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magmason

Is Calstrs Pension 2 An Annuity?

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Hi, I just went to a district sponsored meeting during our professional development days in Santa Barbara, California and now I'm super confused. The workshop was lead by a rep from Planmember Services, and when I brought up the fact that CalStrs Pension2 is a low-fee option for a 403b plan, he said it was an annuity, and that they charged M & E expenses in addition to fund expenses. (He had earlier indicated displeasure in general with annuities.)

 

I wanted the other teachers in the room to know that Pension2 was a low-fee option, but he definitely seemed to downplay it, and cast it as an annuity that charged both insurance fees and fund fees. When I approached him after the meeting to say that I wasn't being charged M & E fees, he said that the administrative fees of .25 a year were essentially M & E fees, and that Voya was an insurance company, thus the product was an annuity, or at least, LIKE an annuity.

 

I have my 403b Pension2 contributions mostly in Vanguard mutual funds with some bond and inflation-protected securities. I know other teachers have invested with this particular rep in Planmember services and they're being charged 1.75 to 2% a year in fees. Our district lets him run workshops and come to faculty meetings on a regular basis.

 

What do I need to know, and what am I misinformed about? Do I indeed have an annuity, and is that something I should question? Would it be better for me to go straight to Vanguard instead of using Pension2 (they are on my district's list of vendors, as are most of the products I'm invested in).

 

Thank you for your help.

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Welcome to the world of 403(b) deception. Pension2 is a really good option for California teachers. In addition to individual funds they offer Target Date funds constructed around investor's comfort level with risk. Here is a list of funds and fees: http://www.calstrs.com/sites/main/files/file-attachments/p2_fee.pdf Pension 2 does offer some products from TIAA which can be in the form of an annuity. But TIAA is one of the good insurance companies. Their Social Choices Equity fund charges a total of 0.43%.

 

- Dan

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MagMason,

 

PlanMember obviously has an issue with telling the truth.

 

CalSTRS Pension2 is a great option and among the lowest cost options in California. It's a combination of a 403(b)7 (meaning mutual funds) and a 403(b)1 (an annuity). The annuity portion of the program is the fixed account that is offered. Any money in the fixed account is in the annuity portion (it's a fixed annuity). Unlike almost all annuities sold in the 403(b) market, the fixed account portion of Pension2 has no surrender charges, no commissions and pays a reasonable rate of return with no market value adjustments. The program itself charges .25% to pay for record keeping and administrative functions (putting people in the field to help participants), a very low fee. The admin fee is NOT an M & E fee and CalSTRS does not charge an M & E fee. M &E is a very specific insurance term that means Mortality and Expense fee and it covers certain insurance costs as well as commissions and other expenses.

 

VOYA is the record keeper of the CalSTRS Pension2 program and they are in fact an insurance company, but that has nothing to do with whether the program is an annuity. Anyone in the mutual fund portion of the product is in a Mutual Fund Custodial Account.

 

Annuities are not good or bad, they are just products that can be made good or bad by an insurance company. Most annuities in the 403(b) space are bad, but that doesn't mean all annuities are bad. Dan mentioned TIAA, they were the prior record keeper for Pension2 and one of the good annuity companies. Vanguard and Fidelity both offer low-cost annuities. Pension2 offers the fixed account (the fixed annuity portion of the product) in order to provide participants with a stable option that pays more than a money market or bond fund, it's a very popular option within the program.

 

You are right to tell people that Pension2 is low-cost, PlanMember is simply incorrect.

 

Full disclosure: I consult for the Pension2 program. I'd be happy to arrange for someone from Pension2 to come to your district to present.

 

If you are comfortable, please message me with the name and info of the representative.

 

Scott

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Hi MagMason

Your story about mispresenting and misleading (LIES!) 403b information about low-cost options has been endless for 55 years over 403b presentations by sales people.

 

This may sound a little weird but you are lucky that you are "confused." It's a giant step in your financial literacy, and you came here to get clarified. The vast majority of our colleagues have no idea how bad this presentation you report is. It's truly been a mystery for us around here that our educated and esteemed k-12 colleagues believe what is said by these sales people and sign on to these outrageous schemes without question.

 

Please let Scott know who this individual is who made these comments. Voya needs to know so that they can make it clear that while they are an insurance company they are only the record keeper of Pension2, which offers excellent low-cost choices. Plan Members knows that but K-12 educators do not. Furthermore, Plan Members know they can get away with this. We have to be the watch dogs because the unions and the districts will not.

 

thanks so much for reporting this story.

 

Steve

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