Dear Mr. Berko:

I read your column about the 403(b) plan in the Alachua County, Fla., school system and the ING/USA variable annuity. Please tell me about ING/USA and why its investments have done so badly. Could the teacher have selected the wrong funds? I need to know because I think my daughter’s school system has this product. After nine years of teaching and investing, she’s ahead by only $3,644.05, and that’s bad. I’m trying to give her some advice, and, frankly, she’d be better off putting that money in a certificate of deposit.

B.W., Syracuse, N.Y.

Dear B.W.:

ING Groep NV (ING-$44.62), based in Amsterdam, is a huge banking, insurance and asset-management company with 60 million clients in 50 countries. In 2005, ING reported $109 billion in revenues, and some 50 percent of those derived from the sale of insurance products.

ING is one of the top five firms in the country serving the education market and has a local presence in 13,000 school districts representing 650,000 participants who have $20 billion invested in its products. ING is a provider of choice for the higher education market in 42 states, and its stock has doubled over the past 10 years.

Unfortunately, the teachers who participated in ING’s retirement variable annuity programs haven’t done as well as the stock. ING offers the teachers a choice of more than 80 mutual funds as investments in their 403(b) variable annuity retirement programs. Holy water, cow and mackerel — there isn’t a stockbroker living who knows enough about 80 mutual funds to make an informed investment decision!

But your daughter’s school board believes that she and thousands of other teachers, employees and administrators have the knowledge to make that decision.

Teachers do not have access to expert investment advice. As a result, 403(b) plans have no incentive to select the best funds, such as Muhlenkamp, Stratton, Third Avenue, Delafield, Dodge & Cox, Bruce, Mairs & Power, etc. — which, by the way, won’t share management fees with ING.

The commission costs (between 3 percent and 12 percent) and the annual administration costs (2 percent to 5 percent) are like necrotizing bacteria eating into the performance numbers of the funds. The enormous early-exit penalties can take a huge piece of flesh from the principal, destroying most of the gains.

The necessary details are fully disclosed but in microscopic print and explained in stilted, cloudy language in mile-long run-on sentences.

And so, during the past 15 years, many teachers with variable annuity 403(b) plans have done poorly. Most teachers haven’t the vaguest idea how their investments have performed. They don’t know what a variable annuity is, its advantages and disadvantages, and they don’t understand its myriad moving parts. So the selling process is simple as herding sheep, because the financial IQ of the participants is 10 points above room temperature.

I don’t know which insurer sponsors your daughter’s annuity, but if she’s plus $3,644.05 in nine years (including the school board’s matching contributions), that, in my opinion, is criminal and culpable negligence. The school board should have a duty to provide its employees with reasonable, clear and simple access to the investment performance of each of the funds within the annuity. The school board has a duty to provide its employees with reasonable, clear and simple access to comparative performance of their plan to accepted benchmarks like the Dow Jones Industrial Average, the Standard & Poor’s 500, the Nasdaq composite index, the Wilshire 2000, etc. The school board should provide quarterly 403(b) comparisons in reasonable, clear and simple English rather than the persiflage and palaver so common in insurance company presentations.

Selling a variable annuity to a school board is a no-brainer. If you’re a drinking buddy, a cousin, a lover or a creditor of a school board member, you’re in like Flynn. And as you know, the commissions on these group variable annuities are enormous and as a result can often breed all sorts of compromises. I believe every school board should hire an independent adviser to protect the teachers’ interest and to make certain the teachers get the best possible advice.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service