The nation’s largest teachers union has been promoting high-fee retirement plans to its members that have underperformed, teachers and experts tell The Lever. The products are sold by a private equity-owned insurance company accused of fraud and mismanagement — and as part of the arrangement, the union’s benefit arm gets millions from the firm.
Since 2000, the 3 million-member National Education Association (NEA) has been sponsoring supplemental retirement plans run by Security Benefit Life Insurance Company. According to the union’s benefit arm, a separate nonprofit called NEA Member Benefits, there are more than 71,000 participants in the retirement programs, with approximately $3 billion in assets being managed by Security Benefit.
NEA Member Benefits is paid $3.8 million annually for the arrangement, which the nonprofit admits in government filings “creates a potential conflict of interest.” In fiscal year 2022-2023, roughly $150,000 was doled out to state NEA chapters participating in select retirement programs, regulatory filings show.
Security Benefit, a major retirement plan company owned by the private equity firm Eldridge Industries, is currently facing allegations of racketeering and fraud.
The lawsuit, originally filed in 2019, claims Security Benefit misled investors about some of its retirement plans and how the products “would — by design — produce near-zero returns due to misrepresented and undisclosed features, risks, charges, and attributes,” the lawsuit states.
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In interviews with The Lever, teachers and advocates said the Security Benefit plans backed by the NEA feature high fees and have resulted in poor returns. Two estimates suggest that the retirement plans can cost teachers potentially hundreds of thousands of dollars over the course of their retirement savings. Surrender charges, penalties for leaving a plan early, for Security Benefit’s products can also run as high as 9 percent, according to Security Benefit’s own data.
The union’s arrangement with Security Benefit has left NEA members fuming, with some members complaining in the comments section of the union’s website about high fees, and others saying the NEA is putting the best interest of the union ahead of its members when it comes to 403(b) plans.
Ellen Wilson, a longtime Pennsylvania teacher and member of the NEA-affiliated Pennsylvania State Education Association, recently decided to get rid of her NEA-backed Security Benefit retirement plan, called NEA Valuebuilder, because of poor returns. Wilson said she recognizes there are always risks in investing, but she’s frustrated that NEA has promoted such an inferior financial product.“I have a huge issue with the fact that NEA is pushing this product,” Wilson told The Lever. “I trusted the fact that it had the NEA name [and] that it was in my best interest, and it’s not.”
In a statement to The Lever, Lisa M. Sotir Ozkan, NEA Member Benefits’ chief compliance officer, wrote, “Together NEA Member Benefits and Security Benefit have worked diligently to make the NEA Retirement Program a comprehensive program providing viable and well-researched and designed products to meet diverse member retirement investment needs… Based on substantial member feedback and research, we continue to believe that many members benefit from working with well-vetted financial professionals when they are saving for retirement.”
The National Education Association and Security Benefit did not respond to multiple requests for comment.
“There’s Nobody Really In Charge”
Many teachers and educators receive state pensions, but many pensions only cover about 50 to 60 percent of a teacher’s retirement expenses.
To make up for that shortfall, many teachers invest in a supplemental retirement package known as a 403(b) plan, which is a retirement package similar to 401(k) employer-sponsored plans, but exclusively for government, nonprofit, and religious workers.
NEA Member Benefits, which provides various benefit programs for NEA members, exclusively sells Security Benefit’s 403(b) retirement plans to teachers, and the union sponsors the products. In exchange for the exclusive partnership, according to regulatory filings, Security Benefit pays NEA Member Benefits $3.8 million annually.
The NEA itself does not receive money from NEA Member Benefits for the partnership, but NEA’s state affiliates receive money for the number of members that participate in certain plans.
“In exchange for their assistance in the marketing of NEA-sponsored financial services programs, [NEA Member Benefits] pays certain NEA-chartered state education associations up to $15 per new participant in such programs and up to $0.80 per year per ongoing participant in such programs,” NEA Member Benefits wrote in a regulatory filing with the Securities and Exchange Commission (SEC).
In fiscal year 2022-2023, NEA Member Benefits paid about $144,000 to state teacher associations across the country for Security Benefit to sell financial products to NEA members. NEA Member Benefits told The Lever this payment is to “cover their assistance in our marketing of the NEA Retirement program, mostly in placing ads in state publications, participation in state meetings, and such.”
According to SEC filings, NEA Member Benefits says that the payment it receives from Security Benefits “creates a potential conflict of interest and gives NEA [Member Benefits] an incentive to partner with Security Benefit,” to offer plans to NEA members.
“To address this conflict, [NEA Member Benefits] conducted extensive due diligence and selected Security Benefit as the exclusive program provider,” the benefits group wrote.
According to Ozkan’s statement to The Lever, Security Benefit was selected as the sole provider after a request-for-proposal process that included vetting 38 other providers.
“As a result, [NEA Member Benefits] does not work with any other product provider and clearly and expressly advises employees of eligible employers of this exclusive relationship,” noted the nonprofit’s SEC filing.”
Scott Dauenhauer, a certified financial planner, owner of Meridian Wealth Management, and a teachers advocate, helps run a blog called 403bwise.org that offers educational material on 403(b) plans. Dauenhauer’s blog gives Security Benefit products a “red rating,” one of the worst the blog offers, due to a number of concerns.
Most pressingly, Security Benefit’s 403(b) plans are not covered by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that sets minimum standards for health and retirement plans for workers.
This allows the plans to operate with fewer regulations than what is required for the more common 401(k) retirement plan. As a result, the plans are not required to provide the same fee disclosures to enrollees as do plans covered by ERISA. Further, they are not bound by the same fiduciary responsibility to act in the best financial interests of their enrollees.
“There’s nobody really in charge of the quality of these programs, their only [requirement] is to ensure these programs stay in compliance with IRS regulations,” Dauenhauer said.
In its statement to The Lever, NEA Member Benefits called Dauenhauer a “frequent critic” of their retirement program, and noted that “[his blog] is a valuable site for many reasons, however, [it has] some blindspots.”
The nonprofit added that it is not opposed to its 403(b) plans being governed by ERISA — “however, for various state sovereignty and administrative reasons, this has been a hard sell.”
Dauenhauer has other concerns about Security Benefit. He says the company charges pricey upfront commissions and high fees, such as administrative fees over 1 percent and account fees that cost more than $60 per year.
He said that much of the time, when teachers do get information on rates, it is rarely a full picture because the sellers “have an incentive not to provide that data,” and because their sales are not governed by ERISA.
Dauenhauer is also worried about the relationship the NEA Member Benefits has with Security Benefit, which allows the company to sell other more lucrative, high-fee products to educators, such as credit cards and home and auto loans, once it has access to school campuses.
“The agents aren’t [in the schools] necessarily to sell 403(b) plans, it’s just a way to get into a relationship, and then use that relationship to sell other products, whether they be life insurance, IRAs, brokerage accounts, anything insurance-related,” Dauenhauer said. “It’s just a way to get in and cross-sell.”
“They Can Make Money Off Of Those Products”
For all these reasons, Dauenhauer argues that NEA’s benefits arm isn’t operating in the best interest of teachers, and that the union could better serve its members.
“The products [NEA Member Benefits] offers are being offered not because they are good for their membership, they’re being offered because they can make money off of those products,” he added. “If [the teachers’ union] were working in the best interest of their membership, they would be using their power to procure the best possible retirement option for them.”
Security Benefit became the exclusive provider of 403(b) retirement plans offered through the NEA to its members in 2000 after the NEA’s previous provider, Nationwide Life Insurance Company, exited the K-12 public school 403(b) plan market.
The investment firm Guggenheim Partners bought Security Benefit in 2010, and the firm was quickly embroiled in scandal as Guggenheim allegedly used Security Benefit funds to purchase the Los Angeles Dodgers in 2012.
The matter led to a lawsuit where investors claimed they were deceived and that funds were improperly used to purchase the team. The suit was eventually dismissed in 2019.
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The private equity firm Eldridge Industries purchased Security Benefit in 2017. Meanwhile, the retirement plans offered by the company have been under scrutiny for years.
The NEA was sued in 2007 for allegedly breaching its duty to its members by endorsing high-fee plans pushed by NEA Member Benefits and Security Benefit.
The lawsuit alleged that the NEA, through its relationship with NEA Member Benefits, endorsed predatory plans offered by Security Benefit, which breached its duty to advocate for its members. The case was eventually dismissed because the 403(b) plans were not covered by ERISA, federal judges ruled.
“NEA [Member Benefits] is always concerned when one [of] our partners has been alleged to have acted poorly towards consumers,” the benefits group said in a statement. “Because of our desire to protect NEA Members, we have safeguards in our contract with Security Benefit. NEA [Member Benefits] monitors the participation in the annuity products that are under the NEA Retirement Program to ensure that they are being sold for roll over and not accumulation vehicles.”
Federal lawmakers are also aware of the widespread problems with 403(b) plans. In 2009, the Government Accountability Office (GAO) recommended that Congress consider giving the Department of Labor greater oversight of the plans and to require more transparent fee disclosures — but no legislation was ever passed.
According to a June GAO report, 403(b) retirement plans nationwide are worth more than $1 trillion collectively, but only about 40 percent of the market is covered by ERISA.
“They Rarely Think About Saving Themselves”
Getting out of Security Benefit plans can prove to be a cumbersome process, as Wilson, the Pennsylvania teacher, realized when she recently decided she wanted to switch from the plan she’d had since 2013 to another plan run by Vanguard, a competing investment company.
“The account that I’m now investing in with Vanguard over the last 10 years has yielded 10 percent, and my 403(b) through my NEA vendor account yielded less than 5 percent,” Wilson told The Lever. “So not only did I lose out on that, I was losing out on the fact that the $5,000 or whatever that I was paying per year for my active management fee [with Security Benefit], that was also money that would have been invested.”
When it came time for Wilson to close her Security Benefit account and transfer the funds to her Vanguard account, she was met with a bureaucratic hurdle.
Before the transfer could be processed, Wilson said she was required to obtain a “medallion signature,” a special type of signature from a bank that confirms the identity, signature, and legal authority to transfer funds.
Wilson said her Security Benefit representative told her she could obtain a medallion signature at her bank. But Wilson banks with Wells Fargo and was told the company stopped offering the service. Wilson called other banks in her area, and could only find small local banks offering the service exclusively to its members.
Wilson was eventually told by her Security Benefit representative that they could provide a medallion signature after Wilson spent nearly two weeks trying to find a banking official to sign off on the transfer.
“As a teacher, I don’t have time to do this all day long,” Wilson said. “It was just another roadblock.”
She was able to finally close her Security Benefit account on Oct. 17, but the funds have yet to reach her new Vanguard account nearly two months later — because Security Benefit mailed a check to the wrong address.
Dauenhauer said teachers should organize to implement better retirement plans like Chicago teachers did in 2022. Chicago Public Schools now have a single provider plan with AIG Retirement Services after being inundated for years by multiple vendors pushing retirement plans.
“[The new plan] doesn’t allow any predatory advisors,” Tom Butterfield, an English teacher at Chicago Public Schools, told The Lever. “There’s no advisory fee so there’s no one to come around and push these things.”
Butterfield has been a teacher since 1995 and serves on a committee that helps Chicago Public Schools teachers better understand retirement products. He said his path to financial literacy wasn’t easy, and once he found out he was getting exploited, it was an “awakening.”
“Teachers are spending most of their lives saving other people, but they rarely think about saving themselves financially,” Butterfield said. “It’s still a struggle to get people aware of what to avoid and what to understand is a good investment… No one will care about our money more than we [do], and it’s just very hard to wrap a teacher’s head around that.”
Karl Fisch, a retired teacher in Colorado who runs a blog about retirement plans for teachers, agrees that the NEA is pushing problematic retirement plans to its members. “403(b) land is a scary place and the majority of 403(b) [plans] are really, really bad,” he said.
Fisch compared investment amounts in two of Security Benefit’s plans to a lower-fee state-run retirement program for Colorado teachers and the results are staggering. According to his calculations, a Colorado educator investing $500 a month for 30 years in the Colorado-run program would have more than $555,000 in savings. Teachers invested in Security Benefit’s standard 403(b) plans or an option where planholders have more control over investments would have $394,000 or $535,000 respectively.
Fisch said school districts and the NEA should stop sponsoring 403(b) plans and instead work to educate teachers on their retirement options.
“Retention of teachers these days is a really big problem,” Fisch said. “And here’s an easy way that districts could start combating that, and it would have a huge financial benefit for their teachers and all their employees without costing the district anything.”
