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krow36

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

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bluejay1975 has posted about her/his school district’s 403b457 plan on the Boglehead forum. https://www.bogleheads.org/forum/viewtopic.php?f=1&t=234118 and PMs. This district is a member of a consortium of 39 districts and instead of each district having a number of vendors, now they all have only one—VALIC. The districts were able to reduce costs significantly and also increase participation. Each school in the district is assigned an advisor that is said to be salaried and not working on commission. The consortium is in Missouri and is called Cooperating School District Retirement Trust (CSD-RT). This website explains the new plan to employees: http://1hmfgi1zzk1c24sh788c5ct8.wpengine.netdna-cdn.com/wp-content/uploads/sites/5/2015/10/Frequently-Asked-Questions-CSD-Retirement-Trust.pdf

Funds: http://1hmfgi1zzk1c24sh788c5ct8.wpengine.netdna-cdn.com/wp-content/uploads/sites/5/2017/05/CSD-Retirement-Trust-Investment-Options-03.31.17.pdf
Vanguard Institutional Index Inst VINIX, ER 0.04% 
Vanguard Small Cap Index Admiral VSMAX, ER 0.08%
Vanguard Total Intl Stock Index Admiral VTIAX, ER 0.07%
Vanguard Total Bond Market Index Admiral VBTLX, ER 0.06% 
Vanguard Target Retirement funds, ER 0.13% to 0.16%
also 22 other index and managed funds

https://www.edplus.org/cms/lib/MO01928355/Centricity/Domain/101/Retirement Trust Employee Benefit That Benefits All.pdf
This website promotes the consortium plans to district administrators. The Investment Management Fee as of 5/31/17 is 0.13% and there’s a $20 Annual Fee. A 3 Fund Portfolio could be had for a total of about 0.20% and $20. Using a Target Retirement fund would total about 0.28% and $20. This plan is about 2 years old and the average costs have been reduced from 1.57% to 0.45% plus $20, while participation has increased by $105M.

I realize this can’t happen in states like CA and WA where the insurance lobby has bought laws that prohibit K-12 districts from having a single vendor. For the rest of the country, doesn’t this sort of organization look promising?  

Edited by krow36
Incorrect info. See next post.

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I’d like to suggest that Dan and Scott do a podcast on the Cooperating School District Retirement Trust (CSD-RT). I suspect that the folks who run it would be willing to help publicize it. 

Positives of this plan:
1. No annuity sales persons.
2. A single face-to-face salaried person, is available to each school. Teachers seem to think they need a face-to-fact contact.
3. Very low-cost index funds are available (either VG Admiral or Institutional class).
4. The AUM fee of 0.32% and the investment management fee of $20 per year are relatively low.
5. The total number of funds to choose from is relatively small—just 23 plus 12 VG TR funds.
6. Joining 39 school districts results in savings in administration costs.
7. Both 403b and 457 plans are available.
8. The districts’ CSD-RT committee hired an advisory firm that helped with RFPs to competing vendors. 
9. The funds have no fees that are due to revenue sharing or 12(b)1 fees. 

Questions I have:
A) Do the school districts cover some of the administration costs?
B) Is the CSD-RT continuing to add districts?
C) How much has the percentage of employee participation increased?
D) How many vendors did the districts have before this plan was adopted? 
E) Do the VALIC reps encourage use of the “managed” funds rather than the “index” funds?

F) Are these plans considered ERISA plans?  

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? 

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EdPlus (CSD’s new name) has a CSD Retirement Trust History PDF that answers some of the questions I posted. https://www.edplus.org/cms/lib/MO01928355/Centricity/Domain/101/Narrative on the CSD RT 12.6.17.pdf
I made a mistake in stating that the asset based administrative fee was 0.13%. (The weighted average ER is 0.13%.) As of Jan 2017, the admin fee is 0.32%. 
       

Quote

 District Fees:
   Districts pay no fees to sponsor the CSD-RT. 
 Participant Fees:
   Participants currently pay the following fees, which are a “line item” on participant statements for the 
following service providers: 
    1. CSD-RT Marketing, Legal, Insurance, Administration & Governance - $20 fixed fee/annum. 

    2. 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 

Investment Management Fees (ERs):
  Range from 0.04% to 0.94% depending on investments selected. The current weighted investment 
management fee average based on participant investing behavior is 0.13% (13 bps) which is netted from investment returns. 

Total Fees: Based on the weighted investment management fee above, a participant with a $10,000 account balance will pay $52/annum for administrative costs and $13 in investment management fees. When the Trust launched in January 2010, a participant with a $10,000 balance paid a total of $157/annum, today it’s 59% less.


The Retirement Trust is growing. As of Nov 30, 2017, there are 43 school districts that are trust members:
32  St. Louis Metro
10 Kansas City Metro
1  Menasha, WI
There are now 5200 participants and 126M in plan assets.
Power Point at https://www.edplus.org/Page/592

A three fund portfolio could have a total fee as low as ~0.06% + 0.38% = 0.44% + $20. Not as low cost as CalSTRS Pension2 or LAUSD’s 457 with very low ERs + 0.25% with no flat annual fee. But certainly a huge improvement over the usual multi-vendor situation where the average weighted ER and other fees are far higher than 0.44% + $20! Getting rid of the annuity salespersons has got to be worth something?

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Bluejay1975, welcome to the forum! You could do either.the target date or the 3 or 4 fund portfolio. I like the 3 or 4 fund portfolio because it’s a bit lower cost, and I’m not too keen on the international bond fund that’s part of the target date funds. Using the target date fund is more simple, which many find important. The Institutional Index fund is a S&P 500 Index fund, which includes over 80% of the US stock market. That fund, the Total International Stock Mkt Index and the Total Bond Index funds are really all you need. You could add the Total Small Cap Index fund for 20% to make the equivalent of the US Total Stock Mkt. The return of Institutional Index is very, very close to that of the Total Stock Mkt Index fund. 

Have you decided on a Stock to bond ratio? How about the percent of Stock that you want international? 20% to 40% is usually recommended, although some like John Bogle think that US stocks have enough international business so are happy with 0%.

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I use the 2035 fund for my roth ira and did the same for the 457.  I'll probably just max both this year using those two funds.  Next year, if everything goes well I will be able to max or come close to maxing my 403b as well.  I work on a farm during the summer and a few weekends a month and can live off of that income so I would be able to invest most or all of my teaching salary.  My only debt is a small mortgage of 85k but it is at 4% and would rather put my money in the market right now.  I can then afford to be a little more aggressive if the market goes through a correction.  

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Hi Bluejay,

Welcome. You get around, first MMM and Bogleheads and now here. Krow already gave you great feedback about the structure of your unique plan, how to find the costs and the three fund portfolio.  One boglehead suggested staying away from "advice" from your plan record keeper. Almost all of us who post here and on Bogleheads learned to manage our money without a costly adviser. Yeah, even the fiduciaries can be costly if you are not paying close attention. I always suggest to hire a genuine fiduciary and learn from him or her for a couple of years, and let them go. Make sure said person is not a friend. 

In case you missed it, bogleheads have a lot of information on the 3 fund portfolio here: https://www.bogleheads.org/wiki/Three-fund_portfolio 

Also, you are following in the footsteps of millionaire educators husband and wife team: http://www.millionaireeducator.com/ 

happy holidays and best of furtunes,

Steve

 

 

 

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sschullo, 

Yes, I've been making the rounds lately.  I usually don't post on message boards but I'm trying to make sure I am doing things right.  Had some bad luck about 5 years ago but have worked very hard and positioned myself in a really nice spot at the moment.  Wish I could have enjoyed the incredible run the market has taken over the past few years more than I have but we can only do so much.  I wish I had learned all of this information 15 years ago.  Life would look a lot different now.  

I am well aware of the advice that has been given and I like to weigh my options from what I already know to what others give in different places.  That's why I'm a science geek.  But I also realize I'm making up for lost time a bit so I'm trying to make sure I'm making the best decision with the amount of risk I'm willing to take.  Learned a long time ago that I cannot predict the future but at least I can best prepare myself.  

When I get a bit more invested I will probably look more in depth at the 3 fund approach.  

I haven't read the millionaire educator blog so I'll bookmark that.  One of these days when I learn more about finances than I do now I want to be able to give back to the teacher community and pass on my knowledge to future generations of educators.  

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OK on using a target date fund— I forgot that you are using them in your other accounts. As you say, you can consider changing to a 3 or 4 fund portfolio in the future, no problem. You’re doing a great job of saving for retirement by maxing out as many accounts as possible. 

Can you give us some input on the VALIC advisors?
E) Do the VALIC advisors encourage use of the “managed” funds rather than the “index” funds?
G) Do the VALIC advisors use their status to sell other products which do have commissions, such as annuities, insurance, IRAs, taxable brokerage accounts, etc.? 

Is there a fee schedule for the “managed accounts”? 

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Krow, 

Honestly, the advisor did not really push me very hard, but of course I started the meeting off with my experience of a past roth IRA set up with Waddell and Reed and my extreme displeasure of the fees associated with the funds that I initially invested in (and the poor performance of those funds).  I have mentioned that the advisor suggested the American Fund balanced R6 rather than vanguard funds and to be honest based on upfront fees (0.29 vs 0.15) there isn't a ton of difference and the american fund does perform rather well but the turnover for that fund is 79%.  Other than that he has not suggested anything to me and the only reason he did so was because I asked his opinion.  While I don't know much above investing I do know enough to ask very direct questions so I'm not sure how he would have responded to someone who really needed more advice.  While these forums on MMM and Bogleheads and now here have provided me with quite the education (and a lot more to learn), there aren't many people who really want to dig into the finer details of personal finance.  

I only know of one or two teachers who actually invest with VALIC through the program so I'm not sure about the advisor using status to push other products.  I made it very clear up front that I would not be using them for other funds and that if I wished to invest more in other vehicles then I would be using Vanguard to do so. 

Most of the conversations that occur related to finances that I witness fall into two categories....A.  "I can't wait for payday because I have no money left in my checking account,"  followed by B.  "so happy I got paid today.  Now we can go (insert spending of money here) next week(end)."   These are followed with all of the plans for vacations during the summer (with no summer job), etc.  Pretty sad, really.  I just keep my mouth shut.  

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