Summary of Florida TSA Program
THE STUDY WAS RIGGED!
The IBC, or Independent Benefits Council, was formed in 2007 by four of Florida's leading education groups:
- The Florida Education Association
- The Florida Association of School Administrators
- The Florida School Boards Association
- The Florida Association of District School Superintendents
Together, they represent the interests of more than 350,000 of the state's teachers and educational staff professionals.
The objective of forming this non-profit organization was to meet IRS new requirements, cull some of the excess companies because there were more than 90 that offered some sort of tax-sheltered account to the school system in Florida, and to reduce costs. It was formed with one goal in mind, to eliminate the inequity in fees, and level the playing field for school system employees, while insuring access to high quality retirement investment products.
At the bottom of one of the pages on the IBC website and as a page title The Model Plan says, "It is important to note that neither the IBC, nor its consultant, has any financial stake in the outcome and that school boards may choose to offer additional plans."
It is unfortunate that this did not turn out to be correct, because there was in fact a financial stake in interest by one of the companies. It would be expected that of the four groups that form the IBC that they would have different areas of expertise in finance and budgets and administration. It is highly unlikely that any of these groups would have a particular expertise in the "guts" of a TSA program, and it is unlikely that they would be aware of some of the objectives of the companies. It can be assumed that the four groups that make up the IBC would have experience with budgeting, and perhaps in investment of funds, but it can also be assumed that they would not have experience with the TSA contract itself.
For example, of the Association of District School Superintendents, any given superintendent would have two primary concerns about the TSA programs:
1. A concern about the performance of their own personal TSA.
2. A concern about preventing the hoards of TSA slingers from overrunning their schools.
Based on this, they'd have to have some kind of direction established to come up with the advisor, or what they refer to as the consultant. Bids were sent to determine a consultant, and this would not be easily determined, since this process had never been done before. Of the six consultants that responded, it's interesting that the company selected, Gallagher Benefit Services, had no prior experience in working with a contract like this.
Unfortunately, it appears that this entire study is tainted and that the Independent Benefits Council was led by the ring in it's collective nose to a consultant that had a financial interest in the outcome of this study. While the IBC may have reduced costs to the district and established a program which complied with the new government regulations, it also eliminated over 90% of the competition of it's consultant's "favorite" company and established an oligopoly (a monopoly of a few) or cartel of only 5 remaining companies.
There is major concern, however, that Gallager, which is supposedly an independent consultant, actually has a division with a broker/dealer for the sale of investments and annuities.
Furthermore, during the time of this study, Gallager listed a "favorite" company among that investment division and that company was chosen as a final five for the entire state of Florida. Even more interesting is that they list the company as a "favorite," which does not necessarily mean a quality company but often means that extra financial incentives are given to Gallager, extra bonus or payment of advertising or rebates for what they call shelf space in exchange for preferential treatment, meaning that the firm is given priority. Additionally, during this study, Gallager also posted on its website, of interesst to their sales people, that his particular (approved) company was sponsoring a sales contest for annuities. Even more interesting is that Gallager posted on it's website a reminder that all their sales people should be certain to have a large supply of updated and current transfer forms in anticipation of increased business.
It should be noted that the TSA company endorsed by this supposedly-independent consultant Gallager is a company that aggressively promotes being a part of school functions or parties or meetings or outings. They often pick up part or the entire tab for the expenses for refreshments and give-aways. They promote a club-like atmosphere among its customers, and even address all of the customers, when writing to them as: Dear, loyal, and valued XXX company customer.
However, that particular company also has a long history of fraud, theft, bid-rigging, securities violations, and they've been accused of international money laundering. At the time of this study, they were being sued by the State of Florida Pension Fund, the Florida Firefighters' Pension Fund, and Florida Police Pension Fund.
They have had experience in steering organizations into consolidating funds from other companies into one fund, that, of course, being their own. An example is about two years ago, when they talked the teachers of the state of West Virginia into consolidating teachers' funds from other companies into one program....their own. Currently, almost every teacher in the state of West Virginia is involved in class action law suits against this company for fraud and misrepresentation.
Other examples are that they recently terminated one of their key executives because he lost his securities license because of violations of the law. Another executive is on trial for embezzlement, and if convicted on all counts, he faces up to 230 years in prison. I don't know what you have to steal to get 230 years, because most murderers don't even get that amount.
Going back even further, the original company was purchased by the current company. The original company of five years ago was a huge company with hundreds of thousands of clients. Every single one of those clients or customers nearing retirement was misled, lied to, and tricked into turning all of their TSA money over to the company.
They were told that they have one of two choices. One was to withdraw all of the money at retirement, and lose up to 40% of that money to taxes, penalties, and surrender charges. The other option that they were told was that they could leave the money with the company, and receive a reasonable rate of interest paid to them monthly for the rest of their lives. There were some variations on this.
At the time of retirement, the customer was given that choice of two, and it's perfectly legal through a process called annuitization. The question of legality enters when it was not explained to the customer that as soon as they cashed the first monthly check, the money became the property of the company. It's legal if explained, but in this case, the contract was written so there was no other choice except to: 1. Take the funds out of the company and pay surrender charges and taxes for a loss of as much 1/3 of the funds or more, or take the monthly lifetime payout. There is another option, and that was something that the sales rep would not explain because it meant advising the customer to move the funds away from that company and into another company that had better options. Doing this would have caused the representative to lose their job because eventually they would have given away all of their customer funds.