Business Innovators Radio - Interview with Danny Favreau with One Less Worry Discussing Teacher 403(b) plans

Episode Date: November 13, 2024

Danny Favreau is a knowledgeable, detail-oriented leader with nearly 17 years of experience in the dynamic financial industry. As the owner of One Less Worry, Danny has become a trusted authority in pension and retirement planning, providing Federal and State employees with tailored guidance to achieve “Retirement by Design.” His success stems from his strategic approach to business development, his dedication to building strong client relationships, and his clear, practical communication style.Danny’s career spans a range of challenging roles, from field underwriter to account executive, financial advisor, and now business owner. Each position has refined his financial expertise and deepened his industry insights. With a National Social Security Advisor certification, Danny is equipped to address Social Security-related needs, including optimization strategies to maximize benefits.Throughout his career, Danny has demonstrated a commitment to professional growth, expanding his financial acumen through continuous education and leadership roles within top-tier organizations. His clients and colleagues alike value his integrity, his attention to detail, and his ability to consistently deliver exceptional results.Learn More: https://www.onelessworry.co/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-danny-favreau-with-one-less-worry-discussing-teacher-403b-plans

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us Danny Fabro, who's the founder of One Less Worry, and we'll be talking about Teacher 403 plans, the good, the bad, and the ugly. Danny, welcome back to the program. Welcome. Thank you, Mike. Hey, so 403B plans.

I think we've all heard of the classic 401K, but let's describe first of all, what is a 403B plan? Is that specifically for teachers or is it just a type of plan that teachers tend to get offered? Well, it's for the educators and it's also for doctors and nurses, state hospitals, have 403B plans. And there's some nonprofits out there also, you know, and churches that use 403B plans. So it's another vehicle similar to a 401K. That's just like basically the same way.

Put your money in it. When you pull your money out, you've got to pay your taxes on it. But these are designated more for different classifications. So it's teachers, educational type of vehicle or nonprofit. And so are they exactly the same as a 401K just it's for teachers or doctors or those ones or they provide more benefits or less benefits? Well, 403Bs provide a little less benefits than a 401K. Typically, it's because especially in the teachers world, you don't know what you're actually getting. And a lot of times they have higher fees, okay, because they're not negotiated.

It's a 401K plan that could be negotiated. You have better choices of where you want to put your money. 403Bs are typically limited to three or four different choices, and they're all cookie cutters programs. So it makes it very easy for the school to do it. And that's the problem with it. You know, it's too easy where fees are involved, and I've seen where people pay into this account,

and they don't know what their fees are. and if you out there are putting into a 403 plan and you don't know what your fees are, you need to contact me and we're going to figure that out for you because I've seen it as high as 5%. And taking 5% out, there's a lot of money that you're losing. And is that the fee? So for instance, you think about like the underlying fees like on a mutual fund loads. there's some fees there, but then is there an underlying fee on the mutual fund where there's someone else, you know, collecting fees on top of fees? So in this case, of a 403B is like the school or the medical organization charging fees and then there's underlying on top of that or you've just seen them around 5% as far as fees go?

No, I mean, you'll see them, you know, between 3 to 5, but the way it breaks down is they have so many hidden fees. They got the administrative fee. Okay, so somebody in the school district's got to work for it. So they're processing paperwork. So the administration fees. Then you got, you know, at one time I counted 26 different types of fees. Okay. Whoa.

So we've got programs where we sit down and figure exactly what you're paying for it. And that's the key is most people have no clue how much their fees are. And they do very, I think the lowest I've ever seen was like 2%. the highest is 5%. But when you're at that 5%, you're paying a lot of money. And you do that for 20 years. You think you have a lot of money saved.

They've taken a lot of money out of you. Yeah. Well, also, I think that so many times people get a statement, quarterly or annual statement, and they glance at it because they don't know how to read it. I don't know how to read it, right? And then they see this number is like, oh, return X, whatever the number is.

But that's probably, if I'm thinking correctly, the top line return. But then when you start factoring in all these fees, you didn't really get that actual percentage return because really the net return is what goes into your back pocket. I had a client, and poor thing. She was in the teaching world for 24 years. She never opened one of them up. Well, she opened the very first one up. She saw it. She looked at it.

It's like, okay, the school's going to take care. with me. So she never opened any of them up to just throw them out. When she came to retire, she did not realize that how much money she paid in fees. It was over $180,000 in fees that she paid just a little deposit every paycheck. Good gracious. That is just shocking. Yeah. For no good reason. Yeah. She was crying. And it's something, you know, it's something that you do. don't know and you're afraid to look into it because you don't, it's something that you don't know. Well, it's something that we specialize in and we make sure that people are aware of what the fees are because that can make or break your 403B account.

And there's alternatives out there. And people don't realize that there's alternatives. They're under the assumption that the school's doing out what's best for them because back when they got hired, here's a packet of information, you know, turn around, sell it all out, get it back to the next day, nobody's educated them exactly what this 403B is. Nobody has a clue what they're doing. They just dedicate so much money a month or a paycheck to it, not knowing what it is. And you see that every single day.

And every school year begins with all the new teachers. I just cleanse when that happens to it because the package's there and they just fill it out and they're not knowing what they fill out. And they're thinking they're doing something good by saving money, is great, but make sure it's in the right type of account that you're saving it for. Well, and just like people aren't really aware of the fees, like you mentioned, what about all of the myriad investment choices? You know, like, do you want to have 60% in this or 20% in that?

And what about I would venture to say that just like a 401K, the 403B plan investment choices could get super confusing too. Well, yes, it does get confusing, but the problem is it's limited now. because it's typically maybe two or three choices. Oh, my. Sometimes you only have one choice, and that makes it even worse. So 403Bs are very limited because the school districts don't sit down and nobody in schools sits down and say, okay, I want my people to have all these choices, okay?

They simply say, okay, what do you got for a plan? Oh, okay, that plan sounds good. And then they put everybody in that plan. It's that cookie cutter mentality, you know, because they're, can't offer something that is not going to be available to everybody. You know, they have to make sure everybody fits in the, in the program, you know. So if they, if you turn around and get money out of, you know, you can't take it out of a 403B plan unless you leave the district or retire.

So it's there. And if you take it out before you're 59 and a half, you have 10% penalty. People don't realize that. There's so many more different options where you could put your money into it and be able to have access to it. And you don't have to wait to you a 59 and a half. or you can use it as different, you know, even a permanent life insurance product, it's better off to do that because you're going to get benefits out of it

and you're going to be able to pull your money out any time you want. Now, I tell people the, you know, the 403B plan is good if you got enough money set aside to pay your bills for six months. And then you don't have to worry about it. You've got emergency fund because a lot of times people will put their money into a 403B plan. Then they turn around and something happens where they need a new furnace. or the car breaks down, and they can't pull that money at that account. Without penalties.

Right. No one explained to them. And sometimes they can't even pull it out, even with a penalty. There's some districts where they won't even allow it. You know, 401K plans, many times we'll have employer match. Like, hey, when you put, you know, we'll match up to 5% or 4%. Do 4-3B plans have matches like that sometimes? There's not one in this country that I know of.

Okay. That's not good either. For teachers, okay? Wow. There are a couple of state hospitals that do have a little match, but chances are it's too small to even matter. I think I saw one that did a 1% match. And you had to put it in 6% to do that 1%. That makes no sense.

So pretty much very, very, very limited options and potentially higher fees. and probably no match. I don't, yeah, I mean, it was like you kind of hinted at earlier. It's like, why would you even do this? So what are some of the other options? You mentioned insurance, but, you know, you're probably trying to get the message out there to teachers. Like, hey, before you sign those papers, understand fully what this is. And there might be some better options.

What are some of the things they should be looking for for options? Well, a Roth product would be great to begin with, you know. So if you have a Roth IRA, even an IRA, you know, where you're in control of it. Those are things that you control. A 403B, you have no control over it, okay? None whatsoever, okay? The only time that you have access to that 403B to control it is when you leave the district

and you pull that out and you put that into an IRA, now you're in control of your money. I've seen it where people will take that 403B from one district and move it over to the new school district that they go to. Now they lost control of it again. because it's not being watched by the school. There's just being there in the school system where it's stuck there and you can't do nothing with it.

So you're giving them access to save money for you, but they're not giving you the options that you really need to make sure that you're in the right programs. There's very few districts out there. And believe it or not, there's some districts that they only have one person, not only one person, but one company taking in the money, and that's the only choice you have. Is there any incentive for the district to have more and more people putting it into a 403B plan?

Because like why would they be pushing something that's really not a great benefit unless there's a benefit to the district? Or is it just like, well, we have to have this benefit, so let's check the box? That is a very good question. And the answer lies pretty much, yeah, the more the district could have it, there, the better off the district's going to be, the incentive of it and how much they make from it. I don't think there's anything major that's there, but every district is pushing it. And when it's overall said and done, I believe that the state has got some, you know, nice, nice layer in it, the federal government's got layer in it because of the taxes in it. But other

than that, I don't know why, and it's just something they've always did, and that's the problem. It's no one questioning them to change it. And you really can't change it because you have to offer it to make sure that everybody gets it. And not everybody can qualify for certain things. And a Roth product would be great. Now, I noticed a couple school districts in certain parts of the country, they started offering a Roth product in there. So that is a better choice. But then again, watch out for the fees, you know.

Yeah. When you're basically stuck into that 403B in a teacher's world, okay, they're very limited on your choices. Now, there are some districts that do it really well where they got like 15 different companies that you can pick from, and within them 15, they may have three or four different plans with each one of them. Now that it gives you some choices, but nobody's telling you what the fees are because you're just looking at a piece of paper.

You signed up for it, and nothing's stating on the column. of what your fees are that you're paying for it. You know, it makes me think about the, when I talk to advisors from time to time, I hear about the word fiduciary, where, you know, you're legally obligated to do the best for the client, prevent all,

present all of the best options. It sure does not sound like this is the best for these teachers and the best options, but maybe they're not, they're not, you know, held to that standard. Yeah,

there's no standard there. I mean, They're not held to it. It's just the way they've been doing it for years. I mean, back in the day, and I can't even tell you how long ago it was, it's been 56 years probably. But there was a match at one point, okay? And then that made it at first it started off that the district was paying for it, you know, for the people. Then they did match and then they eliminated it where there's no match anymore.

And that's been, you said, probably 40, 50, 60 years ago. that took place. People were telling me about that, you know, their grand grandparents had that, you know, when they were teachers. So it's, that philosophy, they just think it's a great program because the district's offering it to them,

but the districts never take the step forward of figuring out what plan's best for anybody or if they give you options, then you have to, in one day, basically, overnight, you have to figure out which one to pick and it's just a gamble, you know? You just put it down and that's it. And it's very little education on it.

And that's what I find it very sad. And like I try to do best for all my clients because, you know, that's the thing to do. And when I sit down with them and they got a 403B and start looking into it and finding out what the fees are, I just shake my head. And it's like, do you know how much you're paying for this fee? And so this plan, like, no. I didn't know there was any fees involved because if nothing's safe does this fee when they signed up

so we turn around and we look at that and show them in writing and then they could take it back to the you know change things around by stopping the money going into that 403B they can't take that count and take all the money out of it it stays there

when they retire or transfer districts and they stop putting money into but they put into money something else where they're in control of it makes them feel so much better knowing what their money is doing for them. And that's what we do for people. We make sure that you know the fees that you're paying on all your accounts. So you might not be able to get to someone in that 24 to 48 hours or a three-day time period of,

here's this stack of HR paperwork, get it back to us quick, quick, quick. But really soon, you know, maybe before they go years and years down the road of contributing, really soon if you can have some of these teachers connecting with you to get that quick, you know, second opinion or just give a look at the 403B to make sure of what it's doing for them or not and then what some of their options would be. That would be key, I would suspect. That's the message you're trying to get out. Yeah.

I mean, you got to know what you're getting into. And I had one teacher, for example, here. She argued with me. She goes, well, the school district is looking out for me. They maybe are. Let's find out. And so I said, I'm going to make a phone call to the school district right now, and I'm going to see if we can find out what the fees are.

And ended up, we called up the specialists that they school, and I asked about the program. I said, I have a client that's looking into the 403B program, and we'd like to know what our choices are. And the funniest thing was, the lady goes, well, the guy that brings us the donuts, he's the number of call and put your money into it. there you go. That was the answer.

That was the answer. And I was shocked and then, you know, we hung up in that column and talked to the client go, so do you feel safe now by saying that the school district is looking out for you? Because I never realized this. Yeah. So that's what happens. And it's sad that that happens that way. And, you know, it's, it happens.

It's just something that they can't control. And you're better off to sit down with an advisor that knows. what they're doing and talking about, like myself, being able to figure out what the fees are. If it's 1 or 2%, okay, you could live with that. But if it's 5%, that's eating out of your money that you're putting into it every week that paycheck's taking place. Well, Danny, I think if a teacher or someone in a 4-3B is interested in having you give a quick

look to give a second opinion and really expose what it looks. looks like for them to see if there's an opportunity. What's the best way that they can reach out and connect with you? Give me a call at 475-257-1-807. Perfect. Well, we will make sure we also post a link to your website on the show notes, and I really appreciate you coming on and bringing this to our attention. Thank you so much. Thank you. You've been listening to Influential Entrepreneurs with Mike Saunders to learn more about the resources mentioned on today's show or listen to past episodes. Visit www.

www. influential entrepreneursradio.com.