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Many teachers say they presume an endorsement means their union has used its clout to get the best price, as unions do on products from eyeglasses to automobiles. But when it comes to retirement accounts, union backing is often a sign that the product will cost more, not less.

Buyers of an NEA-endorsed annuity sold by Security Benefit Life Insurance Co. pay annual fees totaling at least 1.73% of their savings. That is about 10 times as much as they would pay in 403(b) plans available from Vanguard Group, T. Rowe Price and other low-cost mutual fund providers.

The costliest option in the NEA-endorsed plan charges 4.85% a year. That means an investor would have to earn a return of nearly 5% just to break even.

There is nothing inherently wrong with investing in annuities, but they are generally the investment vehicle of choice for those that are already retired, not those saving for it.

Teachers should be investing in stock index and bond index funds. A stock index fund can be had for a .05% fee, or a fraction of what they are currently paying for annuities.

So not only are teachers buying the wrong, and more expensive, product, they are unknowingly paying a commision to their union.

Kristof further writes:

Union leaders defend the endorsement deals and the prevalence of high-fee annuities. They say that teachers get valuable advice from brokers and financial advisors in return for the fees, and that the companies' contributions to union coffers help pay employee salaries and other union expenses.

So the lower rates of return and the higher fees are okay because the union is getting a chunk?

Kristof continues:

Unions do more than simply give companies their blessing. Some help market and sell endorsed products. They tout investment firms on their websites and provide direct links to sites where teachers can sign up to buy annuities. Endorsed providers also enjoy special access to schools and teacher conferences where they can pitch their products.

Teachers generally are not aware that unions are paid for their endorsements, directly or indirectly. Such deals usually are not mentioned on union websites or in brochures describing the favored investments.

"This is a national problem," said Dan Otter, a former Maryland teacher and founder of 403bwise.com, which offers tips on finding low-cost retirement plans.

"It's a rare school district that gives teachers access to quality choices. In most cases, they just turn a blind eye to the problems. And it's the rare union that's advocating for better 403(b) investments for its members," Otter said. "In many cases, the 403(b) is a source of profit for unions."

Vanguard Group says it doesn't even try to offer 403(b) plans to public-school teachers because of the costs involved. Unions want companies to offer in-person financial advice, a service typically provided by sales agents working on commission.

Vanguard keeps fees down by selling directly to customers over the Web and by phone, and it refuses to pay for endorsements.

"There are costs just to participate," said James Norris, a top Vanguard executive, citing such expenses as entertaining union leaders and fielding a sales force. "Those costs have to be offset by revenues, which is why you end up with relatively high fees."

United Teachers Los Angeles, which represents 44,000 members in the Los Angeles Unified School District, doesn't receive direct payments for its endorsements. But firms that get its seal of approval can be counted on to advertise in the union newsletter and donate to union causes.

"It allows us to put the touch to them when we are raising money for any purpose," said UTLA spokesman Steven Blazak.

It allows the union to "put the touch to them" whenever it needs to? Good Lord...

Kristof continues:

Dennis Tompkins, a spokesman for New York State United Teachers, says the endorsement deal is good for members because it helps underwrite the union's benefits department and other services.

This comment should just gall, as it essentially says, 'Despite the fact that we're putting teachers into the wrong investment vehicle, charging them more than they should pay, all the while cheapening their retirement investment, this arrangement is good for them because it pays my salary.'

Continues Kristof:

The NEA receives royalties on sales of Valuebuilder and other financial products it endorses. Union officials declined to say how the royalties were calculated or how much money union-endorsed retirement plans brought in.

They are, however, required by federal law to disclose the total revenue from all endorsement deals. The most recent disclosure on file with the Labor Department shows that the NEA received $49.6 million from Security Benefit Life Insurance, the provider of Valuebuilder, and other endorsed companies in 2004.

Among other things, that money pays the salaries of 110 union employees, said Ronald Mentzer, treasurer of NEA Member Benefits in Gaithersburg, Md.

Again the same line of reasoning: we are putting it to teachers to pay union officials' salaries.

The money gets spread among local unions as well, Kristof writes:

Local unions that help promote NEA-endorsed products get a share of the royalties. The Florida Education Assn., for example, collected $140,000 in "program royalties" last year, federal records show. The Illinois Education Assn. received $178,148, while the Maine Education Assn. was paid $33,610.

The rival American Federation of Teachers has a far less lucrative arrangement with ING Group. The 1.3-million-member union endorses ING as a provider of 403(b) plans but does not share in sales revenue. Instead, ING reimburses the union for the money it spends promoting the insurer's products.
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Companies endorsed by United Teachers Los Angeles return the favor in various ways. Some pay thousands of dollars to rent exhibit booths at the union's annual leadership conference in Palm Springs.

"We owe it to them," said Bob Sandstrom, an insurance salesman, who paid $3,000 for space at the 2004 conference. "We are endorsed by the UTLA, and their endorsement is worth a lot."
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"Teachers are trained as educators, not financial managers," [former UTLA Treasurer Alberto] Valdivia said. "What we are concerned about is guided, safe, secure investments."

Steve Schullo, a Los Angeles teacher and longtime critic of 403(b) endorsement deals, said this attitude reflected "an offensive prejudice that teachers are too stupid and too naive to manage their own retirement savings."

The facts revealed in this article are incredible enough, but what does it say about teachers, who are supposed to be highly educated, that they are getting ripped off so badly by their own unions?