WEA TSA Trust stands above the rest

Last updated: 8/24/2007 1:13:26 PM

National publications say WEAC-created TSA sound choice for WI public school employees

Tax-sheltered annuity plans offered to public school employees across the country have come under heavy criticism recently for their high fees, low returns, and minimal oversight. Amid that criticism is a notable exception—the WEA Tax Sheltered Annuity Trust (WEA TSA).

Two prominent publications, Forbes magazine and the Los Angeles Times, praise the WEA TSA Trust for offering a soundly-managed, low-fee program. They note the total cost to members of investing in mutual funds through the WEA TSA runs as low as 0.36% per year. That is about one-tenth the cost of the more expensive products on the market, Forbes writes.

"The WEA TSA Trust has shunned the standard model," where insurance salesmen are disguised as financial planners, the Forbes article states. “The plan’s six certified planners offer teacher retirement planning purely for a salary to avoid dispensing conflicted advice.”

The credit for that unbiased advice belongs to the Wisconsin Education Association Council (WEAC). Its decision to create the not-for-profit WEA Tax Sheltered Annuity Trust in 1978 has benefited Wisconsin public school employees for decades. The TSA uses the group purchasing power of members to keep fees low while gaining access to mutual funds that would otherwise be out of reach for most investors.

Member benefit consultants, who have no personal profit motives, are registered securities representatives who answer questions and provide financial advice based on the retirement needs of participants. The low fees the WEA TSA charges are used to cover the cost of operations.

In Wisconsin, school districts will generally put investment providers on a list distributed to employees if there is sufficient demand within the district. Some districts list dozens of providers, which can create confusion, as employees must sift through an array of products. In addition, since the school districts are not required to investigate the companies it lists, there is usually no examination of the fees associated with the products.

The WEA TSA program is available to employees at workplaces where WEAC represents some or all of the employees and the employer has signed an agreement with the WEA TSA Trust. Most employees, regardless of job classification, title, or location, are eligible to have part of their salary invested in the TSA program as pre-tax and/or after-tax (Roth) savings.

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What to look for in a TSA plan

When comparing plans, whether you are just getting started or considering a transfer, it's the details that matter.

Annual fees. A difference in one percentage point may not seem like much, but over time it can mean thousands of dollars. Fees cut into your rate of return. If a plan charges 5% a year in fees, an investor then has to earn a return of 5% to break even. Fees are often broken down into maintenance expenses and fund management expenses. Another common fee for annuities is a mortality and death benefits charge. Make sure you know all the fees before choosing a TSA provider.
Penalties or hidden fees. Even if a plan advertises no sales commission and low annual fees, read the fine print. Some fees are disguised as penalties for surrendering the contract. Check if your plan has penalties for transferring into other qualified plans, or for closing the account before a specified date. Some annuities require a 7- to 10-year minimum holding period. Some annuities begin counting that period with your first deposit and others begin a new holding period for each new deposit. Also, does your plan charge you to make account changes?
Interest rate. Don't be drawn to an investment solely by a higher guaranteed interest rate. The rate typically is guaranteed for a short period and then is reduced (many times to as low as 3%).
Research the companies. For variable annuities that invest in separate accounts, look for respected third-party ratings of those accounts. Morningstar^TM and Motley Fool offer free analysis online.

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