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Shannon

District 457 Approval

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Good Morning, 

My district is willing to approve the 457 vendor Fidelity and/orCalSTRS. I was told that Vanguard does not offer a custodial or group 457 for the Public School Sector. I was wondering if you clarify something for me? It was told to me that "NOTE Fidelity does not offer online services for its 457 and is currently all manual processes.  If the participant wants to select Fidelity for the online convenience and/or from previous experience with a 403(b), 401(k), IRA, or similar, this will not apply to a 457)"

I am not sure what this means? Can you clarify?

Also, I started the process of rolling over my previous 457 into my Vanguard 403 (b) account. If I open the Fidelity 457 should I roll it into there or just keep in the 403 b? Does it matter? It is going to make any difference? 

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Sadly Vanguard does not offer a 457b, which leaves Fidelity as the only elite offering in that space (aside from arguably some of the state run 457b plans).

I've never had a Fidelity 457b so I don't know, but I have to imagine preventing online access for 457b plans is actually more expensive. When I googled it I couldn't find anybody complaining about that. Maybe you will let us know the definitive answer?

If I had to choose between rolling my 457b into a Fidelity 457b or a Vanguard 403b then I'd choose the Fidelity 457b because it would maintain the perk of penalty free withdrawals. This wouldn't be a huge deal for me, but why give up the perk unnecessarily?

You're lucky to have such a reasonable district. Vanguard and Fidelity for your 403b. Fidelity and CalSTRS for your 457b. Very lucky.

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That's great that your district is willing to add Fidelity and CalSTRS Pension2 to their 457 vendor list! I would choose Fidelity over Pension2 due to the latter's 0.25% admin fee. 

I’m not sure what Fidelity means when they say the 457 would be managed manually rather than over the internet. I’m guessing that it means your management chores will be done by telephone and snail mail (possibly email?). Like in the days before the internet (when I made my 403b contributions!). However you should ask them what the“manual processes”  are, and if you will be able to see your 457 account online, which would be handy.

If you used one of the Fidelity target retirement funds (Fidelity calls them “Freedom Index 20(35?) Investor” funds, you would have a minimum of management changes to make. Rebalancing is done automatically. The expense ratio is 0.14%. Avoid the “Freedom 2035 Investor” funds which are made up of more expensive actively managed funds rather than index funds.

When you roll your previous 457 into your Vanguard 403b, I believe it goes into a separate account in the 403b and maintains its 457 character. You should ask Vanguard about this because as Ed says, the 457 does have a desirable distribution advantage over other 403b’s and IRA’s. You never know when it might be very useful. If you do loose the 457 advantages, you may be able to stop the rollover process, and roll it to Fidelity instead.

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2 hours ago, Shannon said:

Also, I started the process of rolling over my previous 457 into my Vanguard 403 (b) account. If I open the Fidelity 457 should I roll it into there or just keep in the 403 b? Does it matter? It is going to make any difference? 

 

If you can roll over money from a previous employer, roll it over to Vanguard, not another employer's plan. Its called a 403b rollover IRA. 

You are getting lots of information from very smart people here (I am not one of them, I am more passionate about this than accurate) that took a long time for me to figure out.

I would stop and take a breather. Do not worry about other IRAs for now. Just get started with your current employer and their current plan. 

There is no RUSH to do rollovers or transfers, first things first! 

 

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@krow36I asked--

"Just to clarify—does the Fidelity 457’s manually mean that the management chores will be done by telephone and snail mail?  Will I be able to see the 457 account online or just by statements?"
 
The reply:  "Yes, that is correct.  Based on feedback we have received, most of the Fidelity 457 is still on paper and via telephone, and not online.  Please note that if you call their Customer Service Line they may tell you otherwise, mostly because their 457 products are still new and being upgraded."

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@krow36Knowing that the 457 Fidelity would not have online access, would you still go with it? You would do the "Freedom Index"...I am 38 years old. Is that based on age and when you retire? 

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40 minutes ago, Shannon said:

@krow36Knowing that the 457 Fidelity would not have online access, would you still go with it? You would do the "Freedom Index"...I am 38 years old. Is that based on age and when you retire? 

Yes, the date on target retirement funds is meant to roughly match one’s retirement date. The funds gradually shift the asset allocation in a conservative direction as the years go by. For instance, the 2035 fund might be 70/30 stock/bonds in 2018, but by 2025 it might be 60/40 and by 2035 it might be 40/60. I’ve made up the numbers but you can check out the actual numbers on the internet:  https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/SHDOCS/FXIFX/hosts/sh_comm_pmqa.002216.RETAIL_pdf.pdf

If you have decided on your current stock to bond ratio (your preferred Asset Allocation), then you can use the Freedom Index fund that matches that AA rather than using the retirement date of the fund. Based on your age, you might consider an AA of about 60/40 or 70/30. The 2025 fund is 70/30 and the 2020 fund is about 66/34. I don’t think I would go more aggressive than the 2025 fund. Fidelity thinks that if your retirement date is about 2040 (in ~20yrs), you should be 90/10! You would expect to get more return over the long term, but in a stock market downturn like 2008 your balance could drop by half! I would sleep better using 60/40 or 70/30, but it's a very personal decision that's up to you. 

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2 hours ago, krow36 said:

When you roll your previous 457 into your Vanguard 403b, I believe it goes into a separate account in the 403b and maintains its 457 character.

Interesting. I didn’t know that. 

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6 hours ago, Shannon said:

@krow36Knowing that the 457 Fidelity would not have online access, would you still go with it? You would do the "Freedom Index"...I am 38 years old. Is that based on age and when you retire? 

Yes, I would go with the Fidelity 457. I think that using the Fidelity 457 sans internet and thus avoiding the 0.25% management fee of the CalSTRS Pension2 457 is worth the inconvenience. If you contribute the max to the 457 over say 20 years, that 0.25% fee will add up to $1000’s less in your account. Fidelity’s $24/yr becomes less significant as your balance grows. The 0.25% Pension2 fee becomes more significant as your balance grows. It’s very possible that Fidelity will bring their 457 into the internet era before long.

By using one of Fidelity’s target retirement funds, you will almost eliminate any need to manage the account. Any change can be done by phone.

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I think the question Shannon posed isn’t just Fidelity 457b vs CalSTRS, it may also be Fidelity 457b vs Vanguard 403b.

Fidelity 457b is objectively superior to CalSTRS, even without internet access (something I’m a bit skeptical of).

Fidelity and Vanguard are neck and neck. It sounds like Shannon already started the process with Vanguard.

If Krow’s suspicion is right, that a Vanguard 403b will preserve the fee free withdrawal feature of a 457b, then I’d absolutely keep going down that road.

If Krow’s suspicion is wrong, then it is reasonable to consider switching paths and going with Fidelity. However, for me personally, I wouldn’t go through that hassle to preserve the fee free withdrawals...but that is highly dependent on my circumstances.

...it is worth pointing out that we are really sweating the small stuff here. As long as Shannon puts as much into tax advantaged accounts (403b, 457b, IRA, etc) as possible, uses low fee vendors, and invests in cheap total market index funds...then she is going to do incredibly well. 

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Ed, I (and maybe you?) have forgotten that Shannon has an inherited Roth 457 that she is moving to her Vanguard 403b. Vanguard has told her they can accept the account and understand that she will have RMDs when her dad reaches 70.5 in 3 years. I think that's all good. 

I don't think Shannon has told us how much she can or wants to contribute to her tax deferred accounts. Perhaps she's able to contribute to both a Vanguard 403b up to the 18.5k max, as well as to a Fidelity 457 account, as well as to an IRA, either traditional or Roth? 

In order, I would contribute to:

(1) an IRA (5.5k)

(2) the Vanguard 403b (up to 12.5k)

(3) the Fidelity 457 (up to 12.5k)

Shannon if you have a spouse, your 403b and 457 plans may be lower-cost and a better option than your spouse's plan. It might make sense to contribute to the lowest costs plans first.

 

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Is it your third party administrator ( or the district HR office?) that is telling you that Fidelity 457 isn’t internet-ready? Like Ed I’m a bit skeptical. Once you’ve established that Fidelity is on the 457 vendor list, call up Fidelity and ask about them about internet access to your account. 

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Thanks everyone for the feedback. Yes, that is the plan-to contribute fully to the IRA and 403(B) both with Vanguard and open a 457 with Fidelity contributing very low until I can work up to a higher contribution. 

I do plan to do an index fund, so I guess I would be just fine with paper statements. I do plan put my inherited 457 into the 403(b) and I believe that it still remains a "457" at least that is what I was told. 

1 hour ago, krow36 said:

Is it your third party administrator ( or the district HR office?) that is telling you that Fidelity 457 isn’t internet-ready? Like Ed I’m a bit skeptical. Once you’ve established that Fidelity is on the 457 vendor list, call up Fidelity and ask about them about internet access to your account. 

I was told by the third party that if I did call, I would be told otherwise, but it wasn't the case..he says

I really appreciate the feedback. I wanted to make sure that it all checks out with you all who are WAYYYY better informed than me. I am still learning about invest, but I want to learn. Thanks for the input @krow36 @EdLaFave @sschullo

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22 hours ago, Shannon said:

@krow36I asked--

"Just to clarify—does the Fidelity 457’s manually mean that the management chores will be done by telephone and snail mail?  Will I be able to see the 457 account online or just by statements?"
 
The reply:  "Yes, that is correct.  Based on feedback we have received, most of the Fidelity 457 is still on paper and via telephone, and not online.  Please note that if you call their Customer Service Line they may tell you otherwise, mostly because their 457 products are still new and being upgraded."

I find this reply from your TPA curious. If Fidelity isn’t currently on the 457 vendor list, how is the TPA getting “feedback”? From other districts? Anyway a Fidelity 457 is worth persuing, whether Internet enabled or not.

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3 hours ago, Shannon said:

I was told by the third party that if I did call, I would be told otherwise, but it wasn't the case..he says

If you eventually enroll in the Fidelity 457b, please come back and tell us whether or not you have full internet access.

Our Third Party Administrator is TSA Consulting Group and when I was working to add Fidelity and Vanguard to our vendor list, one of their VPs (on a conference call with the folks at district) had an excessive amount of negative stuff to stay about the low cost vendors. I haven't looked at the financial arrangements but I believe the TPA must benefit from the high cost vendors and therefore they do what they can to discourage districts from adding Vanguard/Fidelity and they discourage employees from enrolling in the plans if they're available.

So it wouldn't surprise me if this is all nonsense in an effort to nudge you away from Fidelity. Or maybe they're right. Or maybe it is pure ignorance. I'd like to find out.

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