Dumb and Dumber in Texas Lobbyists Seek to Torpedo RFP in 457(b)     Under Texas law school districts are not allowed to engage in the Request for Proposal (RFP) process when selecting 403(b) vendors. This is dumb. Under proposed Texas legislation SB 1243 that seems very likely to pass, school districts will soon be denied the ability to engage in the RFP process when offering 457(b) plans. This is dumber.   RFP Advantage Why is the RFP process so important? It allows the employer to capitalize on its tremendous purchasing power (i.e. strength in numbers) to gain access to lower cost products and better services including compliance control. Under the RFP process employers contact vendors (of the employer's choosing) to let them know they are seeking bids from companies wishing to offer 403(b)/457(b) services in their district. The vendors then compete to earn the school district's business. During this process the employer can demand access to lower cost products, education, and compliance control. This is smart.   Wise homeowners use the RFP process all the time. When a homeowner needs a repair or improvement, he or she solicits bids from multiple contractors. After examining competing bids, the homeowner selects a contractor of their choice based on service and cost. This is smart.   School districts use the RFP process to select health care providers. The typical school district offers three to five health care providers that have been pre-selected by the employer. The employer is attractive to the health care provider because of the number of participants it will provide. This in turn results in lower health care costs to the district and to the employee. This is smart.   Texas Oversight Lacking Instead of the RFP process, Texas permits any vendor who has been certified by the Texas Retirement System (TRS) to sell 403(b) product. Under SB 1243 (see SECTION 5) this requirement would be extended to the 457(b). Unfortunately, the TRS certification process has all the teeth of a new-born baby, and maybe less sense. TRS certifies products that:   charge loads of up to 6 percent   impose surrender charges of up to 12 years   charge operating costs of up to 2.75 percent     It should also be noted that TRS currently certifies a bankrupt company. This is really dumb.   What is so sad is that the original guidelines for TRS certification were quite strict (see Enroned Again: Lobbyists Mess with Innovative Texas 403(b) Plan). Initial measures called for no front- or back-end sales loads; no surrender charges on variable annuity accounts; and surrender charges on fixed annuities capped at 6% and required to terminate within 6 years. Insurance lobbyists, knowing full well their expensive agent-pushed products wouldn't make the cut, successfully railed against the fee caps resulting in ineffectual guidelines.   Furthermore, SB 1243 would deny many large experienced financial institutions from offering 457 product including: CitiStreet, ICMA, Charles Schwab, EducatorsMoney [a 403(b)wise sponsor], credit unions, and banks.   Significant Differences Between the 403(b) and 457(b) Following the cave-in to special interests in SB 273, it was hoped that Texas school districts would abandon the 403(b) in favor of the 457(b) and the RFP process it allowed. Sadly, special interests appear poised to kill the RFP once and for all through SB 1243. What legislators fail to realize, however, is that there are significant differences between the 403(b) and the 457(b). Unlike the 403(b), employers have considerably more fiduciary responsibility with the 457(b). This means employers have a duty to offer a cost conscious, quality product. Stripping away the employer's ability to negotiate via the RFP process is not only dumb it may be illegal.   Home | Disclaimer | © 2003 bWise Guys, LLC. All rights reserved.