When it comes to building a nest egg for your golden years, there's nothing like a good tax-advantaged retirement account to give you a leg up. Investing through your employer's 401(k) usually means you get matching funds, an instant tax break, and the ease of use that comes from automatic payroll deductions. And one can hope that your company has done well for its employees by picking low-fee, high-quality funds as options.

Yes, a good tax-advantaged retirement account is a fine thing. But if you work for a nonprofit, a government entity, or a school district, you probably don't get a good one. Your choice is called a 403(b), and if you think that's just a different name for the same basic product as a 401(k), you could be horribly, expensively, mistaken. On this Motley Fool Answers podcast, co-hosts Robert Brokamp and Alison Southwick have invited a couple of experts to explain just why 403(b) plans are the worst: Dan Otter and Scott Dauenhauer of 403bwise.org and the Teach and Retire Rich podcast. But first, there's a "What's Up, Alison?" segment in which Alison digs into the details and revelations that lead to WeWork's tumble from highly anticipated IPO to toxic hot mess.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 1, 2019.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. Hi, Bro!

Robert Brokamp: Hello!

Southwick: We just had a guest greet us when we came into the studio.

Brokamp: It was such a nice surprise.

Southwick: So let's say hi to Daniel from Dubai, who I guess is probably now back in Dubai, but he came to visit us and so that was such a nice surprise.

Brokamp: With a postcard.

Southwick: And a postcard and presents from Dubai. Daniel, thank you!

Brokamp: Yes, very nice.

Southwick: Why are we here? Oh yes, that's right. In this week's episode, Bro explores the lousy world of 403(b)s and what you can do about it if you're stuck with one. And I'm going to share some lessons from the WeWork IPO that wasn't. All that and more on this week's episode of Motley Fool Answers.

Brokamp: So, Alison, what's up?

Southwick: Well, I'll tell you what's not up and that's WeWork's valuation. Ugh! So in January, WeWork was valued at $47 billion and they were planning to go public, but as they started disclosing the financials as part of the IPO process, investors disagreed that the company was worth nearly as much.

"OK," the company said, "we'll make some changes and come back at $20 billion. No? Still not interested? No one? Nuts. Ten billion?" No. So they hit pause on going public, and then the CEO was ousted. Wowee, what a ride! Today I'm going to share with you some lessons from the WeWork dumpster fire of an IPO.

For those of you who aren't sure what WeWork does, it's actually The We Company, but their main bread and butter is WeWork locations so I'm probably going to end up saying WeWork most of the time.

Brokamp: I'd agree with that.

Southwick: Thank you! So WeWork essentially takes on long-term leases for office space, renovates the space so it looks really cool, and then short term subleases it as a co-working space. So if you're an entrepreneur just getting started, it's a nice way to get all the amenities of an office without having to worry about setting it up yourself. Its success has largely been credited to the booming start-up economy; however, bigger companies are also using them. We actually use a WeWork space in Philly. It's been a great opportunity for us, as we wanted to explore... Do we want to open a permanent office here? Eh, maybe. How about we just start with a WeWork space?

Brokamp: Let's just dip our toes.

Southwick: Right. Companies like Microsoft, Facebook, and Amazon also use them to rent space in cities where they don't want to manage the real estate themselves. In the D.C. area, alone -- just in DC-Northern Virginia -- do you want to guess how many WeWork spaces there are?

Brokamp: For people who don't know, that's where we all live. But I can't say I've ever seen one. They must be hidden. Are they hidden?

Southwick: No, they're not hidden. There are 12 locations within, let's say, five miles of us at this exact moment, and six opening up soon. Apparently they open two new locations a day and their growth has made them the largest private tenant of Manhattan office space. That's bananas!

Brokamp: Bananas.

Southwick: So over at the WeWork on Rhode Island Avenue in D.C., for example, it costs about $400 a month to just hang out. Then you can go and sit in the common spaces. Find a table. Find a desk. Use their phone booth. Whatever. For $1,000 you can have your private office where you can stand in one place and probably touch all four walls.

The We Company also has other ventures, like WeLive, which is a condo building in D.C. WeGrow, which is a school. But WeWork is the big one. So that's what they do. What the heck happened, and what can we learn?

The first lesson. Beware the celebrity CEO. To paraphrase Aswath Damodaran, "I don't like this company. I don't like CEOs that spend their time telling me how to live my life rather than talking about running their own business."

Brokamp: By the way, he's a business professor at NYU.

Southwick: He did a YouTube video that's at least a half hour long looking at WeWork and whether they are really worth what they think they are, so if you love numbers and valuation, I recommend watching that YouTube video.

Brokamp: His website is great. All kinds of great data. All kinds of good stuff.

Southwick: So to be fair, you can be a so-called celebrity CEO and run a profitable company. At The Motley Fool we love a good founder-led company -- emphasis on the word good. So, this man though, he is a hoot and the media is excited to pile on.

Ready? Meet CEO and co-founder Adam Neumann. I believe he's six-five. He's got long locks of hair. Kind of like a skinny Antonio Banderas, maybe?

Brokamp: I think more like Michael Hutchence, former lead singer of INXS. I think he looks a lot like him. For you, fans of '80s bands.

Southwick: I mean, INXS is so good. So good, right? That music holds up.

Brokamp: Indeed.

Southwick: So now you've got a picture of him in your mind. The Wall Street Journal described Adam Neumann as "intensely ambitious and a masterful storyteller with a magnetic personality who can inspire and sell." And New York Magazine has a delightful article about the man and it's full of fun anecdotes, such as how he holds meetings at two in the morning and still shows up late. He gets stranded in foreign countries after someone stashes weed in a cereal box on the private jet. Oh, and the company. This company loves to party.

But I'm honestly not bothered by the fact that he smokes weed on private jets, or that he doesn't wear shoes around the office. He can smoke all the barefoot weed he wants if he can run a good company. And he certainly inspired a lot of people.

We'll get into the economics of the business later, but Adam and his wife, who's been very involved in the company and by his side the whole time, have big personalities. Their cult-like personalities, some say, are what helped inspire people and grow the company, but it also derailed the IPO. And also financial shenanigans.

Brokamp: The shenanigans are crazy.

Southwick: The shenanigans are crazy. So the fun thing about going public is suddenly you have to disclose a lot of financial information, and WeWork had a few skeletons in their closet that made investors say, "No, thanks." For example, WeWork paid Neumann nearly $6 million to change the name to The We Company, a trademark that Neumann just so happened to own. Isn't it amazing?

Brokamp: I think that summarizes the whole problem with his self-dealing. It's amazing.

Southwick: Absolutely. So when investors called them out on this in the S-1 -- I guess they did it in the S-1 -- they amended the S-1 and said he gave the money back. How gutsy is that? You know what we need to do? We need to change the name of the company and it just so happens I have a great name. And now you're going to have to pay me for that name. Anyway, let's move on because that was like shenanigans number one.

Apparently Neumann invested in buildings and then had WeWork sublease space in them, which obviously presented a conflict of interest. On top of that, Bloomberg said that the S-1 filing showed that he was also borrowing money from WeWork at little or no interest. He was borrowing money from the same company that he was also charging to rent space from him.

How much money? Well, in 2016 Neumann borrowed $7 million from WeWork at the annual interest rate of 0.64%.

Brokamp: Nice.

Southwick: So nice that I want that deal. Also, Neumann took out a much larger loan from WeWork. A few months ago the company lent him $362 million in April at 2.89% interest to help him exercise some options to buy stock.

Brokamp: Interesting.

Southwick: I know. He also reportedly cashed out of $700 million in stock ahead of the IPO with the S-1 saying that his late sale was late 2017.

Why was the guy able to do all this stuff? All this self-dealing?

Well, aside from being charming and motivating, he also has controlling shares. He has been able to maintain control because the share class he owns has 20 votes to every one vote that other shareholders get. When people saw this in the S-1... I keep saying S-2. I need to say S-1, don't I?

Brokamp: Sure, but most people don't know the difference, so go ahead. Say S-10. It's all fine. It's all good.

Southwick: OK, I don't know which "S" I'm in, but in the S's. There's some numbers, here. So WeWork amended the S-1 and they reduced the voting power to 10 votes for every one vote the other shareholders have, but that's still pretty ridiculous, right?

So as I'm researching this -- reading all the articles and listening to all the podcasts -- it's easy to forget that there's actually another co-founder named Miguel McKelvey, who later became the company's chief creative officer in charge of design. Arguably, the design of these spaces is WeWork's biggest edge. It's hard to find a lot about him, but he did an interview on the How I Built This podcast and he sounds like a legit, nice person.

And so I recommend listening to this podcast. Again, it's How I Built This podcast with Miguel McKelvey because the interview takes place when the company's doing well -- like a couple of years ago -- and so the narrative at the time is, "Oh, wow. Look at these audacious guys who had an idea and a passion to go after it."

Brokamp: And they did make a lot of money. Their revenue is something like $2 billion.

Southwick: Yes, they did do well; whereas, the narrative, now, is look at these hubristic hucksters. It's just funny how the media will turn on you. What people love more than an underdog story is, of course, an underdog story that turns into a fall-from-grace story which is what this has been. There's been an evolution, here.

Brokamp: But it is because of (1) the valuation that they tried to come out with, with the IPO and (2) the CEO. If you took those two away, it actually would be a pretty straightforward success story. Sorry, that's my hot take.

Southwick: That's not a hot take. I think you're right. Let's head to lesson number two. Are you really a tech company?

Brokamp: I love this. This is a good one, too.

Southwick: So real estate is an old business. It can certainly be profitable, but is real estate investing really going to excite VC investors? Well, what if I tell you it's a tech company that's disrupting real estate? Ooh! I see you. Now you're onboard. And that's what WeWork promised. They weren't just going to disrupt real estate, though. They were going to be a tech company that was going to disrupt education, and housing, and gyms. But the thing is they aren't a tech company. They're a real estate company.

But wait! What if I tell you that we are a community company committed to maximum global impact, as WeWork said in the regulatory filing, and our mission is to elevate the world's consciousness. Eh? Who's on board?

Brokamp: I'll pay $40 billion for that.

Southwick: Rick is literally wearing a shirt, right now, that says, "Elevate humanity through business."

Brokamp: There we go. So Rick is on board.

Southwick: Wow! You totally are on board.

Rick Engdahl: It was a giveaway at the Conscious Capitalism meeting.

Southwick: [Laughs] It's so good.

Engdahl: That's probably where they stole the statement from.

Southwick: I shouldn't make so much fun of them because you know what? It is nice when businesses want to make the world around them a better place. OK. I'll give you that. But, come on! You're renting office space and it's really great-looking office space. How fun. How exciting. How collaborative. But OK, maybe slow your roll, there, on elevating the world's consciousness.

Let's take a look at the numbers. The headline could be that they are losing two dollars for every one dollar in revenue. That's a fun stat. Last year WeWork reported revenue of $1.82 billion, which was more than double that of the prior year. Awesome, but its net loss also nearly doubled to $1.6 billion.

Brokamp: Well, less nice. Less nice.

Southwick: Less nice, as TechCrunch.com put it. "WeWork is growing like mad, but it's hard to tell what its gross margins are. This makes its revenue quality hard to parse. What wasn't hard to figure out was that WeWork is tectonically unprofitable on operating and net basis, and that the company's operations consume cash while its investing activities torch the stuff."

OK, fine. Startups tend to burn through a lot of money to grow into profitability, but this is a business with questionable at best margins, so the revenue is growing great, but it will potentially never outpace the losses.

But wait! WeWork also has a lot of debt, including a $702 million bond that's due in 2025. And speaking of those investments that are torching money, Neumann -- apparently an avid surfer -- of course, made the company invest $13 million in a wave pool company. That's just a throwaway anecdote. Anyway, as Scott Galloway said on the Recode podcast Pivot, "Uber was 'drunk and disruptive', WeWork was just 'drunk.'" Who would fund these people? Well, that gets us to our final lesson: Be careful when SoftBank says you're not crazy enough, even though we've already established that you're already pretty crazy.

So meet Masayoshi Son, chairman and CEO of SoftBank Group Corp., a Japanese conglomerate. In 2016 SoftBank launched the Vision Fund, a $100 billion venture fund. Massive! And $45 billion of which came from Saudi Arabia. The Vision Fund strategy -- I'm obviously oversimplifying because these are very sophisticated investors -- was to take a ton of money, sink it into relatively late-stage companies like DoorDash, Slack, Uber, etc. and blitzscale them and then step three is to profit.

Masayoshi Son, or Masa Son -- apparently some people call him that, maybe his friends; we're pretty tight -- admits that what he looks for are insatiable entrepreneurs. At WeWork, as they said in the FTB Beyond money podcast, Masa Son met his match with the ultimate hustler.

Here's how the deal went down from the New York Magazine piece: "Son met Neumann at WeWork headquarters and told him he had precisely 12 minutes for a tour, after which he invited Neumann to join him in his car, where Son sketched out a deal on his iPad to invest $4.4 billion in WeWork. Son told Neumann to make WeWork 10 times bigger than your original plan and to recognize that, in a fight, being crazy is better than being smart, and that WeWork wasn't being crazy enough. Son said he thought WeWork could be worth a few hundred billion dollars."

Apparently, Masa Son thought that WeWork was like Amazon at the stage when Amazon only sold books, and somehow WeWork was going to sell everything community-related. At this point in my homework, I didn't have time to unravel how and when SoftBank and separately SoftBank Vision Fund doubled down on their WeWork investment, but now SoftBank and the Vision Fund own nearly one-third of We.

They made moves at a $47 billion valuation. They invested at a $20 billion valuation and now they are about to become majority shareholders when, in December, Masayoshi Son tells Neumann that the deal for SoftBank to invest $16 billion in WeWork -- including $4 billion it had already promised -- well, the deal was dead.

So WeWork, Uber, Slack, DoorDash were all supposed to go public and make tons of money for the Vision Fund, in time for SoftBank to start convincing investors to pour money into their second Vision Fund of over $100 billion, which is right about now. So Uber and Slack -- well we know how they're doing, and there's some schadenfreude to be had in the VC world, I think, about how SoftBank's Vision Fund is performing.

If SoftBank had given them more money, that would have probably bought WeWork more time and given them a little bit more runway, but WeWork is running out of runway to get profitable, thus the pressure to IPO, and here we are today.

So, what happens now?

Well, Adam Neumann stepped down as CEO and there are rumors that WeWork is going to lay off one third of their employees. They already started looking into it. From what I read, experts think that coworking is only going to become more popular. The threat for WeWork, though, is that there's a big difference between the average length of the leases it enters into -- roughly 15 years in the US -- and the time its customers typically agree to lease the space, which is like less than two years. Should the economy go south, the hit to entrepreneurs and small businesses, and ultimately to WeWork, could be pretty hard. The short-term subleases would dry up and, meanwhile, they're still obligated to pay their long-term leases.

Like I said, I listened to a lot of podcasts and read a lot of articles. I recommend reading the New York Magazine articles. The Wall Street Journal has also done a lot of good reporting on this, if you want to learn more. I also enjoyed listening to the Financial Times Behind the Money podcast episode about this, and then Recode's Pivot podcast was fun with Scott Galloway, but there are a lot of swear words in that one, so don't listen to it with your kids.

Anyway, a few weeks ago -- before everything fell apart -- on a call with the whole company Neumann said they had, "played the private market game to perfection." As for the public markets, he said, "the company was still learning the rules of the game." And that, Bro, is what's up.

Brokamp: When most people think of work-sponsored retirement plans, they think of the 401(k), but one in five American workers is actually covered by a different type of plan that also has a really boring name, and that is the 403(b). It's a type of plan that is offered by non-profits. Many government entities.

And while it has much in common with the 401(k), there are some important differences, the biggest of which is that many 403(b) plans are lousy. Yes, some 401(k) plans also stink, but when I think of some of the worst retirement plans that I have personally seen or read about, most of them have been 403(b)s.

What makes them so bad and why is this even allowed to happen? Here to provide the sordid details and solid recommendations are Dan Otter and Scott Dauenhauer, the fellows behind 403bwise.org and the Teach and Retire Rich podcast. Gentlemen, welcome to Motley Fool Answers!

Dan Otter: Thanks for having us!

Scott Dauenhauer: Excited to be on.

Brokamp: Dan, you and I have known each other for several years, and you actually have an old history with The Motley Fool going back to the early 2000s. When we did online seminars, you were actually one of the board strollers.

Otter: Absolutely. I was an early big fan and I credit if we have any humor, at all, on our website, it's because of The Motley Fool. The idea that you could talk about finances and make it fun -- I found that enormously appealing and we tried to integrate that into what we do.

Brokamp: Back when we first met, I think you were a sixth grade teacher in Maryland -- an English teacher...

Otter: Yes.

Brokamp: ... and I used to be a sixth grade English teacher, so we hit it off. Why don't you tell us a little bit about how you went from there to where you are now, including your advocacy for better 403(b)s?

Otter: Absolutely. So way back in 1992 I was a first-grade teacher. I was on the job maybe three months. The kids had left for the day. I was at my desk desperately trying to get ready for the next day. A woman appears in the back door of my classroom. She pops her head in and says, "Do you care about your financial future?" Kind of a jarring comment when you're like head down on curriculum design. Yes, I am.

She walks in and starts talking about a financial plan she has. How she helps the third grader next door, the sixth grader down the hall. She literally had all the paperwork filled out. I had no idea what she was talking about. I felt really stupid because I didn't know what she was talking about, but I also didn't like someone coming into my room trying to sell me on something. I had no idea. So I politely listened. She left. I never did anything.

But I began to self-educate myself about investing. I kept hearing about mutual funds. Low-cost mutual funds. I found The Motley Fool. Your radio show, pre-podcast era. And I had a friend who was a financial planner and I said, "I always hear about the 401(k). What do teachers have? Obviously we have pensions, but is there anything else?"

And that's the first time I ever heard the term 403(b). He was like, "Most of them are awful. There are too many choices. Most of them are high-fee." But what was amazing at my school district, at the time, I had 60 choices. That's outrageous, right?

Brokamp: Sixty choices of different plans?

Otter: Different financial providers. Think about that. At the time, Los Angeles Unified School District had 225 plans. I mean, it's bonkers.

Brokamp: That's crazy.

Otter: Luckily, though, of those 60 choices the very last one listed was Vanguard. I had read about Vanguard. I had read one of John Bogle's books. I actually listened to a John Bogle interview, I think, on Motley Fool Radio. And so I signed up for Vanguard. I was feeling kind of smug, and I would sit in the staff lounge and I'd hear my colleagues talk about their 403(b) guy or their 403(b) girl, and they often used the term "TSA," tax-sheltered annuity. They often didn't even say 403(b), so it makes teachers think they have to do an annuity product, a tax-sheltered annuity.

And I started asking questions. How happy are you with your plan? Do you know what your fees are? I remember one colleague said, "Oh, there are no fees." And I said, "There are absolutely fees."

She asked if she could bring in her statement. She wanted me to take a look. I had never done anything like that before. I said, "Yeah, bring it in. Let me see if I can find the fees." I absolutely found the fees. She was very thankful. The fees were high. And she's the one who said, "You should do workshops and let teachers know about this. None of us know about this."

So finally, in the year 2000, I launched 403bwise.com, got connected with an LA Advocate, and got set up with an interview with a reporter from U.S. News & World Report. The website got mentioned like three months after the launch and we were off and running from there.

Brokamp: I'll point out that since then you've gotten a Ph.D.?

Otter: I have.

Brokamp: And that you have taught the world-famous class "From Beer to Eternity."

Otter: Yes. I taught public school. I taught elementary, middle, and high school for about 12 years and then I did get my Ph.D. in 2010 from the University of New Mexico. I also taught full-time at the University of New Mexico and then I became the associate dean of the School of Continuing Studies at the University of Redlands. And I think this class got me the job.

I have been infatuated with the brewery movement. I think it's phenomenal. I lived in England as a kid, and we had a pub across the street, and while I didn't personally go to the pub...

Brokamp: Of course not.

Otter: ...what I noticed was it was families. It was not just 20-year-olds going to get drunk. It was whole families. It was this place to have good beer, good conversation. So when the brewery movement started taking off, it's national, I thought it was fascinating and I wanted to know more about the history, so the first class I helped develop was "From Beer to Eternity" that we hold at the breweries in Redlands, California.

Brokamp: That's so funny. So Scott, you've traveled a slightly different path. You are a certified financial planner practitioner. You're the principal and owner of Meridian Wealth Management. How did you get to be somebody who takes on the 403(b) industrial complex?

Dauenhauer: Well, ironically, it's kind of a similar path. My wife is a public school teacher. She started in 1998 or 1999 and just like Dan, some guy walks into her classroom. Luckily it was after school. We've been hearing stories, lately, of reps that just come right in, in the middle of a class. Just bizarre.

She's a new teacher, so they said, "The school district sent me. I'm here to represent the retirement system." She's in the California State Teachers' Retirement System, CalSTRS. "and I'm here to tell you about your retirement." I was working at Morgan Stanley at the time. She calls me up and said, "Hey, the guy is here from the retirement system to explain our benefits." I didn't know anything about the CalSTRS system. I didn't even know what kind of retirement plan she had. I thought she had a 401(k).

So I said, "Let's schedule a time." I went down to the school. We were in her classroom. Five minutes in I'm listening to this guy and I'm like, "Who sent you? Who do you work for?" I realized that it was just a sales guy.

Brokamp: When you think of the retirement system, you think it's someone from the county or the school district, but it's not.

Dauenhauer: It wasn't.

Brokamp: It's an insurance salesman.

Dauenhauer: It was an insurance salesperson. He was selling, at the time, a very novel product. Now it's getting a lot of traction called an "equity indexed annuity." As soon as I realized what was going on, I'm like, "Ugh, OK." I said, "We're not interested. Please leave." I called the school district because I thought this guy should get in trouble. They were just like, "Oh, yeah. They wander the campus. It's just normal." I'm like, "This is not normal. This should not be normal." Do you allow just any random people to come up to The Fool and sell their products?

Brokamp: Absolutely not.

Dauenhauer: I mean, school districts do it, so maybe you should reconsider your policy. It's working out so well for the teachers.

Brokamp: We're missing out on things like indexed annuities.

Dauenhauer: You could be getting into an indexed annuity today.

Otter: In fact, that's why we're here.

Dauenhauer: That's why we're here.

Otter: We're really a front to sell equity indexed annuities.

Dauenhauer: We've got to finance this non-profit somehow.

Brokamp: [Laughs] So those are your stories. Let's get into why so many, and not all, but so many 403(b) plans are lousy. You've touched on it a little bit. Partially it's the choices and the fees, right?

Otter: Absolutely. It's very unlike the 401(k) where the plan has probably gone out as a request for proposal. Competitively bid. One vendor wins so you get better costs. Better education. It's not like that in the 403(b) world. 403(b)s are structurally problematic because they fall outside of ERISA -- the Employee Retirement Income Security Act -- so they're like a black hole, and it's almost like anything goes.

I talked about my old school district, which had 60 vendors. It's almost still just as bad. Where I live in Redlands you have 44 vendors if you teach in the public school system in Redlands, but if you work at the University of Redlands, where I used to work, it's an ERISA plan. Because it's higher ed, you have one plan. You have TIAA-CREF, so it's a structural problem.

And people don't understand the plan. The fact that you're doing something like this is going to help get the word out. I think so many people are just not even aware of the 403(b).

Brokamp: And part of it is the fees -- am I right? -- in that it comes from an insurance company. A lot of them are annuities. I tried to get some information on the average cost on 403(b)s. I saw lots of conflicting information, but I saw some that said overall, the annual costs are somewhere between 1.5-2% or even higher compared to 401(k)s, which are less than 0.5%.

Dauenhauer: Yes. The difficulty with getting the information is there's no central place that you can get it. It's so dispersed. We won't get into the reasons why, but the fees, actually, can be significantly higher than that. Mutual funds do make up maybe -- what do you think, Dan? -- 20%-25% of sales, and generally those are the lower-cost ones.

But the rest is variable annuities and then these fixed and indexed annuities that we referred to. And technically indexed annuities don't have an explicit fee. It's a spread product, meaning all of the profit and the costs are built into the rate that they pay. The insurance company makes a certain rate of return on your money and then they pay you out a smaller portion of it. And you don't know what that is. So to really put a price tag on what the average cost is, is next to impossible.

Brokamp: And with the indexed annuities, you can see why the sales pitch is so attractive, because basically what they tell you is that the performance is linked to an index like the S&P 500, but you're guaranteed not to lose money. So you're going to get stock market like returns with no risk. What could possibly be bad about that?

Dauenhauer: And who wouldn't want that? I mean, I would take that any day of the week. But it's all a fallacy. None of it's true. Your returns are nowhere close. In fact, that's actually what got me so interested in doing this and working with teachers, was not long after we kicked that guy out, another salesperson had been working with a colleague of my wife, and she asked me to review her product, the policy.

I couldn't believe what I found. She was told she was going to get 12% returns and after reviewing this policy, it was clear she was never going to return more than 2% a year. Not only that, she had a 20-year surrender period and an 18% surrender charge.

Brokamp: Wow! Which means you can't take money out without paying significantly. That's what a surrender charge is. You pay a significant fee.

Dauenhauer: You're locked into this product. And the insurance company controls all of the mechanisms for returns. So even if the stock market does go up a lot, they have a mechanism to ensure that you actually don't get much of it.

Brokamp: For example, it often doesn't factor in the dividends of the index and there's a cap on it. I'm just making this up, but it might be capped at 8-10% even if the index goes to 20%-30%.

Dauenhauer: Many times it's capped at 2%-4%. There might be a participation rate, but we could do a whole show on indexed annuities. They're pretty bad and the worst ones are sold to our nation's school teachers. These are not products that could be sold in 401(k) plans.

Brokamp: How is this possible? I mean, my first reaction is there must be some sort of conflict of interest. We mentioned something on the show a few weeks ago that had been highlighted, I think, on Tony Isola's website about how in Texas there used to be these ridiculous caps -- like no more than a 6% up-front load and a 2.75% fee -- which are ridiculously high to begin with, and then they passed a law where they got rid of those and then you see that the congressperson who passed the law has taken a good bit of money from the financial services industry. Is that part of this?

Otter: One hundred percent. The problems are all over the place. They're especially at the state level. In California, 1971 legislation written by the insurance industry banned school districts from putting their plans out to bid. It's illegal to put a K-12 plan out to bid, and that's why you have 40 to 50 vendors on a list. Pennsylvania just passed a law requiring school districts to have at least four vendors. How is that efficient for a school district to have to aggregate money to four vendors? Obviously, it's worse in California. We're doing it to 44 vendors, but it's corrupt, up and down.

Brokamp: Some people might say, "Well, of course it's better to have more vendors because it's more choice," but I can tell you, as someone who's on the 401(k) committee here at The Fool that when we improved our plan, we put it out for bid and we chose the best plan because we legally had to. Our 401(k) committee has a fiduciary responsibility to our employees to choose the best plan. Are there not fiduciary responsibilities within the 403(b) market?

Dauenhauer: In general, the answer's no, and we'll limit this to public K-12. There is no fiduciary responsibility in any state that I'm aware of. Now, they have another plan that's available to teachers and public school employees called a 457 and, in general, those do have fiduciary responsibilities. A lot of the time it's ignored. But on the 403(b) side, there's no fiduciary responsibility. And because of that there's no responsibility to take it out to bid. There's no responsibility to get the best investment options. You have, right now, higher education institutions being sued for offering Fidelity, TIAA, and Vanguard. They're getting sued...

Brokamp: And by the way, those are the good guys in the industry.

Dauenhauer: Yes. Most of the people at these institutions have access to index funds at like less than five basis points and they're getting sued for millions over it. Meanwhile, we have school employees who are paying 2-3%. It makes no sense. There's no economy of scale, because since you can't put your plan out to bid, you can't aggregate your assets and go out and try to attract a record keeper that's going to offer a reasonable price on it.

It's structurally messed up. The incentives are all based on the commissions that are built into the products. If you sell high-cost, commission-based products, you're more likely to attract agents ... and I don't really envy them ... who are signing up teachers at $50 a month. And it's great that the teachers are starting to save, but they're starting to save in these terrible products. Today, in a normal 401(k), you have auto enroll. Auto escalation.

You have a fiduciary responsibility. Those three things, right there, would fundamentally change the 403(b) market.

Brokamp: We've talked about that. When you look at the research from Vanguard or Fidelity, there is a huge difference in participation rates between plans that have auto-enrollment and auto escalation. It would solve the retirement crisis if everyone had to sign up for a plan, but you're saying in the world of a 403(b), that generally doesn't happen.

Otter: I will say the Montgomery County Public Schools, which is where I taught when we met, put their plan out to bid and they have one vendor. They have Fidelity. The East Coast is generally better. You generally see less vendor choices than you do in states like California and Texas. That's where they're probably most problematic.

Brokamp: Let's say someone's listening to this. They're a teacher or they work for a non-profit, they have a 403(b), and there might be a little concern now. What should they do to figure out whether they have a good one, or what should they do to make sure if they have lots of choices to pick a good one?

Otter: I would say a couple of things. California's state retirement system runs a database called 403(b)Compare. It's a place where every vendor that sells 403(b) product in California has to register and you can actually find fees through that. So you go ahead and take a look at that.

I would say if you don't have Fidelity -- help me out here, Scott, if I forget someone -- Aspire, Fidelity, Vanguard, TIAA, USAA. I would say [ICMA-RC] is now in the 403(b) market. I think they're doing it right. And then T. Rowe Price, I would say. If you don't have those companies, I think then you need to reach out to 403bwise.org. Come to our website. Contact us. We have a very active Facebook group. We'll respond. We get a lot of folks that post their vendor lists and then we'll go ahead and take a look at it. Scott's a CFP. We can help them.

Brokamp: You offer on your website an Advocacy Toolkit.

Otter: We do.

Brokamp: And we've talked about this on the show, too. If you don't have a good plan at your workplace, get your colleagues onboard to advocate for a better plan. Your toolkit provides a PowerPoint presentation to help people make that argument. Generally does that work?

Otter: Well, it's new. The website -- the dot-org -- we just launched at the end of July and so it's sort of one arrow in the quiver. We are very curious to see how this works. We are looking to get a network of advocates across the country. We've talked about getting them together next summer and having some workshops. We're not going to change this by ourselves. The K-12 403(b) is broken. This is going to be at the grassroots level and organic. We need teachers out there to be the advocates in their school district. Come to our website and download our PowerPoint. It's adaptable.

We're going to start doing weekly webinars for an hour. We're calling it Office Hours with Scott and Dan. The first 10 to sign up that week -- we will answer their questions and we're going to do this regularly, because we have a feeling there will be demand for that. The more we can build a network, an army, this is how we're going to make a difference, because we cannot do it ourselves.

Brokamp: Another resource I'll point out that's on your site, that I find very helpful, is you have a good questionnaire for advisors, because a lot of people do want to hire a financial advisor or a financial planner and it's the questions you should be asking, starting with, "Are you a fiduciary or not?" which is pretty important.

Dauenhauer: Yes, a lot of people call themselves advisors in this market, but they're not advisors. Under federal law they're not investment advisors. You can pretty much call yourself anything these days. It's not very well regulated.

We're trying to do two things. One, we're trying to attract qualified, competent advisors. People who are CFPs. Who are willing to act as fiduciaries. Who are fee-only. Who always put the best interests of their client ahead of their own. And we want to train them on how to work with teachers. That's one of our initiatives.

We always say you can do this on your own. We will help you. You can do this on your own. Here's some resources. Come to our website. But, teachers have a tough job and not all of them want to spend their evenings learning how to do retirement planning and learning how to do investment planning and trying to dissect a prospectus. Not really something they want to do.

So they can hire one of these advisors and know that their best interests are going to be put first, and that they're going to say, "You've got Axa, Valic, LSW, but you need to go with Vanguard, and we're going to help get you there." These advisors might work on an hourly basis. They might work on a subscription basis, which is a whole new way of doing business. Kind of neat. The gentleman we're working with tonight is probably going to be working with the XY Planning Network. It's a really new and neat network of growing fiduciaries. That's one route.

But we don't exist to push leads to advisors, but we want all teachers, if they want access to advisors, to know that they should be working with a fiduciary, what questions to ask, and we'll do our best to connect them with those people, as well.

Brokamp: One thing we often say to people with bad 401(k)s is to take advantage of the match and then go to an IRA. And this, I think, is also a challenge with 403(b)s because the matches are not as common or as generous. This is another situation where I tried to find research and I couldn't find a consensus. But generally speaking, there's not as much of a match.

Otter: It's very rare to see a match in a public K-12 403(b) plan. That's probably because teachers have pensions.

Brokamp: Got it. So if you have a bad 403(b), is one solution just to ignore it and max out your Roth IRA first?

Otter: Exactly. I mean it's a couple of things. One is lobby your employer. Use resources from our website. The Advocacy Tool. We have a fee comparison chart. It's hard to argue with that. This really comes down to math. High fees over time have a punishing effect on your balance.

Brokamp: Just to make it that clear, you have a good chart on your website that shows when it really could result in cutting 30-50% off of your retirement savings, just by paying an extra 1-2% a year.

Otter: Hundreds of thousands of dollars in costs. Every time I do a presentation, now, I have teachers in the audience go to an online 403(b) calculator and just play with the assumptions. It's impactful for them. You are absolutely right. Roth IRA -- the beauty of that is you pick any vendor you want. Scott talked about it earlier. The 457 is often available for teachers. More fiduciary oversight is required. Generally you have less vendors. Notice I'm saying generally. Generally better investment options. Generally a better fee structure.

Brokamp: That's kind of an odd duck plan. Most people don't have it, although we get questions about it. I'm not an expert, but as I understand it, you can actually contribute to both a 403(b) and a 457.

Dauenhauer: Yes, it's ironic that the lowest-paid profession has access to the highest contribution limits. I don't think that's by accident. It's not like the Wall Street people get access to two retirement plans. You can contribute $19,000 to a 403(b) and $19,000 to a 457, as well as make Roth contributions. So it's kind of ironic that you have that.

And then if you're over age 50, another $6,000 to each. That's potentially $50,000. In many states that's higher than the average teaching salary.

Otter: We know a teacher whose wife is also a teacher. They max out both plans. I mean, they are putting away almost $100,000. His name is The Millionaire Educator -- that's what he goes by -- Ed Mills.

Brokamp: And he lives in a tent... No, just kidding.

Otter: What's interesting is he's someone who's job hopped to get better 403(b) options. Because that's when you can move money to a Vanguard. To a Fidelity when you separate from service. He will work at a school district. Mostly this is in Georgia, I believe, is where he's at.

Dauenhauer: This isn't really a strategy we promote here. If you don't like your 403(b), change jobs.

Otter: There's outliers. Then there's Ed. He is way out there, but it just shows you what's possible. He says he and his wife live off of 457 money from previous employers.

Brokamp: Because you don't pay the 10% early distribution penalty on a 457.

Dauenhauer: That's right. And the 457 is a very big plan. Firefighters, police, all municipal employees have access to a 457. Generally, there is a fiduciary responsibility, there, so you get a little bit of a better plan. It doesn't always translate to schoolteachers. Sometimes they still have really bad 457s.

But for the school districts that are paying attention, like Los Angeles Unified School District, they've done a great job. Their 403(b) plan is not great. Their 457 plan is fantastic. It's really good. There's a fiduciary responsibility, there. It's not subject to the same vendor law. Like Dan said, generally the 457 can be a really good alternative.

Brokamp: You mentioned pensions, earlier. This might be more of a question for Scott as a CFP. Many people think, "Well, I have a pension. I don't need to save in my 403(b)," but the truth is many pensions are underfunded, some significantly, so. When someone says, "Oh, I've got a pension," do you tell them, "you may not be on such solid ground as you think?" Or do you think most of these underfunded plans somehow will all work out, either through the taxpayers or something?

Dauenhauer: I think Dan should answer that.

Otter: Everything will be fine. Don't worry.

Dauenhauer: I think it really depends on the location and the plan. CalSTRS is underfunded, but it has a really good plan to get back to full funding. I think all of my clients are going to get made whole. Most teachers are not retiring at 62 with 30 or 35 years of service. A lot are, but many teachers are job changers, so they have come to the profession in their 40s. When they're looking to retire in their 60s, they might only have 20 years, then. It's certainly not going to be enough.

Some have some retiree healthcare, but they're not prepared for the costs that come with Medicare. Medicare is available, but it's not free. You've got your Part B premiums. You've got your Part D premiums. Depending on your income, you might be subject to the IRMAA. And then if you're not on an Advantage plan, you have your Medigap policy. Multiply that by two if you're married.

Brokamp: It's shocking, I think, especially for those who retire from a company that had a really solid health plan. The people are like, "Oh my gosh. This is really expensive."

Dauenhauer: It could easily be $1,000 a month. At 65 they're not prepared for this, so the idea that just because you have a pension or you have Social Security you don't need this 403(b), that might be true for a certain portion of the population, but it's not true for most. And when it comes to that, we also think that we should try to have some diversity in the taxation, the tax structure of their 403(b) or 457.

You mentioned the Roth IRA. A lot of teachers might have their home paid off by the time they retire. All of their pension income is taxable. If they have Social Security -- there's 13 states that don't -- but if they have Social Security, 85% of that is probably going to be taxable.

And then they've got this pre-tax 403(b) or 457. Every dollar that comes out of that is going to be taxed, potentially, when income tax brackets go up in 2026. 25-28% plus state. Suddenly, easily, one-third of every dollar they take out of that 403(b) is going to taxes. It's nice to have some of that money be able to come out on an after-tax basis through like a Roth. So we're not just encouraging people to save in a 403(b), but also have some tax diversification.

Brokamp: You have option to do the traditional 403(b) or the Roth 403. In the 401(k) space, it's like 80% of companies offer the Roth option.

Dauenhauer: It's not that high in 403(b), but it is growing and growing quickly. We're seeing more Roth being added in 403(b) than we are seeing good vendors being added.

Brokamp: Your website has been up and running for almost 20 years, but you switched recently from 403bwise.com to 403bwise.org because now you're a non-profit.

Otter: Yes.

Brokamp: You're a 501 something or other.

Otter: 501(c)(3). We actually have a 403(b). We have 42 vendors that come to my office. They'll come to my house.

Dauenhauer: He has an open-door policy.

Otter: Exactly.

Dauenhauer: Whoever wants to show up at his door can sell him stuff.

Otter: Any willing vendor. So in 2016, The New York Times ran what we call a groundbreaking series on the 403(b). It exposed the problems of the 403(b) to a really wide audience and lucky for us, a gentleman named Tim Ranzetta, who lives in the Silicon Valley, read the articles and found out about the problems.

He runs something called Next Gen Personal Finance, a fabulous, free personal finance curriculum available to all K-12 teachers in the country. And it's not only just a great personal finance curriculum. It's also great professional development support. They run four to five days a week. They have professional development sessions around the country. They often pay teachers to attend their webinars to learn how to use their curriculum.

This gentleman is such a champion of personal finance, when he found out that teachers were being taken advantage of, he shot me an email and said, "I read about what's going on. I would love to talk to you. I run this personal finance initiative." At the time I was moving from New Mexico, leaving my job at the University of New Mexico, coming to Redlands to work at the University of Redlands, so we exchanged emails. We get a lot of inquiries.

I get set up in Redlands, and we do a Skype call, and he said, "Look, I'm really concerned about this. Is there anything I can do to help you?" And again, I really didn't know his background. I really didn't know what he was offering. And I said, "You know, we're pretty good, here." We actually had Fidelity as a sponsor. We used to have sponsors -- always below-cost companies only. And he said, "Great. Keep doing what you're doing. Just stay in touch." Scott, I don't know if you want to pick it up from there, because you stayed in touch with him on some other issues.

Dauenhauer: He's a data guy. He wants to get the data, go through the data, and use that data to push the movement forward. I'm a data guy, too. I just love trying to figure things out. I know how to get the data. It's just like a massive project. So we were scheming together to try to figure out how we could get the data that we need to do the stuff that we want to do. And the more that we tried to figure out how to do that, it was just this is a huge project.

And 403bwise isn't actually about data at this point, but that was how we got the ball rolling. You know, somebody should be doing this full-time. So we had a few conversations and I just remember Tim saying to me, "Do you know anybody who would want to do this full-time? Who would you suggest?"

I was like, "I think I might know somebody." He had already met Dan. It was like a year before. So he invited us up to Palo Alto to his headquarters. We were there for 45 minutes and he just said, "You should do this full-time." We were like, "Oh, yeah, we'd love to do it full-time." He said, "No, I'm saying you should do this full-time. I'm going to fund you." It was a jaw-dropping moment for us.

Brokamp: So now you guys full-time are tilting at the 403(b) windmill.

Otter: I like the analogy. Well played, Robert.

Brokamp: So it's about time to wrap things up. I want to thank you guys for stopping by. But I really want to thank you for what you're doing. In the financial services world, there are so few good guys. You guys are the good guys. I don't think it's a stretch to say that you actually have John Bogle's seal of approval...

Otter: True.

Brokamp: ...because he sort of endorsed your books. You go to visit Vanguard to do financial literacy because that was your Ph.D. on. And then you look at your itinerary, and so you've been summoned to John Bogle.

Otter: Absolutely. It was a phenomenal experience. I thought it might be just a shake of a hand on your way. It was like, "No, come into my office. Sit on the couch." And I'm like, "Oh my God. I spent 15 to 20 minutes talking to him about this." And the guy was so sharp. So passionate. Just a conservative, real person. I can see why so many people love him. It was crushing. I knew he was older, but we found out he passed away. For two days, if you went to 403bwise, we had a pop-up of a picture of him with his birth year and year of passing. He's great. I cherish the two cards he wrote me and the picture I have with him.

Brokamp: He was always very thoughtful that way. Anyways, around here being called Foolish is a high compliment, and you guys are as Foolish as can be, so I salute you and I thank you guys for your stopping by.

Otter: Thanks for your kind words. Can you tell our wives these things?

Southwick: Well, that's the show. It's edited self-dealingly by Rick Engdahl. Our email is answers@fool.com. For Robert Brokamp I'm Alison Southwick. Stay Foolish, everybody!