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Advising A School District On 403(B) Options

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#1 davegrant82

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Posted 09 January 2017 - 02:31 PM

Hi all,


I've been approached by a school district to do a review of their 403(b) options and provide outside counsel on who their vendors should be and why.


My concern - and valid based on this forum - is I'm going to scratch out all insurance company vendors, including AXA. In my work with educators, over 50% of 403(b)s held are with AXA.


I have some questions:


 - For teachers on this forum, if your district came out and said that your 403(b) vendor was no longer on the list, even though it was the most popular among your peers, what would you ask from them in terms of an explanation?

 - If I were to suggest AXA gets removed and people had to switch, it may incur surrender charges to many people if they decided to transfer their whole account rather than stop contributing and go somewhere else. If you were in this district, how would like this to be explained?

 - (I already know the answer to this, but do want feedback) Should I suggest to leave AXA on the list due to how frequently it is used?





#2 Rtngolf

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Posted 10 January 2017 - 11:39 AM

Dave I see this as a great opportunity to educate teachers about fees. a simple comparison and fee structure of one you say add or keep and one you say get rid of will be a great starting point

#3 LibraryLady

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Posted 10 January 2017 - 08:17 PM

It's going to sound like I'm making fun of teachers, but I am guilty of all of these things I will say.


Do a presentation. Ask them how many of them have thoroughly read their 403b (I would guess annuity) contract. I'll be shocked if many have.

Get a hold of a contract. Copy the section that talks about fees and project it so everyone can read it. List the mortality and expense risk charge, administrative fees, surrender fees, underlying fund expenses. Note how difficult it is to understand. Pick a few common funds and I would bet the fund expenses are over 1.00%. Make sure they understand these expenses will not be spelled out anywhere on their statement; rather the number of units they own of their funds will be reduced.

Add up these fees to show what they are paying yearly and this means that before they make a dime, the return has to be over ######%. In my case, it had to be over 2.5%.


Pick A Vanguard, Fidelity, Aspire, or some other potential 403b provider. Copy their section on fees. Find some common funds and list their expense ratios. Add them all up and put it next to the AXA fees.

Then graph out what the difference is over time of those 2 options. It should not be hard to explain why it's not bad they are losing their provider. Hopefully they will be angry; I know I was. I was more angry with myself. AXA gave me these documents that showed, albeit not really clearly, the fees I would be paying. I just didn't pay attention. 


As far as surrender fees go, that gets trickier. The math would have to show that over time, they will make back their money. I guess it depends on it it's a $500 hit or a $5000 hit. I would have a problem handing AXA  even more of my hard earned money than I have already.  I would leave AXA on the list for just that reason. 

#4 krow36

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Posted 11 January 2017 - 06:33 PM

Dave, I like the idea of getting rid of the insurance providers because they will push their annuity products. I can’t answer as a presently contributing teacher but here’s a retired teacher’s thoughts on getting red of the insurance companies. (I contributed to a VALIC fixed annuity while working, rolled part of it to a Fidelity 403b before retiring, years later rolled the Fidelity 403b to a Vanguard tIRA, years later yet rolled the rest of the VALIC 403b to a Vanguard tIRA.)


I understand wanting to get the insurance companies. How are you handling the fact that AXA and many other insurance companies also offer mutual fund based 403b plans in addition to their annuity based 403b plans? AXA’s annuity 403b plans have fees of 2 to 3%  (and deserve the boot!) but their MF based plan’s fees are about 1%, according to 403bcompare. Of course the reps only sell/push the annuity 403b plans. Fees of 1% are certainly not ideal, but it might be about average for managed funds (except at Vanguard)? What are the fees like in the mutual fund based 403b providers that will remain after getting rid of the insurance companies? 


Can you and the district ask for a proposal (an RFP?) from each of the vendors that will restrict them to only offering MF based plans? If the insurance companies couldn’t sell their annuity 403b’s they probably wouldn’t want to be on the list. Maybe they would self-select themselves off the list?

#5 debbyk

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Posted 17 January 2017 - 05:11 PM

Dave, what a great opportunity you have.  I would use this as a chance to talk about the district going to a single vendor.  This can be done through a transparent RFP process.  We know that when district's implement a single vendor, fees are reduced dramatically, education and service increase, participation increases and contributions increase.  Going to a single vendor does not require any current participant to transfer their money to the new vendor.  Ongoing contributions go to the new vendor.  I'd love to talk about it with you.  We have transitioned 7 districts to a single vendor and we're in IL.

#6 davegrant82

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Posted 19 January 2017 - 09:37 PM

Debby - thank you for your post and encouragement. I haven't had confirmation from the district if they want to move ahead yet (my consulting price seems to be causing them pause), but if they decide they'd like to move forward I'll be in touch.