Jump to content
bWise Forums
Sign in to follow this  
krow36

MO districts join to form low cost 403b/457 plans

Recommended Posts

Thanks for answering the question about Managed Accounts and explaining how the VALIC advisors are compensated. 

Can you give us an idea of the participation rate and whether it has grown over the 2 years? It’s discouraging to learn that nationally K-12 403b participation is around 30% and most of those are in annuities. I agree that target date funds are an excellent choice. How much more popular is the Fixed Income Option than the TR funds? 

I’m very impressed with how CBIZ and the CSD have set up the Retirement Trust using RFPs. Is it likely that CBIZ and/or VALIC’s fees will be lowered as the RT grows? Does RT consider itself an ERISA plan?

From the History PDF, I believe that the CSD (Cooperating School Districts) organization came before the RT (Retirement Trust). I wonder if this prior phenomenon of school districts working together on a financial level is the secret sauce that allowed a truly fiduciary RT to come about? I also wonder if there was an exceptional leadership factor in setting up the RT, and that person supplied critical financial knowledge that is usually absent? 

Before the Trust, did the districts have multiple 403b and 457 vendors? If so, was there significant resistance to changing to the Trust? 
 

Share this post


Link to post
Share on other sites

Some will say the CSD-RT fees are too high—they are not competitive with the low-cost providers such as Fidelity and Vanguard. Perhaps we should look at the bigger picture. We all know that the average fee in a multi-vendor 403b that includes high-fee insurance companies is very high, often over 2%!! Most teachers will choose to work with the high-fee annuity salesperson, and maybe only 5-10% will take advantage of internet-based DIY low-fee providers if available. 

IF your district could choose between a CSD-RT 403b type plan (single providor, multi-district) or a multi-vendor 403b plan of mostly annuity-based plans but which includes a very low-cost DIY Fidelity plan, which do you choose? The former will benefit a greater number of teachers, the latter will benefit the small minority with financial knowledge. Which plan will have a higher participation rate?

We realize it costs money to support a low-cost 401k plan in the for-profit world. Large and/or generous companies are able to pick up the considerable costs of a plan that is ERISA compliant. A small for-profit company often uses a plan with ERs as high as 1% that shifts the costs to the employees. Unless it is very large, a single school district doesn’t have the funds and lacks the economy of scale to support a fiduciary based plan. We want the services for every district that the CSD-RT plan provides, but nobody wants to pay for them. With economies of scale, the K-12 employees can afford to pay for these services. 

CSD-RT Marketing, Legal, Insurance, Administration & Governance-$20 fixed fee/annum. 
Participants pay a 0.32% (32 bps) annual asset based administrative fee.
        VALIC Recordkeeping, Administration, Education, Compliance & Advisors-23bps/annum
        CBIZ Consulting and Investment Advisory Services-8.75bps/annum
 

What do you think? How about some discussion of these ideas! What am I missing? Steve? Ed? Dan? Tony? Others? The silence is deafening.

Share this post


Link to post
Share on other sites

Here is my biggest concern because I know for a fact that VALIC parades "Advisors" who are not Fiduciaries as "salaried", but then uses the plans assets to roll into IRAs that makes VALIC money.

 

G) Do the VALIC reps use their status to sell other products which do have commissions, such as annuities, insurance, IRAs, taxable brokerage accounts, etc.? If so, is this what is paying for the low cost of the CSD-RT plans? If so, would this cancel out the low-cost benefit of the 403b/457 plans? 

What say you?

Share this post


Link to post
Share on other sites
4 hours ago, Scottyd said:

Here is my biggest concern because I know for a fact that VALIC parades "Advisors" who are not Fiduciaries as "salaried", but then uses the plans assets to roll into IRAs that makes VALIC money.

G) Do the VALIC reps use their status to sell other products which do have commissions, such as annuities, insurance, IRAs, taxable brokerage accounts, etc.? If so, is this what is paying for the low cost of the CSD-RT plans? If so, would this cancel out the low-cost benefit of the 403b/457 plans? 

What say you?

That is my concern as well. Is there any way for VALIC to make money through their reps other than through the 23bps/annum fee? How does the Trust protect the employees from “rollover conflict of interest”? Is the 403b considered to be an ERISA or a non-ERISA plan? Or something in-between?  

Share this post


Link to post
Share on other sites

The big secret in the industry is that large plans can obtain good pricing at the expense of exposing their participants to wolves in sheep's clothing. The "salaried" reps are anything but and the money is made by the following: ancillary products (life, IRA's, etc.), rollovers out of the program (into higher cost, commission based programs or fee based programs) and by having access to the participants to get them to move their old money. These reps are not acting in a fiduciary capacity and they are NOT financial planners.

The difficultly is that you want to offer a low-cost option and provide some help, but if you want a lot of reps...that comes at a price, those reps have to be paid from somewhere.

Share this post


Link to post
Share on other sites

Update to my comments re: use of Managed Accounts within the CSD Retirement Trust.  Current metrics, as of two days ago, is that the Trust has $5M of its $124M are in managed accounts and about 500 participants, of about 5400, are in a Managed Account.  Again, not a large percentage.

Share this post


Link to post
Share on other sites

As I understand, the representatives make more when placed in managed accounts.  I just hope the aspect of earning more money by placing a 24-year old in a managed account doesn't override doing the right thing and placing someone that young in a low-cost target fund.  To the uninformed, a managed account sounds more impressive and if the representative doesn't explain things equitably, many might make the wrong decision.

Also, how do we know the representative won't roll all these accounts over to Traditional IRA VALIC annuities to earn commission after the teacher retires.  I just hope the representative is honest and can ignore the temptations of placing people in a high-fee products to get commission. 

 

 

 

Share this post


Link to post
Share on other sites

See earlier response re: due diligence process the Board went through before making the program available to all districts.  As i stated before, most of the the MA participants are ones we inherited when their school district joined.  Yes, if a participant goes into an MA the FA makes more but, based on the pricing of our MA program, it's far less than in a traditional programs.  When a participant is unsure of how to invest their funds, the FAs first advice is to use a TDF which, based on total plan assets invested, is second to the fixed income option in the Trust.  There is no reason for a VALIC FA to roll over a participant into an IRA when they retire because they can leave their money in the Trust.  Because of the DOL fiduciary draft rules VALIC is making all their FAs fiduciaries therefore, as a fiduciary, the FA would have to let the participant know what the fee structure for an IRA would be vs. that of the Trust.  Every time I've been contacted re: rolling over funds, it's been from an FA with another firm asking me about the process or thinking I can sign the form. 

I can only talk about VALIC in terms of the Trust's experience and it has been extremely positive.  In part, it's because my VALIC POC is the same person with whom we started, and he and I agree that this is a participant-centered program.  And, that is reflected in how FA compensation works.  He, along with the responsible VALIC regional VP, is the reason VALIC is promoting the Trust in IL/MI/WI and maybe NJ.  He also tries to get school districts in states he works in into the Trust.  We talk at least weekly.  We're on the same page as is the case with our RIA who has also been the same person from the Trust's beginning.  ALL of US are of the same mind.  I know the VALIC DMs in St. Louis and Kansas City very well and have met with VALIC personnel in the states noted above and with the corporate personnel as well.  I'll probably be in Houston sometime this year to meet with personnel there to talk about how we create an infrastructure that will allow the Trust to go into additional states.  At least once a year I meet with the FAs in St. Louis and KC to exchange experiences and gauge how they're approaching participants.  Not sure I'll be able to do that as we move into other states but we'll see.  Part of my focus on behalf of our participants is to be face to face both with the people leading the FAs and the FAs themselves to ensure the participant is first and I unequivocally believe they are.  I believe VALIC sees the Trust's model as the future and they want to be in the lead.  Bottom line, I trust the people.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×