Tribalism and Multiple 403(b) Vendors

When I was a student at Stony Brook, I was heavily involved in student government. The student government was as chaotic as regular government except for the fact that student officials were brazenly stealing elections and student money without the administration blushing an eye and putting Tammany Hall to shame. The tactics of the student government was to pit student groups against each other and spreading false innuendo that if certain people would take power, than funding for these student groups (mainly populated with cultural groups) would be eliminated. It was a great tactic and this is where I learned about tribalism.

Tribalism is a strong feeling of identity with and loyalty to one’s tribe or group. I always look at tribalism as a belief that the members of the tribe will support other members of the tribe against all charges (despite all the evidence) made against these members, only because they are the member of that tribe. We see this belief system when it comes to ethnic groups, religious groups, employee unions, and political parties. I always see it as a kind of look the other way approach, where guilty people are defended because they happen to be a member of that group. Perhaps that explains why I’m not involved in politics or any type of trade organizations.

 I understand that the Executive Director of ASPPA has spoken out against the consolidation of 403(b) plan vendors in Los Angeles’ Unified School District and how this does not benefit 403(b) participants at all. There was a bit of an outrage over this, but what did you expect? As Heath Ledger said in the Dark Knight, “why so serious?” What side did you expect him to be on the side of? 403(b) participants or those that are in the industry? Who pays ASPPA’s bills? 403(b) plan participants or providers in the industry? So I ask you, why so serious? It is a practice of a trade organization or lobbying group to defend the practices of the industry, despite how abhorrent. Remember The Tobacco Institute? They were funded by the tobacco companies as a trade group to debunk the health concerns of smoking. So why should it be shocking that a lobbying organization is lobbying for 403(b) vendors since many of them are paying the bills? Again, why so serious?

As far as eliminating 403(b) vendors and its impact on 403(b) participants. Choice in life is good, except for multiple 403(b) vendors in a school district. I once worked on a state teachers union and its desire to get back into the endorsed 403(b) market after an absence. As part of the agreement with the state, they had to offer two 403(b) plans (one low cost and one not so low-cost). When the request for proposal went out, I told the partner in charge that this was going to be won by an insurance company. I was right. After the RFP went out, all of the low cost providers withdrew interest. Why? These providers didn’t want to compete against another teacher union endorsed product and didn’t want to compete against 3-4 different vendors in each district and then with the added burden of having to send representatives of 950+ school districts. With anyone with a rudimentary understand of the daily valued retirement plan business, assets dictate everything and larger plans have better pricing because of the industry’s economies of scale. So it would be common sense that multiple plan vendors drive up cost. What would happen if a $10 million 401(k) plan was then divided up among 4-5 401(k) plan vendors for that one plan? It would drive up cost, wouldn’t it? So it stands to reason that eliminating 403(b) plan vendors will drive down cost? I think so. Then again, no industry groups are paying my salary.

I once worked for a third party administration (TPA) firm that I have been critical of and which no longer exists. When I was there, I wasn’t so public with my remarks because those folks were paying my salary. Independent thought requires independence and it’s hard for someone to be critical of the industry if they are the ones supporting you and your way of life. So don’t expect trade and lobbying groups to represent plan participants. As honest plan providers, that’s our job and not looking the other way.