Two years later, she discovered that her money was in a fixed-rate ING annuity with stiff exit penalties. To take her money out, she would have to forfeit 10% of her savings -- $1,000. She did so, reluctantly.
"I could have stayed in for the 10 years and not paid the surrender fee," she said. "But we figured it would cost me more than that in lost investment returns if I did.
"I am incredibly disappointed," she added. "The union and the district should be doing a lot more to give us decent retirement choices."
Told about the teacher's experience, Toby Wills, a Zahorik vice president, said account paperwork separate from the questionnaire indicated that Mendez was a conservative investor, making the fixed annuity appropriate despite her age.
"If somebody says they need to be conservative, it's not my prerogative to drag them out of that," Wills said. "What if the market didn't perform?"
Judith Martindale, a certified financial planner in San Luis Obispo, said this approach did not serve the client's interests. Even if Mendez expressed a conservative attitude, she should have been advised to invest at least some of her money in stock funds, Martindale said. That's because the major long-term risk for an investor in her 20s is inflation, she said, not stock-market volatility, which tends to even out over time.
"Normally, when somebody that age says they're a conservative investor, they need education," Martindale said.
UTLA Treasurer David Goldberg said he knew nothing about 403(b) plans and the union's endorsed providers until he was elected treasurer last summer and received inquiries from the Los Angeles Times. In response, Goldberg said he had revived a dormant member benefits committee to look at the arrangements and eventually hoped to add low-cost options.
His predecessor, Alberto Valdivia, said the union did not endorse low-cost plans because it wanted teachers to have access to the investment advice offered by sales brokers.
"Teachers are trained as educators, not financial managers," Valdivia said. "What we are concerned about is guided, safe, secure investments."
Steve Schullo, a Los Angeles teacher and longtime critic of 403(b) endorsement deals, said this attitude reflected "an offensive prejudice that teachers are too stupid and too naive to manage their own retirement savings."
Many choose products sold by financial planners because they aren't aware that they cost more, Schullo said.
One of the UTLA-endorsed companies, Plan Member Services of Carpinteria, Calif., offers some of the most expensive retirement plans in the state, according to 403bwise.com.
The company sells mutual funds with a so-called wrap fee of as much as 2% to pay for investment advice and for periodically rebalancing teachers' portfolios to keep them diversified. The wrap fee is on top of management fees for the mutual funds.
In all, Plan Member investors pay fees ranging from 2.5% to 4.6% of their savings each year.
Troy Dueker, a Plan Member vice president, said the charges were reasonable in light of the service provided.
"We are giving Finance 101 lessons, explaining what a stock is, what a bond is," he said. "We take them through life-cycle planning."
Dueker said he did not know why or how his company was endorsed by UTLA. But a competitor, Eric Wolf, said his firm, Financially Responsible Educators, got the nod because it put some revenue back into the schools.
About 10 years ago, Wolf was pitching his products to a teacher in her classroom and noticed that she was collecting soda cans to pay for a new carpet. The teacher was planning to buy a fixed-rate annuity. Wolf decided to rebate part of his commission to pay for the rug.
When UTLA officials began screening companies for their list of approved providers, Wolf explained his habit of giving back. He made the list. He now funds a $1,500-a-year UTLA college scholarship for gay and lesbian students as well as field trips, supplies and other school needs.
"I pretty much never say no," he said. "We make a decent living from the school district. Why shouldn't we be giving back? The way the compensation is set up, there's enough to go around."
That's not how it works in Wisconsin, where the teachers union set up its own low-cost 403(b) program.
The Wisconsin Education Assn., which represents most K-12 educators in the state, charges an annual fee of 0.3% of assets. The money pays the salaries of half a dozen registered securities representatives, who answer teachers' questions and provide financial advice over the phone.
"We have no profit motive. Our goal is to cover the cost of operations and keep the cost to participants as low as possible," said Randy Mullis, assistant executive director of the union's Tax Sheltered Annuity Trust in Madison.
Teachers are given a range of investment choices, including a Vanguard stock index fund that charges 0.05% a year. With the union fee, the total is 0.35% of assets -- a fraction of the cost of most union-backed plans.