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dankupper

457 Plan - Which Vendor/company?

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Hi All -

 

I recently started a 457 plan with Voya. I am a public school teacher in Connecticut. The only two options that my district offers for 457 plans are Voya and Security Benefit.

 

Is it good to stay with Voya? They seemed to have good investment options, and I don't know much about Security Benefit.

 

Thank you!

 

Best,

Dan

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Hi Dan,

Sorry you haven't had any responses to this thread yet--I just noticed it. Whether Voya or Security Benefit have a 457 plan that we would recommend depends on the fees. Both companies are insurance companies and they mostly sell expensive annuity based 403b plans. Their mutual fund based 403b plans are also very expensive with the exception of the Security Benefit NEA Direct Invest plan. There is no similar low-cost 457 plan that I know of, unfortunately. Does the Voya 457 offer a Fixed Account and if so, what is the guaranteed rate and what is the current rate for this year?

 

In your other thread on your MetLife accounts, you were considering setting up a 403b account with Aspire. Have you done that and if so are you contributing to it? I would follow through with that, and until you max that out at 18k per year, I would not contribute to a 457 plan at either Voya or Security Benefit.

 

Have you decided on what to do with the MetLife accounts? Please discuss them on your other thread if you have further questions.

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Thank you, krow36. Did you see my reply to your response on the 403b thread? I am going to transition to Aspire and max that out at 18k per year. I am also maxing out my Voya 457 plan as well. I want to contribute to/max out a 457 plan as well, but don't have many options besides Voya or Security Benefit.

 

Thoughts?

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Darn, I keep forgetting to check this 457 forum! That's great that you're planning to max out both the Aspire 403b and the Voya 457. Can you post a list of the Voya options, with their ERs, and indicate which ones you've selected? Do you have both an annuity based and a mutual fund based choice?

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Hi krow36 - sorry for the delay! Yes, I am maxing out my 457 as well as my 403b. With my Voya 457, I am concerned about the fees. I am invested in the Voya Russell Large, Mid and Small Cap indices as well as the Voya International Index. Their fees are 38%, .44%, .46% and .55%. Does that mean I take an average of those 4, or add them all up? Also, they charge a contractual fee of .95% as well.

I would love to hear your opinion. The only other option that my district offers for a 457 is Security Benefit, which I heard their fees are high. Is that true? Should I keep maxing out my Voya 457?

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Hi dankupper, 

Is the Voya 457 a mutual fund (MF) based plan, not an annuity based plan? Hopefully that is the case. Annuity based plans usually have an additional fee of about 1%, usually call an M&E fee as well as surrender fees. Even MF based plans usually have an additional administration fee that can be 1% or more.  Maybe you already know that your 457 is MF based?

Quote

Their fees are .38%, .44%, .46% and .55%. Does that mean I take an average of those 4, or add them all up? Also, they charge a contractual fee of .95% as well.

Those fees on each fund are called expense ratios (ERs). For a rough calculation you can take an average of the 4 ERs. However you can calculate your weighted average ER which is more accurate. For example:

Fund A 40% of the 457

Fund B 20%    "

Fund C 15%     "

Fund D 25%      "

Multiply each fund's percent times it's ER:

Fund A:  .40 * .0038 = .0015

Fund B: .2 * .0044 = .0009

Fund C: .15 * .0046 = .0007

Fund D: .25 * .0055 = .0014

Add: .0045 = .45% which is almost the same as the simple average in this example. But it could be quite different if the percentages and ERs were more varied.

If we assume that the ER of your 457 is 0.45% and add the 0.95% for a total fee of 1.40%, you are getting to a fee level that many consider too high to be worth using. Others disagree. How close to retirement are you? As soon as you retire (or separate from your employer for any reason), you can roll the 457 into a low-cost IRA. However that would loose you the 457 plan's special feature of allowing penalty free distributions at any age after separation. If you are in a high income tax bracket, then paying a high fee to use the 457 is worth the tax reduction.

Are you maxing out a Roth IRA every year? Are you saving for retirement in a taxable account? A taxable account at a low-cost provider like Vanguard or Fidelity using tax-efficient funds has some advantages, especially if you are considering early retirement. 

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Thank you, krow36. This is great information. I am currently 31 and only a few years into teaching, so I am a ways away from retirement.

I will check and see if my Voya 457 plan is a mutual fund based plan.

My allocations are as follows:

- 55% Voya Russell Large Cap Index -- ER = .38%

- 15% Voya Russell Mid Cap Index -- ER = .44%

- 10% Voya Russell Small Cap Index -- ER = .46%

- 20% Voya Russell International Cap Index -- ER = .55%

PLUS the .95% contractual fee.

In regards to your other questions - I am maxing out everything else. I max out my Roth IRA annually at $5500 (some years I do Traditional IRA), as well as my 403b at $18,500. My 403b is through Aspire and I am 100% invested in the Vanguard Total Stock Market Index with a low ER. Aspire only charges 15 basis points annually and a $40 fee - that's pretty low right? So, I should keep maxing that out and let it sit?

I also max out a SEP IRA and my HSA every year as well. I do sub-contractor (1099) work outside of school, so my income is higher than most teachers (although I do have an aggressive accountant).

So, to recap - I am currently maxing out the following accounts every year: 403b, 457, Roth IRA, SEP IRA, and HSA.

In regards to my 457. What do you recommend I do? Should I keep pumping money into it? Or, should take that money and invest it in a low-cost index fund (taxable account) through Vanguard with post-tax dollars? I'm just concerned about Voya's fees eating away at my growth over time, but if you feel it's worth still putting money in there given the current fees, I'd still do it.

Also, what are your thoughts on a 529 plan? Should I take some of my 457 contributions and put them into a 529 plan for future education for myself or my nieces/nephews? Or put them in a taxable account? Or keep them in the 457? Or a little of all three?

Sorry for all of the questions - you are very sharp and I'd love to hear your opinion.

Thank you for your time and I look forward to hearing back from you!

Best,

Dan

 

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Hi krow36 - I just found out that my Voya 457 is annuity-based. As it was explained to me - it has an "annuity wrapper" on it, but I don't have to elect for it to be paid out as an annuity. Does that make sense? Of course, the individual funds that I'm invested in are mutual funds.

I'd love to know your thoughts on that and the other aforementioned information.

Thank you so much!

Best,

Dan

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OK, your 457 plan with Voya is annuity-based. I wonder if you have been told about all the fees? It’s possible that the 0.95% fee is the mortality and expense (M&E) fee that they have renamed the “contractural fee”? You should find out if your plan has a surrender fee, although I don’t think you know of a better option at this time. Voya may also offer a 457 plan that is mutual fund based that might be less expensive. It would be worth while asking about it.

Aspire is a good option for your 403b, and I wonder if you could get Aspire added to your district’s 457 vendor list? I see from the Aspire website that they do both 403b and 457 plans. Aspire pays any Third Party Administrator fees out of the $40 fee that you pay, so the district isn’t charged. Why don’t you call up Aspire and see if it’s possible? If they say it’s possible, then you’ll need to work on your district and the TPA. You and your colleagues deserve at least one low-cost 457 vendor!

It’s difficult for me to decide between your current 457 plan and a low-cost taxable account. It depends on your situation. Do you have a spouse contributing to your taxable income, and/or is your 1099 income a significant addition to your taxable income, so that maxing the 457 puts you in a lower income tax bracket? Your income tax bracket is based on your “taxable income” on line 43 of your Form 1040.

If you could use an Aspire 457, maxing it out seems like a good idea to me. If you can’t get Aspire added, maybe at least start an after-tax account and split your 18.5k contribution between it and the 457.

I don’t have any experience with 529 plans. If your own future education plans are indefinite, perhaps funding from a taxable account makes more sense. It could have a more conservative asset allocation than that of your retirement portfolio. As for funding 529 plans for relatives, I don’t know enough about 529 plans to help on this.

 

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Thank you, krow36. I followed up with Voya twice about the fees and they insist it's just the .95% contractual fee plus the weighted average of the individual mutual funds. Yes, the plan does have a surrender fee : 5% of the balance if I roll over the funds within the first 5 years (i just opened the account last year). After 5 years, that surrender fee goes down until there is no surrender fee at all at the 10 year mark.

I contacted the payroll supervisor in my district asking about adding Aspire as a 457 option. She said they board is not currently interested in adding any additional 403b or 457 vendors to the list. Looks like I'll have to attend some board meetings soon. In the meantime, there's not much more I can do. I agree - we deserve at least one low-cost vendor.

I really like your idea about splitting the 18.5k contribution between my Voya 457 and a low-cost taxable account. I do not have a spouse contributing to my taxable income and yes, my 1099 is a significant addition to my taxable income. Maxing out my 457 does generally put me in at least a slightly lower tax bracket and saves me some money in taxes (to my knowledge).

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9 hours ago, dankupper said:

I contacted the payroll supervisor in my district asking about adding Aspire as a 457 option. She said they board is not currently interested in adding any additional 403b or 457 vendors to the list.

Hi Dan,

In terms  of the comment that the board is not interested in any other options, that to me just sounds  a bit strange. Did the payroll supervisor actually forward your request to the superintendent?  Did the superintendent actually bring it up at a school board meeting? Did they give a rationale why they would not want to investigate making their 403b better right now? Personally if I were you I would  get on the phone to a school board member and make your request directly. You have that right as both an employee and a citizen. Yes you do deserve at least one good low cost, non insurance, non surrender fee option. I think if you make your case directly and get it past  the school bureaucracy  good things may happen.

Tony

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I agree with Tony! Perhaps the payroll supervisor would like to avoid any extra work? Communicating with the school board is an excellent idea. If your district uses a third party administrator, find out if there is a procedure for adding a provider. Maybe your union is involved? If you can get even a few colleagues involved, that can help move the process forward.

If Aspire is already a vendor on the 403b list, there’s no good reason it can’t also be on the 457 list. If you give Aspire a call, I think they might be helpful. The more you know about the process, the better. You should confirm that Aspire’s fees are the same for both the 403b and the 457 plans.

The NY Times series on teacher’s 403b plans might be helpful in pointing out the importance of a low-cost plan.  https://www.nytimes.com/2016/10/23/your-money/403-b-retirement-plans-fees-teachers.html?smid=tw-share&_r=0

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Thank you, Tony and krow36! This is all great advice. I really appreciate it! I have already spoke with a union rep at my school and am putting things in motion to contact the school board in order to get Aspire listed as an option for 457 vendors. In the meantime, I am planning on splitting my 18.5k between my Voya 457 and a low-cost taxable account.

I will keep us updated.

Thank you once again for your time! I will likely have more questions soon.

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I have to wonder if going through the union would be a good approach. I hope the union and school system have a good positive relationship. I still think going to the direct school board route on your own may seem less intimidating or confrontational for all concerned. Just be very very nice in your approach and be positive. I believe the bookkeeper never went forward with your request. I worked for years with a bookkeeper that would give false info back to employees to avoid the extra work that would ultimately end up on her shoulders. I once had a serious confrontation with her about it and it made her cry and it all ended up making me look like the bad guy.

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