Jump to content


Photo

Valic M&e Fees


  • Please log in to reply
5 replies to this topic

#1 gschech

gschech
  • Members
  • 44 posts

Posted 03 September 2003 - 01:46 PM

I'm working to get Valic to lower their M&E fees in my company's plan. Their current fee for this expense averages .97 per fund. I don't know how much they will come down, but I'm wondering what would be reasonable. Is reducing the fee by 25% asking too much or not enough? The average fund expense in the plan right now is .81. If you add in the M&E fees, it brings it up to 1.78. I think that is too much to pay. It will be interesting to see what they come back with.

Garry

#2 JLF

JLF
  • Members
  • 181 posts

Posted 03 September 2003 - 02:43 PM

DO NOT USE THE ANNUITY FOR ACCUMULATION OF PRE-TAX RETIREMENT SAVINGS/WEALTH. USE NO-LOAD MUTUAL FUNDS. EVEN THE EXTREMELY LOW ME FEE OF TIAA-CREF IS TOTALLY UNNECESSARY.

IN MY VIEW THE ANNUITY SHOULD BE USED IN ONLY TWO SITUATIONS:

1. ACCUMULATION PERIOD: INVEST IN A SINGLE PREMIUM DEFERRED ANNUITY WITH MONEY THAT HAS ALREADY BEEN INCOME TAXED. THIS SHOULD ONLY BE DONE IF YOU REMAIN IN A HIGH TAX BRACKET AFTER MAXING OUT ON ALL PRE-TAX RETIREMENT SAVINGS PROGRAMS.

2. RETIREMENT PERIOD: ARE YOU TOTALLY AGAINST KEEPING THE TITLE TO YOUR PRE-TAX AND POST-TAX WEALTH? IF YOUR ANSWER IS YES, THEN YOU ARE A CANDIDATE TO ANNUITIZE YOUR WEALTH.

USE TIAA-CREF FOR BOTH SITUATIONS.

Peace and Hope,
Joel

#3 Guest_Daniel Clark_*

Guest_Daniel Clark_*
  • Guests

Posted 04 September 2003 - 09:15 AM

Here are a couple things to consider when you are considering the degree to which fees should be reduced.

1. Most participants in participant-directed retirement plans park their assets in "core" investment categories - such as large cap stocks, fixed income, balanced funds & cash equivalents. My research indicates that 60-70 of plan assets reside in these areas. Participants also tend to "buy & hold" in the core categories.

Furthermore, in these core categories, most (75%+) actively managed investment instruments tend to underperform un-managed index funds.

.25% is a reasonable fee for passive funds & I'd be reluctant to pay more than .75% for active management.

2. As for M&E, I'd suggest requesting a specific quote for services & fees from VALIC for items such as enrollment, investment education & communications or anything else they want to get paid for. Get the dollar amount they want to be paid for these services. Compare the fees to the services and then just do the arithmetic to back into the M&E that is needed to fund the services.

Legitimate & valuable work has value & should be paid for. If the services you want will cost $20,000 (and you agree to this) then assuming total plan assets of $5,000,000 an asset charge (M&E) of 0.40% would be justified.

The benefit of this approach is that you also get VALIC to document the specific services you are going to receive.

Good Luck,

DC

#4 JLF

JLF
  • Members
  • 181 posts

Posted 04 September 2003 - 10:18 AM

"Mortality and expense risk charge

This charge is equal to a certain percentage of your account value, typically in the range of 1.25% per year. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Profit from the mortality and expense risk charge is sometimes used to pay the insurer's costs of selling the variable annuity, such as a commission paid to your financial professional for selling the variable annuity to you"
_____________________________________________________________

Dan said: 2. As for M&E, I'd suggest requesting a specific quote for services & fees from VALIC for items such as enrollment, investment education & communications or anything else they want to get paid for. Get the dollar amount they want to be paid for these services. Compare the fees to the services and then just do the arithmetic to back into the M&E that is needed to fund the services.

Legitimate & valuable work has value & should be paid for. If the services you want will cost $20,000 (and you agree to this) then assuming total plan assets of $5,000,000 an asset charge (M&E) of 0.40% would be justified.
_____________________________________________________________

Dan,

As the quoted definition reveals the ME fee doesn't cover costs for enrollment, investment education & communications or anything else the insurer wants to get paid for. These expenses are covered by charging an "administrative fee".

By charging a ME fee the insurer is simply passing on the cost of the insurance feature of the annuity contract to the buyer. The major insurance feature being lifetime income guarantees. In my view it simply makes no sense to pay for lifetime annuitization during the accumulation period (possibly decades before retirement income starts.) The ME fee would be better allocated to growth during the accumulation phase and if one is so inclined as to lifetime annuitize during retirement he or she can simply purchase an immediate annuity from TIAA-CREF with a ME fee of 0.03 percent.

Peace and Hope,
Joel



#5 gschech

gschech
  • Members
  • 44 posts

Posted 05 September 2003 - 02:37 PM

I spoke with my Valic Rep. yesterday. He told me that they can't reduce their M&E fees. If they did, they wouldn't be able to continue to provide the face-to-face customer service that they give us now (he forgot to say that it would cut down on his commissions). The only thing they can offer is the Schwab PCRA account, but it would not benefit most of the employees. I know now that Valic doesn't have anything else to offer us. So, I found a large local bank that provides retirement plans that are not annuities, but mutual funds. I'm having them come in next month for a presentation. Down with Valic!

#6 Tampa Gator

Tampa Gator
  • Members
  • 20 posts

Posted 05 September 2003 - 03:29 PM

gschech:

Why don't you get in touch with TIAA-CREF to get a request for proposal (RFP). Without comparing VALIC to something its making your quest harder. VALIC will not budge a millimeter unless they know your company is serious. You need to prove that TIAA-CREF can offer the same personal service to your company's employees for about 1/10 of the cost. I know they offer costs that are a million times better than VALIC. IN addition, from others that I have spoken to they say the personal service is great from TIAA-CREF.

Once this happens VALIC should then get a little nervous about potentially losing your company's business. You need to scare VALIC somewhat. Otherwise they are never going to lower any of their costs.

If you try to push Vanguard or Fidelity you might get some friction from your company saying we can't get the personal service. This depends on what your company wants. If they want comparable service go with TIAA-CREF and if they want low costs go with VANGUARD.

You might want to get your company to bring in a consultant (AON or Hewitt) to show your point. Nevertheless, TIAA-CREF should be able to confirm your believes about VALIC's high costs to your boss.

I am going through the same exact thing right now and its been a HUGE battle but I feel like I am actually getting somewhere.

Good Luck and DOWN WITH VALIC!!!!!!!!!!! Don't give up!!!!!

Tampa Gator