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Beginner Questions: Vendor Choice, Fees, Advocating For More Options.


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#1 bluegrassretirement

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Posted 22 September 2017 - 11:34 AM

My girlfriend started working at a new school in a new state, and has access to a 403(b). I'm in the private sector, and familiar with 401(k) rules, but just starting to learn about options for educators. As far as I can tell, the only options she has are fairly fee heavy. She can choose to invest in some great Vanguard funds, but the vendor/provider charges a quarterly fee of $15, and a .9% fee for their "advisor services." This appears to be mandatory.

 

Some questions I have

  1. Is there really no way to avoid the .9% fee? The advisor's email stated "The lowest fee schedule that I have for self-directed plans is .90% per year mgmt fee (this is how I am compensated - the school does not pay me or provide a match)." Is this typical? Is there any language I am misunderstanding where she can opt of of the management fee?
  2. Can she select another vendor? I think the answer is no, this school has chosen a single vendor.
  3. Can she influence the school somehow to seek better options?

 

Operating under the assumption that the .9% fee can not be avoided, my assessment is that she should still contribute as much as she can to the 403(b) for the tax benefits, and then just roll it over into an IRA when she leaves this job. 

 

Some additional details in case it matter:

  • The vendor is Lincoln Investment Services, the only "plan type" listed on the sign up form is "RetirementSOLUTIONS PREMIER", which is a "mutual fund only advisory platform where advice is provided by your Advisor and Lincoln for an asset-based fee."
  • the form also has check-boxes for pre-tax 403(b), roth 403(b), pre/post 457. I don't know if these are actually available to her or just listed on the form.
  • The language in the agreement form for the services is as follows:
    • Advisor Services - Your Advisor offers non-discretionary investment advice and assists You in the construction of an investment portfolio based on Your fi nancial
      situation, risk tolerance, investment objective(s), and any investment restrictions imposed by You. Transactions in your account will only be
      initiated with your verbal or written instructions or authorization.
Thanks!
 
Edit: The only documents she has seen/sent me are ones provided by the vendor. The school seemed to refer her to the vendor for all questions. Shouldn't there be someone on staff at the school itself? And/or some documentation from the school's side that lists the options? For my work, the person would be the "plan administrator" and the documents would be something like "summary plan description." 


#2 krow36

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Posted 22 September 2017 - 01:22 PM

Lincoln Investment fees for that plan in CA are even higher (1.25% and 0.3% for optional advisor). It’s possible that the district has lower fees in exchange for using only Lincoln Investment? I think you should check out the district’s website and see if there’s a choice of other providers. If there’s nothing on the website about 403b or 457 plans, then call the HR office and ask. You should be able to get something in writing that confirms the vendor(s).  

https://www.403bcomp...ducts/162#/fees

 

The state of MA offers a 457 plan to teachers and other state employees that is very low cost. Does the district offer a 457 plan?

https://mass-smart.gwrs.com/login.do 



#3 tony

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Posted 22 September 2017 - 01:24 PM

 

 

She can choose to invest in some great Vanguard funds, but the vendor/provider charges a quarterly fee of $15, and a .9% fee for their "advisor services."

Dear Bluegrass

 

Extra fees are hard to avoid in 403b land and at least  you can get Vanguard.  Since you have only a single provider,(have you checked to make sure?) your only other choices would be to not invest at all or to do an IRA. The problem with IRA's, even though your total cost would be much lower (if you go through Vanguard) is that it would also have much lower contribution limits. I do think if you are self-directing you should not have to pay management fees. You can do the paperwork yourself , and set up your own portfolio. I would definitely look into that. 

The management fee charged should not apply  . I mean if you are managing your own account then why must you pay it to someone else.  Call the company directly and don't talk to the advisor about it. The fact that it is mandatory (if it is ) is disturbing. Now an administrative fee on the other hand probably will be part of the arrangement but should not be all that much in addition to the fund expense ratio.

 

Your wife can certainly try and get Vanguard or Fidelity directly by talking to personnel or school board. Also you should check your state 457b options.



#4 bluegrassretirement

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Posted 22 September 2017 - 03:21 PM

These are great replies, thanks! I have a couple of action items now:

 

  1. Verify with HR/business manager that the Lincoln Investments is the only option.
  2. Investigate the possibility of a 457 through the school.
  3. Investigate the possibility of a 457 through the state (I'm unclear on what level of government administers what plans. There is the state, the school district, and then the individual school, which in this case is a charter school, and may have different rules?)
  4. Investigate the possibility of investing directly with Lincoln Investment WITHOUT going through the advisor.

I'll report back on what I find. Anything I missed? Thanks again krow and tony!



#5 tony

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Posted 22 September 2017 - 04:10 PM

 

 

  1. Investigate the possibility of a 457 through the state (I'm unclear on what level of government administers what plans. There is the state, the school district, and then the individual school, which in this case is a charter school, and may have different rules?)

 The 457 through the state if worth doing( check fees and offerings) would be easy to set up in your school system. Its a matter of convincing the powers that be to do the paperwork . Every state is different of course. Here in Virginia through the power of suggestion I was able to convince my bosses to add this option which is quite impressive (take a look : http://www.varetirem...nvestments.html) If it offers good choices and low costs, I would pursue it vigorously.

 

 

 

  1. Investigate the possibility of investing directly with Lincoln Investment WITHOUT going through the advisor.

Yes Yes Yes!!   If you have a self direct option  you should be able to bypass an advisor , do it all yourself, and skip the management fee. I can't guarantee it that Lincoln allows that arrangement but others like Aspire Financial do. But they don't usually tell you. You have to dig.  Of course the Advisor wants to charge you management fees so don't go through him. Go directly to the company!!

 

Please let us know how it goes. If its a go we can help you pick out a portfolio and answer any questions about paperwork. 

 

Keep your fingers crossed.!!!



#6 krow36

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Posted 22 September 2017 - 04:25 PM

You might be interested in a DIY plan that Lincoln Investment has offered in some parts of the country. https://www.bogleheads.org/forum/viewtopic.php?f=1&t=175295  You could skip to the 2017 part of the thread. It seems unlikely that this option is available to your GF.

 

Does your GF contribute to an IRA, either traditional or Roth? If not, she can choose a low cost provider and contribute 5.5k/yr. If she wants to contribute more than that, then she could use a 403b and/or a 457. Using an expensive plan (0.9% fee) for a few years might make sense, especially if a change of employer seems likely.  



#7 krow36

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Posted 22 September 2017 - 04:31 PM

The MA state 457 has some very low cost funds. https://mass-smart.g...98966-01&db=pnp

 

The large cap index fund has an ER of 0.01% with a management fee of 0.016%!



#8 bluegrassretirement

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Posted 22 September 2017 - 08:42 PM

Thanks for the great suggestions, you guys are amazing!

 

  1. I've reached out to Lincoln via their website contact email for "questions for investors." There is also a local branch that the advisor works out of...but I figure if I am trying to do an end run around him going to corporate might be better? The DIY participant directed plan that krow linked in the bogleheads thread sounds amazing. But if it's not offered already, it sounds like we might need to convince the school to lean on the vendor.
  2. I've also reached out to a rep from the state's 457. Still going back and forth, but it's likely that the school is eligible to participate in the 457 but not yet "enrolled." So again, would need to involve the school.

Depending on what's already accessible for us, it sounds like we might need to initiate some discussions with the "plan administrator" at the school. I've read different things about how to influence your company's 401(k), I imagine it's similar with a 403(b)?

 

Also, I should have mentioned that she already contributes the max to her Roth IRA. As for specific funds, we are both very much in the passive index fund camp. In our IRAs we basically just have the Vanguard Total Market/Bond funds. Once I figure out the 457/403(b) stuff, I'll try to find the lowest expense ratios funds and then probably post here again to make sure I haven't goofed =).

 

Thanks again!



#9 krow36

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Posted 22 September 2017 - 11:19 PM

1. I've reached out to Lincoln via their website contact email for "questions for investors." There is also a local branch that the advisor works out of...but I figure if I am trying to do an end run around him going to corporate might be better? The DIY participant directed plan that krow linked in the bogleheads thread sounds amazing. But if it's not offered already, it sounds like we might need to convince the school to lean on the vendor.

 

Lincoln’s DIY plan is an internet based plan that they keep semi-secret. It bypasses the advisor and requires the permission of a higher level Lincoln office. It’s not clear why it’s restricted to just a few areas, or how those areas are chosen. I don’t think the school has any ability to influence this decision. If the charter school has chosen to use a single provider, and has a fee agreement with that provider, I don’t think you be able to change the school/Lincoln arrangement. Remember, the typical K-12 school district does not vet their vender's offerings.

 

2. I've also reached out to a rep from the state's 457. Still going back and forth, but it's likely that the school is eligible to participate in the 457 but not yet "enrolled." So again, would need to involve the school.

 

I agree. This is probably your best chance at getting a low cost plan. A very low-cost plan, run by the state! How could they possibly argue against it??



#10 EdLaFave

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Posted 23 September 2017 - 02:00 PM

My girlfriend started working at a new school in a new state, and has access to a 403(b).


Here in Florida the first choice an educator has to make is whether to participate in the pension or an FRS Investment Option (which has excellent low cost investment options and I believe an 18k/year limit). I believe they MUST do one or the other.

Then the teacher has the optin to contribute up to 18k/year to a 403b vendor.

Then the teacher has the option to contribute up to 18k/year to a 457b vendor.

So make sure you understand all of the options available for your girlfriends situation.
 

the vendor/provider charges a quarterly fee of $15, and a .9% fee


The 0.9% fee is unacceptably high, ridiculous. Keep taking advantage of the IRA for sure, but even at 0.9% it is still probably worth using the 403b and then rolling over to an IRA when employment terminates.
 

Is there really no way to avoid the .9% fee?


Well Lincoln does have that self directed plan in certain areas, but you're probably not in one of those areas but make sure. Otherwise, I'm not sure if you have other options.
 

Can she select another vendor? I think the answer is no, this school has chosen a single vendor.


It sounds like you're stuck then. But you can lobby for a better vendor as I'm currently doing in OCPS (FL) and I'd be gald to help you.
 

Shouldn't there be someone on staff at the school itself?


Our district has a "Retirement Services", which can answer some questions but they provided us with flat out wrong information.

Our district uses a third party plan administrator (TSA Consulting Group), which has a website that lists our available vendors but nothing else.

Neither one would tell us anything about the plans. This is basically the wild west and it is all on you to fight through it.


Navigate and reform OCPS' 403b and 457b.

#11 bluegrassretirement

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Posted 23 September 2017 - 04:36 PM

I believe in Massachusetts that participating in the pension is mandatory. 403(b)'s and 457's are on top of that. I'll be sure to verify that though. My understanding is that if she works there less than 10 years, she won't be vested yet, and so would end up taking a refund. 

 

No shortage of things to figure out!



#12 Admin

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Posted 24 September 2017 - 06:36 PM

I love this board. Awesome suggestions. And bluegrassretirement, thank you for your advocacy and questions. Stay in touch. - Dan