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davegrant82

Using Self-Directed 403(B)S

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Hi all,

 

After seeing that Lincoln may be increasing their 403(b) fees, I wanted to reach out to those of you to ask a question on using a self-directed 403(b). It's something I'm starting to more closely research to help my clients keep their fees in check.

 

From what I know, a client can use an approved vendor in their district, and then remove the agent to have it be a self-directed platform. This has been discussed with Lincoln, and is common with Fidelity 403(b)s.

 

However, what if the platform is not an approved vendor? What if a teacher opened a 403(b) at TD Ameritrade and then put the district's details on the application? As it's a self-directed 403(b), would they be able to do this, or because it's not on the approved vendor list, does that eliminate that completely?

 

Thanks for your insight.

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In my personal experience with OCPS (FL):

 

  • We never attached an agent to our Security Benefit's NEA DirectInvest 403b.
  • The district pushed us very hard to get an agent's signature but the agent showed up and tried to enroll my wife in an entirely different program.
  • You can see the steps we went through here: https://educatorsfightingforfairness.wordpress.com/set-up-your-ocps-403b-457b
  • OCPS (FL) has us under the very strong impression that you cannot sign up with a vendor outside of the vendors that they selected. They've told us several false things so I have reason to doubt everything they say, but in this case I believe them.
    • My initial feeling is that if a district isn't going to properly vet vendors to make sure they're operating in the employee's best interest (and they aren't) then it sure would be nice to fill out a form with any vendor and the district would be forced to accept.

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    • My initial feeling is that if a district isn't going to properly vet vendors to make sure they're operating in the employee's best interest (and they aren't) then it sure would be nice to fill out a form with any vendor and the district would be forced to accept.

       

I agree with this!!

However, what if the platform is not an approved vendor? What if a teacher opened a 403(b) at TD Ameritrade and then put the district's details on the application? As it's a self-directed 403(b), would they be able to do this, or because it's not on the approved vendor list, does that eliminate that completely?

 

 

I learned a little something about this with my experience with Aspire. Yup its low cost but they do try to link you to to an advisor which makes the price of signing up for the fund to go way up-even for an index fund. When I signed up with Aspire even an index fund with Vanguard while very cheap still jumped up to over 1% expense ratio if you let an advisor sign you up and do the paperwork. Several teachers fell for this. Sure it was better than an annuity but it was still expensive. I remember refusing this arrangement. I called Aspire and asked them why I had to utilize the advisor. To my surprise they said I didn't have to. That was exactly what i wanted to hear. Thats when I learned about the self -direct option for the first time. But we had just added them to the approved list. I don't think you can just choose any 403b plan. It has to be on the employers list.

 

I have always felt that any employee should be able to choose any 403b plan he/she chooses. Why do we need an an employer to control us? Why not run it like an IRA? I imagine it would be too complex an arrangement for an employer or TPA to handle if everyone just could choose their own 403b provider with no limits.

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It's my strong impression that a provider cannot be used unless it is on the school district's list. The district and or the TPA control who's on the list. If Security Benefit is not on the list, NEA Direct Invest is not an option. If Aspire isn't on the list, Self Directed isn't an option. If PlanMember isn't on the list, there's no self directed option. If Lincoln Investments is not on the list, and a regional Lincoln office hasn't approved it, their Participant Directed plansare not an option.

 

I don't think the district or the TPA will process a TD Ameritrade 403b brokerage account unless it's through a providor on the list and that provider's plan allows for a self-direct brokerage account. As you say some plans (Aspire, Lincoln Premier and Fidelity) allow for an optional advisor.

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I just heard from the rep I use - it's to comply with the upcoming DOL rules. They're scraping 12b-1 fees and raising fees elsewhere to make up for the loss.

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Dave,

 

Krow is right on target. Years ago LAUSD used Valic as their custodian and they were partnered with Schwab. Later they switched to TIAA and they used their own brokerage window. Currently, CALSTRS Pension 2 uses TDAmeritrade for their self-directed brokerage acct......everything is done through the custodian. Bob

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Dave,

 

This is my exact problem. I am switching school districts this summer and need to switch out of my Fidelity Self Directed plan and into another plan. My new district has 4 options (AXA, Valic, MetLife, and Lincoln Investments). I feel that I am stuck with using Lincoln because I would like to keep my fees as low as possible and avoid all the advisor fees, but as stated they have recently increased they fee to $60.

 

As stated above, I understand why teachers can not choose any plan they want as that would be a lot of work for the business departments, but it severely limits what teachers can do with their own money. This is fine for the many teachers who fork over money to advisors with no clue where there money is going, but hurts the people who are educated and involved with where they want there money to go. Unfortunately, I don't know if there is a solution to this. For me, I will be starting off with no tenure and don't want to rock the boat and ask the district to change or add vendors, as that doesn't always seem to go over well.

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Jill

 

Are you sure that is a self direct fee or just a general administrative fee charged to everyone? I do know Aspire does not charge a fee specifically for self directing your account just .15 administrative fee on top of the underlying fund expense ratio.

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Dave,

 

This is my exact problem. I am switching school districts this summer and need to switch out of my Fidelity Self Directed plan and into another plan. My new district has 4 options (AXA, Valic, MetLife, and Lincoln Investments). I feel that I am stuck with using Lincoln because I would like to keep my fees as low as possible and avoid all the advisor fees, but as stated they have recently increased they fee to $60.

 

As stated above, I understand why teachers can not choose any plan they want as that would be a lot of work for the business departments, but it severely limits what teachers can do with their own money. This is fine for the many teachers who fork over money to advisors with no clue where there money is going, but hurts the people who are educated and involved with where they want there money to go. Unfortunately, I don't know if there is a solution to this. For me, I will be starting off with no tenure and don't want to rock the boat and ask the district to change or add vendors, as that doesn't always seem to go over well.

 

NJTeach34, the Lincoln Investment Participant-Directed Platform is an outstanding deal and with the higher $60 per yr admin fee, it’s still a great deal. There is no “advisor fee” as this is an internet based plan. Posters have reported that the phone support is good. You have to set it up through a regional office, not through a local rep.

It’s cost is comparable to Vanguard’s new arrangement for their 403b smaller plans. Because you teach in NJ, the Lincoln DIY plan is available to you. You should count your blessings!

Re: Lincoln Investments "Participant Directed Platform

Edit: I just found a more recent thread than this one (started by me??) on this subject with posts by NJTeach34.

http://board.403bwise.com/index.php?showtopic=6361

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We have over 30 approved vendors to pick from for our K-12 and state university 403b and apparently we can open as many accounts as we want as long we keep below the max savings amount total. We can only open accounts with approved vendors, though I don't think we have to have a financial adviser if we don't want one. I inquired to our TPA what it would take to add providers and apparently the vendor only has to apply and fill out the appropriate paperwork (link here and here). For me, it was interesting to see the differences in providers between the 2 systems, and that the university had Vanguard as an provider.

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We have over 30 approved vendors to pick from for our K-12 and state university 403b and apparently we can open as many accounts as we want as long we keep below the max savings amount total. We can only open accounts with approved vendors, though I don't think we have to have a financial adviser if we don't want one. I inquired to our TPA what it would take to add providers and apparently the vendor only has to apply and fill out the appropriate paperwork (link here and here). For me, it was interesting to see the differences in providers between the 2 systems, and that the university had Vanguard as an provider.

 

Thanks for the links. The video is quite informative for employees to enroll. I wish we had this at LAUSD.

 

The differences between public K12 and universities across the country regarding the 403b has always been historically MASSIVE. Everything is different, the culture, the politics, and the employees. The UC system here in California has a 403b system that we can only dream about here in CA. Our 403bs are so horrific because of ruthless state insurance codes that we have to skirt around it and create the 457b. Still, districts benefits departments have not changed and refuse to offer much in PR to inform their employees that an Award Winning 457b exists.

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