 percent of her every dollar and an annual charge—plus the compounded interest lost on that sum over the years, wound up denying her a big chunk of money. All in all, Wilkinson has saved a measly $18,000. “Originally, I had planned on retiring in five years, but now I don’t know what I’m going to do,” she says.

Wilkinson’s situation is not unique. The idea behind a 403(b) is similar to that of the private sector’s 401(k): Workers stash away pretax income via payroll deductions for their retirements. An estimated 60 percent of public school employees invest in the plans. However, the potential downsides of 403(b)s, combined with school districts’ poor selections of financial institutions, can leave novice investors like Wilkinson with nothing more than chump change.

Most 403(b)s invest in annuity and variable annuity contracts with insurance companies, which tend to be conservative; only 15 percent invest in better- performing mutual funds. “Annuities are not inherently bad,” says Don Kuehn, a senior national representative with the American Federation of Teachers in Washington, D.C. But, he explains, the advantage of an annuity is tax deferral, which an investor already has with a 403(b). “Putting an annuity into a 403(b) is like using an umbrella indoors,” he says.

Another problem is that many 403(b)s can charge high annual dues and penalties for early withdrawal. Those that charge more reasonable rates often don’t have a shot at signing on teachers because most districts will work only with agents who sign agreements releasing them from any liability. Districts typically don’t educate teachers about investment options, says Kuehn, and agents take advantage of this. “[Many] are sharks that prey on unknowledgeable people and sell them these plans at the largest commission,” he says.

But now, a growing number of teachers are taking on the task of educating their colleagues and petitioning to improve their districts’ 403(b) plans. For example, Dan Otter, a teacher at McKinley Elementary School in Corona, California, has co-founded a 403(b)-related Web site, 403bwise. “People kept telling me I needed a [tax-sheltered annuity],” explains Otter. “But it didn’t make any sense to me. I don’t buy a car without doing my research, and I wasn’t about to do this either.”

“Our feeling is that members need advice,” says John Wendland, product manager of National Education Association Member Benefits, a separate corporation of the NEA. His group publishes a 60-page consumer guide on tax-sheltered annuities, but unions say they’re limited in what they can do. In recent years, teachers in the Chicago Public Schools and elsewhere have taken matters into their own hands and successfully lobbied their districts to offer better- performing annuities or no-fee mutual funds.

Not only teachers but districts, too, should want better plans, says Carol Calhoun, an employee-benefits attorney in Washington, D.C., who is working with several districts to make the plans more user friendly. “School districts want to attract and retain teachers,” she says. “The more options that [districts] can offer, the better off they both will be.” She adds, “Especially with all of the teacher shortages right now, [schools] should use this to their advantage.”

Michele M. Capots

Events

Classroom Technology Webinar How Pandemic Tech Is (and Is Not) Transforming K-12 Schools
The COVID-19 pandemic—and the resulting rise in virtual learning and big investments in digital learning tools— helped educators propel their technology skills to the next level. Teachers have become more adept at using learning management
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Student Well-Being Webinar
Building Teacher Capacity for Social-Emotional Learning
Set goals that support adult well-being and social-emotional learning: register today!


Content provided by Panorama
Jobs October 2021 Virtual Career Fair for Teachers and K-12 Staff
Find teaching jobs and other jobs in K-12 education at the EdWeek Top School Jobs virtual career fair.

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

Education Tiny Wrists in Cuffs: How Police Use Force Against Children
An investigation finds children as young as 6 and a disproportionate amount of Black children have been handled forcibly by police officers.
15 min read
Jhaimarion, 10, reacts as he listens to his mother, Krystal Archie talking with an Associated Press reporter in Chicago on Sept. 23, 2021. Archie’s three children were present when police, on two occasions, just 11 weeks apart, kicked open her front door and tore through their home searching for drug suspects. She’d never heard of the people they were hunting. Her oldest child, Savannah was 14 at the time; her youngest, Jhaimarion, was seven. They were ordered to get down on the floor.
Jhaimarion, 10, reacts as he listens to his mother, Krystal Archie talking with an Associated Press reporter in Chicago on Sept. 23, 2021. Archie’s three children were present when police, on two occasions, just 11 weeks apart, kicked open her front door and tore through their home searching for drug suspects. She’d never heard of the people they were hunting. Her oldest child, Savannah was 14 at the time; her youngest, Jhaimarion, was seven. They were ordered to get down on the floor.
Nam Y. Huh/AP
Education Gunman in 2018 Parkland School Massacre Pleads Guilty
A jury will decide whether Nikolas Cruz will be executed for one of the nation’s deadliest school shootings.
3 min read
Annika Dworet and her husband, Mitch Dworet, wipe away tears as their son's name is read aloud during Marjory Stoneman Douglas High School shooter Nikolas Cruz's guilty plea on all 17 counts of premeditated murder and 17 counts of attempted murder in the 2018 shootings, at the Broward County Courthouse in Fort Lauderdale, Fla. on Wednesday, Oct. 20, 2021. The Dworet's son, Nicholas Dworet, 17, was killed in the massacre.
Annika Dworet and her husband, Mitch Dworet, wipe away tears as their son's name is read aloud during Marjory Stoneman Douglas High School shooter Nikolas Cruz's guilty plea on all 17 counts of premeditated murder and 17 counts of attempted murder in the 2018 shootings, at the Broward County Courthouse in Fort Lauderdale, Fla. on Wednesday, Oct. 20, 2021. The Dworet's son, Nicholas Dworet, 17, was killed in the massacre.
Amy Beth Bennett/South Florida Sun Sentinel via AP
Education Briefly Stated: October 20, 2021
Here's a look at some recent Education Week articles you may have missed.
8 min read
Education Gunman in Parkland School Massacre to Plead Guilty
The gunman who killed 14 students and three staff members at a Florida high school will plead guilty to their murders, his attorneys said.
4 min read
Parkland school shooter Nikolas Cruz is sworn in before pleading guilty, Friday, Oct. 15, 2021, at the Broward County Courthouse in Fort Lauderdale, Fla., on all four criminal counts stemming from his attack on a Broward County jail guard in November 2018, Cruz's lawyers said Friday that he plans to plead guilty to the 2018 massacre at a Parkland high school.
Parkland school shooter Nikolas Cruz is sworn in before pleading guilty, Friday, Oct. 15, 2021, at the Broward County Courthouse in Fort Lauderdale, Fla., on all four criminal counts stemming from his attack on a Broward County jail guard in November 2018, Cruz's lawyers said Friday that he plans to plead guilty to the 2018 massacre at a Parkland high school.
Amy Beth Bennett/South Florida Sun Sentinel via AP