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radase

TIAA, FIdelity and NEA (Security Benefit)

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Hi All,

My district is in the process of approving the following companies for our 403b plans:

-TIAA

-Fidelity

-NEA (Security Benefit)

Our third party administrator will be with Omni (also new to our district)

I would like to get your feedback from anyone who has experience with any of these companies.  I would only consider Direct-Invest if I was to go with Security Benefit. 

We currently have the following providers:

Ameriprise

AXA

Lincoln Financial.

So, I would like to think the new providers will be a much better option for us.

Thank you!

 

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Yes, the new providers are much better. If you use Fidelity's index funds, you'll have the lowest cost, most diversified 403b K-12 account possible. Using SB's NEA Direct Invest also very low cost. TIAA is somewhat more expensive. 

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I use Security Benefit’s NEA DirectInvest and I love it. I documented the plan here https://educatorsfightingforfairness.wordpress.com/best-ocps-403b/ and I documented how to enroll here (some steps are OCPS-specific) https://educatorsfightingforfairness.wordpress.com/set-up-your-ocps-403b-457b/

 

Fidelity is also great and I documented them in a page where I covered Florida’s best vendors, https://educatorsfightingforfairness.wordpress.com/floridas-best-403b-457b-vendors/

I consider the rest of the options to be exploítative.

 

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TIAA is a significantly inferior choice relative to Fidelity and Security Benefit's NEA Direct Invest and I will quantify that claim.

  • My website has a page for TIAA. The cheapest portfolio you can build with TIAA (at least in OCPS Florida) will cost you about 0.63% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 21% of your real returns and after 30 years it'll consume 26.2% of your real returns.
  • My website has a page for Fidelity. The cheapest portfolio you can build with Fidelity (at least in OCPS Florida) will cost you about 0.06% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 2% of your real returns and after 30 years it'll consume 2.64% of your real returns. Fidelity also has a $24/year fee which isn't included in these calculations.
  • My website has a page for NEA DirectInvest. The cheapest portfolio you can build with them (at least in OCPS Florida) will cost you about 0.07% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 2.3% of your real returns and after 30 years it'll consume 3.1% of your real returns. This plan has a $35/year fee which isn't included in these calculations and is waived when your balance hits $50,000.

So TIAA is clearly an inferior choice. Under the assumptions listed above and in terms of yearly expenses and the percentage of real returns they consume, TIAA is approximately 10x worse than your alternatives. Also, it is worth noting that TIAA is in the middle of a conflict of interest scandal

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54 minutes ago, Admin said:

You have two very strong choices (Fidelity and TIAA). As far as Security Benefit/NEA goes, I would be dubious: http://403bwise.com/wisecracks/entry/30 and http://www.nytimes.com/2007/07/17/business/17suit.html

 

Dan, even ScottD is suggesting using NEA Direct Invest instead of Vanguard’s 403b when the balance is low. Yes, Security Benefit hawks mostly awful products, and NEA is despicable for attaching their name to ripoff products, but the NEA Direct Invest is worth using. 
 
Quote

http://teachersadvocate.blogspot.com/2017/09/VanguardChanges.html   "My recommendation for people who have Vanguard as an option but are just starting out is to see if there are any other low-cost options that don’t have high annual fees and start there, then move to Vanguard as your balance grows. As much as I can’t stand the NEA selling 403(b) products, they do have a Direct option that could work well as you are growing your balance."

I agree with Ed that TIAA is out of the running.
 

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I know all about TIAA's issues. As I said, because of SB's past and current behavior (other products) I am dubious. Have they ceased offering their other products/practices? Why reward that behavior when you have Fidelity for low cost mutual funds and TIAA for it's fixed annuity? I didn't say you have to use TIAA. But I happily do for the fixed portion of my portfolio: http://403bwise.com/wisecracks/entry/309

 

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On 11/28/2017 at 5:41 AM, Admin said:

 As I said, because of SB's past and current behavior (other products) I am dubious. 

 

radase, in your new thread we learn that Fidelity is only available via Aspire ($40/yr +0.15%). That leaves TIAA and Security Benefit’s NEA Direct Invest. Dan is “dubious” about NEA Direct Invest. I see that there is two meanings to “dubious”.

Dan, are you saying you are dubious (hesitating or doubting?), or are you saying that the SB NEA Direct Invest is a dubious (morally suspect, of questionable value?) 403b plan?  

dubious
1. hesitating or doubting
2. not to be relied upon; suspect 
        *morally suspect
        *of questionable value

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If in fact Fidelity is only available via ASPire, it's not as good an option. I concur that Fidelity is actually the cheapest option available (if it was at Fidelity, not Aspire) given it's lower annual fee and very low-cost index funds. Different story when talking about their actively managed options or fixed income.

I won't answer for Dan, but it's difficult for me to recommend Security Benefit precisely because of who they are owned by, the history of the program and the fact that it promotes the name of another program that has been ripping off educators for decades. The NEA is not serious about 403(b) reform and Direct Invest was a bone to those of us fighting for it and against NEA Valuebuilder. This is not to say that I don't think the NEA Direct is a poor product or that I wouldn't recommend it in a certain situation, I have and I would. That said, if another option presents itself that is similar and has a better history...even if it's slightly more expensive, I'd explain the differences and let the client decide. With my own money, I'd be willing to pay slightly more to avoid giving any assets to an NEA program until they do away with Valuebuilder. As a Fiduciary for a client, I'd present the options and the pros and cons and let the client decide. 

Security Benefit certainly has a dubious history of offering terrible products to educators. They are not a company I respect and they actively work against fiduciary in the arena.

TIAA doesn't have such a dubious history, though unfortunately they've been working to catch up. Even at its worst though, TIAA is a MUCH better player in the space than Security Benefit. The good certainly outweighs the bad.

With that said, in this scenario, I'd probably lean toward the equity portion being at Security Benefit and the fixed income portion being at TIAA (depending on the TIAA Traditional option being offered, i.e. liquidity versus rate is important). TIAA's equity options are priced differently with different employers, so depending on the pricing with particular employer, I'd consider having everything at TIAA, but only if the pricing on the equity mutual funds was very similar.

That said, TIAA is still in the dog house with me and their lack of a real response to the recent NYTimes articles is disappointing. Their defense of their actions is disturbing. It's also very clear that the profits earned on their mutual funds and managed accounts and other products go to subsidize interest rates in the TIAA Traditional options. This makes me not want to keep money in those equity mutual fund options (which were never amazing anyway), but depending on the interest rate environment, HAVE money in the TIAA Traditional. In this current environment, the TIAA Traditional (liquid version) makes a lot of sense. Generally, there is a 3% guarantee and a rate that is around 3% or maybe higher with full liquidity (other less liquid options pay more, but take 7 - 10 years to get out or have a surrender, they must be evaluated differently) and zero risk of loss if rates go up..this is a good tradeoff compared to the typical Bond Agg right now (might not be in the future).

Security Benefit is certainly dubious (they are morally suspect in my opinion) and have been for decades and there is no sign this will stop, but if they are one of my options and that option is NEA Direct, I'd still have to consider sending money there...it's in my interest to do so...and then monitor closely. You have to deal with the options given to you.

Not sure that helps, but it's how I've come to approach these tough choices in 403(b) plans.

 

ScottyD

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On 11/27/2017 at 10:40 PM, EdLaFave said:

TIAA is a significantly inferior choice relative to Fidelity and Security Benefit's NEA Direct Invest and I will quantify that claim.

  • My website has a page for TIAA. The cheapest portfolio you can build with TIAA (at least in OCPS Florida) will cost you about 0.63% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 21% of your real returns and after 30 years it'll consume 26.2% of your real returns

Ed,

can you break down how you arrive at the 26.2%?  This is impressive.  .63% is nothing compared to what I think I was paying at AXA.  Then again, I still don’t know exactly what I was paying at AXA.  

Also, how can I help someone understand what they’re paying in fees with Valic?

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On my Investing 101 page you'll find a link to a spreadsheet to do these calculations for you. The spreadsheet isn't as intuitive as it could be, I've been meaning to improve it for months, but you should be able to figure out how to use it.

The first thing to point out is that we want to think in terms of real returns for two reasons:

  1. Most of us are investing to grow our wealth, not to tread water, and real returns indicate actual growth. A 7% return combined with 7% inflation isn't growth.
  2. By using real returns in our calculations we see the value of our portfolio (decades in the future) in "today's dollars", which allows us to make sense of it. If you told me my portfolio would be worth $5,000,000 in 2050 then I'd have a hard time understanding what that really meant, but if you told me in 2050 my portfolio would be worth $1,200,000 in today's dollars then I wouldn't miss a beat.

So to perform this calculation manually, start by estimating a real return for your portfolio. Depending on how many bonds you hold, a 6% yearly return and 3% inflation (its worth noting that recently inflation has been closer to 2%) would be reasonable estimates that would result in a 3% real return.

The first step is to calculate what your portfolio would be worth, in today's dollars, if there weren't any fees assessed:

  • Year 1 = YearlyInvestment * (1 + RealReturnRate)
  • Year 2 = (ValueAfterYearOne + YearlyInvestment) * (1 + RealReturnRate)
  • Year N = (ValueAfterPreviousYear + YearlyInvestment) * (1 + RealReturnRate)

Then do the same thing for a portfolio being assessed fees:

  • Year 1 = YearlyInvestment * (1 + RealReturnRate - ExpenseRatio)
  • Year 2 = (ValueAfterYearOne + YearlyInvestment) * (1 + RealReturnRate - ExpenseRatio)
  • Year N = (ValueAfterPreviousYear + YearlyInvestment) * (1 + RealReturnRate - ExpenseRatio)

Then you can calculate how much profit exists in both scenarios and use those values to determine how much profit was lost to fees:

  • RealProfitWithoutFees = FinalPortfolioValueWithoutFees - (YearlyInvestment * N)
  • RealProfitWithFees = FinalPortfolioValueWithFees - (YearlyInvestment * N)
  • ProfitLostToFees = RealProfitWithoutFees - RealProfitWithFees

Then when it comes to expressing that loss as a percentage, you have a couple options:

  • ProfitLostToFees / RealProfitWithoutFees tells you what percentage of the profits generated by your portfolio were consumed by fees. If this value is greater than 100% it means you actually lost wealth.
  • ProfitLostToFees / RealProfitWithFees tells you how the value you lost to fees compares to the value you were allowed to keep. If this value is greater than 100% it doesn't necessarily mean you lost wealth but it does mean you lost more to fees than you were allowed to keep!

I'm not sure what the "right" way to think about this is, but I think people find the first fraction to be more intuitive. FYI, when I quoted the 26.2% figure that was done using the first fraction...using the second fraction you'd get 35.5%.

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19 hours ago, jebjebitz said:

Also, how can I help someone understand what they’re paying in fees with Valic?

It probably won’t be easy. First find out the name of the VALIC product. CA requires that all vendors list their plans and their expenses on 403bcompare.com. If the vendor’s plan isn’t detailed on 403bcompare, it can’t be used. These plans are usually generic plans that are also offered in other states. Hopefully 403bcompare will give an idea of the vendor’s fees in your district. The mutual funds that VALIC uses can be found here: https://www.valic.com/prospectus-and-reports/mutual-funds In the past, 403bcompare listed the funds and their expense ratios. Unfortunately that information now seems to be missing.   

VALIC 403b options from https://www.403bcompare.com/vendors/1117#/productlist 
Fixed Annuities
Fixed-Interest Option, no surrender charge
Long-Term Fixed Account, with surrender charges
VALIC ProFlex Annuity, with surrender charges http://nesteggbuilders.com/pdf/broc/Valic-proflex-broc.pdf
Variable Annuities
Portfolio Director Choice Series 5 Fixed and Variable Annuity, with surrender charges
Portfolio Director Combination Fixed and Variable Annuity, with surrender charges
Mutual Funds
Profile Retirement Program, Custodial fee = $40/yr, Management/Wrap fee = $100/yr, average ER = 0.89%, no surrender charges
VALIC Group Mutual Fund Product, Management/Wrap fee = $100/yr, average ER = 0.66%, no surrender charges

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