The Thrift Savings Plan, a defined-contribution plan similar to a 401(k) for civil servants and retirees, as well as military members, does nearly everything right. The investment choices are limited, and mostly include index funds that own every stock in a sector instead of trying to pick stocks that will do better than others. The overall costs are about as low as employer-based retirement savings plans get: In 2016, they were 38 cents for every $1,000 someone had invested.
Given how good those federal employees have it, how do you get the older ones who are eligible to move their money out of the plan to do so? According to the S.E.C., you pretend that you’re affiliated with the plan and the government.
Which brings us to the target of the agency’s wrath, Federal Employee Benefit Counselors of Roswell, Ga. It has a spiffy official-looking seal on its home page and notes, despite its name, that it “does not engage in T.S.P. counseling.”
Look further on the firm’s website and you’ll find the following testimonial from someone named Judy, who said, “This service is the best-kept secret in the government” — which certainly implies a connection. Call its phone number even now, and you can press 3 for “Thrift Savings Plan review” information.
According to the S.E.C. complaint, plenty of people did, especially after the firm researched and targeted federal employees. (The agency would not comment on precisely how the firm did this or answer any of my follow-up questions.) In addition to the firm’s name and logo, the agency also pointed to forms and investment names that the firm used to “mislead” customers into thinking that it was “affiliated with or approved by the federal government.”
About those investments. According to the S.E.C., about 200 people ended up with roughly 200 variable annuities with a face value of over $40 million. For their efforts, the four individuals that it named in the complaint — Christopher S. Laws, Jonathan Dax Cooke, Danny S. Hood and Brandon P. Long — shared about $1.7 million in commissions. Some of their client reports, according to the complaint, never even mentioned that they were putting people in variable annuities, which are complex insurance products.
Could this have been because the brokers knew good and well that variable annuities are dirty words to many investors who have benefited from low-fee retirement accounts? One customer told the S.E.C. that she repeatedly told Mr. Long that she could not believe that the investments the firm was pushing were in fact affiliated with the federal employees’ plan. Perhaps they also did not want customers asking about the fees, which turned out to be at least 2.55 percent annually plus a surrender fee up to 8.5 percent if you sold too soon.
After the S.E.C. action, Mr. Laws sent me a news release that accused the agency of defamation and bullying. It said that the agency should have disclosed that he and Mr. Cooke did not know that their colleagues were involved in the alleged misdeeds. The release also noted that there were hundreds of other customers whom the firm told to stay in the T.S.P. or roll their money over into an individual retirement account, and it accused the S.E.C. of using this case as a way of discouraging others from transferring money away from the T.S.P.
The S.E.C. declined to comment on this, too. When I called Mr. Laws to ask him whether a fiduciary rule might have prevented his firm from getting in this much hot water, he referred me to the news release (which does not utter the words “fiduciary rule”) and then hung up on me.
Barbara Roper, director of investor protection at the Consumer Federation of America, said that the move to expensive annuities would have violated a “best interest” standard. She also noted that rules affect the norms of behavior, which means that the brokers might not have even bothered trying to approach the Thrift Savings Plan participants with such offerings if a fiduciary rule standard had been in effect.
Jack Dolan, on the other hand, a spokesman for the American Council of Life Insurers, didn’t want to opine on the case specifically, but said that a fiduciary rule did not necessarily deter bad actors from committing outright fraud.
So what’s the best way to keep such people away? It helps to have a terrific plan already, with rock-bottom fees, since it’s harder to be tempted to move if you’re already in a good spot. In 2014, Senator Marco Rubio, Republican of Florida, proposed that anyone and everyone who lacks a workplace plan ought to be able to sign up for the T.S.P. He noted the “twisted irony” that members of Congress, who work for American citizens, have an excellent plan while many voters have none at all.
For his trouble, Mr. Rubio was called out by Brian Graff, chief executive of the American Society of Pension Professionals and Actuaries, as “trying to Obamacare retirement.” (Note the rare use of “Obamacare” as a verb.)
Last year and again this week, I tried to get the senator to talk about the issue some more, but he would not.
Until his idea comes to fruition, you’ll need to make your own way in the retirement savings world, whether by lobbying your employer for a better plan or fending off people who are peddling questionable investment strategies.
In either case, ask for a plain-English explanation of any and every fee that you might pay now or in the future, under any circumstance. You’ll want to know how the firm, manager or individual sales representative is being compensated for working with you. Run fast and far away if guaranteed returns seem too good to be true, or if you don’t understand the investment. Use online search tools like BrokerCheck to research people who want to advise you. And you can enforce your own fiduciary standard by demanding that anyone working with you sign the fiduciary form that we’ve posted on our website for your convenience.
These tactics won’t inoculate you from every professional bearing bad advice. But they are likely to scare people who wish to do you harm just enough that they will move on to some other mark, at least until decent investment plans are standard for everyone and federal rules are strict enough to drive all the shady characters out of business completely.