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jwils118

Choosing 403B Plan, is it worth it?

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My current best option from the following list looks to be Aspire... 

Ameriprise/ RiverSource

Aspire

AXA Equitable

D & E Financial

First Educators/ FEIC

GALIC/ Great American

Lincoln Financial Group

The Legend Group

VALIC

Voya

I was thinking about Aspire but once I added up even the low fees without an advisor, I'm not sure if it would be worth it. I would probably try to invest somewhere around $4,000-$6,000 a year. So after their $40 annual fee plus 15 basis points, plus another 15-20 basis points from Fidelity (probably their cheapest option), that would cost me somewhere around 1..2 - 1.4% annually in fees. Seems pretty high to me.

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Aspire is a good choice if you self direct- into Vanguard or Fidelity Index Funds. Lincoln Financial group might be worth looking into as they have a direct option as well which might be a better deal if your plan offers it. Regardless your math is way off.No way will you paying that much annually in fees unless you re going through an advisor which you don't need to do. I don't think your one-time Aspire annual fees should be added in to get your expense ratio. Also what Fidelity funds are we talking about? That makes a difference to know.

I will let someone else explain how expense ratios work because I'm a math idiot but I am pretty sure you don't add all those things together to get an expense ratio. Any initial or deferred sales charges, annual maintenance fees, transaction fees,or brokerage charges are not included in the expense ratio of the fund I don't believe.  The mutual fund expense ratio can give you a good idea of how much you'll pay in fees each year. For instance, an expense ratio of 1% means that for every $1,000 you have invested in a fund, the fund will collect $10 from your account to cover its costs. This is complicated by the fact you have Aspire charging its own fees as a middleman as well.



Your other choices should be avoided at all costs. Have you checked out if you have access to a 457b plan?  

Run a search on Lincoln Finacial Planning and Aspire at the top of this page as these are topics of frequent discussion

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I apologize if my explanation is confusing.  Fees are confusing. It can get complicated in retirement 403b plans especially with insurance products. In a regular taxable or IRA fund , the expense ratio is a little more straightforward and fees are easier to discern.

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jwils118 has posted the same on the Boglehead forum where I posted an answer, so I'll post my same answer here. I think Lincoln Financial is different from Lincoln Investment which offers the very low-cost Participant Directed Platform, mostly to teachers in NJ. 

I think maybe the OP is converting the $40/yr admin fee into a percent of a low balance of say $5000, which would add 0.8% to a very low-cost ER 0.07%? Not ~1%, but not ideal. That should be incentive to contribute more and get that balance higher! After say 3 years, with a balance of $15,000, the admin fee is only 0.27%. Hopefully in the future, maxing the Aspire 403b will result in the admin fee being even more reasonable. Remember that Vanguard’s 403b plan for K-12 districts has an admin fee of $60/yr (but no added 0.15% to the funds' ER). 

Aspire is well-know to be a reasonably low-cost 403b vendor. I’m not familiar with D & E Financial, First Educators/ FEIC or GALIC/ Great American. The other vendors are well-known to be high-cost sellers of mostly annuity-based 403b plans.

What state are you in? Many states have 457 plans that are low-cost and available to teachers. Your district should have a 457 vendor list.

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Thanks Tony and Krow,

I did get my expense ratio from adding in the admin fee (which probably isn't what I was supposed to do..) but you made great points on that when I get more money into the account, I will have less of an admin fee added in. I teach in Ohio and unfortunately, my district doesn't have a 457 from what I've been able to gather. I will most likely bite the bullet and try to invest as much as possible these next few years into the Aspire option.

HR did mention in our yearly 403b letter:

Contact the Treasurer’s office if you would like to use a Provider that is not on the approved list.  In general, in order for a Provider to be made available under the Plan, at least five employees must make a request to use that Provider.  In addition, before a Provider can be approved, the Provider will have to agree to follow the terms of the Plan and to provide other documentation to the Treasurer’s office.

This seems like a bit of work though. Not sure how successful or much of a stir I would have to make to get someone like Vanguard included.

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1 hour ago, krow36 said:

I think Lincoln Financial is different from Lincoln Investment

Too many Lincolns for my taste. That is also confusing. There is also a Lincoln Investments. So that makes three different companies using the Lincoln name. The 403b is a mess fees and otherwise. God help us.

 

 

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I would see if teachers can invest in your 457b plan in Ohio. In Virginia, we were under the impression that teachers didn't qualify either. I made one phone call and found out that things had changed and teachers could participate. Minimal paperwork got them on our provider list. Its a very low-cost plan but they have a .19% fee yearly. So its hard to escape these fees. Then I would definitely try and get Vanguard and Fidelity on the 403b  books so you don't have to go to the middle party route anymore like you are having to do. Still, Aspire seems like your only decent choice. at the moment. I invested in Aspire for a few years and I was happy with the overall performance. If you self- direct the account without using an advisor your expense ratio will only be .15% plus the underlying fund's expense ratio. If you pick a Fidelity or Vanguard index portfolio, your overall fees will be very very low. Nowhere near what you stated. You can't escape the $40.00  fee at the moment but as Krow points out Vanguard also charges an even larger fee of $60.00 a year as do other companies.  I am also glad to hear that Aspire now allows entry into Admiral funds.

Do you know how to self-direct your account?

 

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Ohio does have an excellent state 457 plan that is called “Ohio Deferred Compensation”. It is open to state, county, some city, and state university and college employees but unfortunately I see no mention of school district employees. Just because the state plan isn’t on your district’s 457 vendor list doesn’t mean that it’s not possible to get it added. You can give them a call or an email.

Quote

Who is eligible to enroll?
Any public employee who is eligible for membership in one of the State's statutory retirement systems (including the City of Cincinnati retirement system) is eligible to enroll. https://www.ohio457.org/iApp/tcm/ohio457/about/faqs/index.jsp

Aspire can be used for a 457 plan as well as for the 403b, if it’s on the district’s 457 vendor list. It does sound promising that your district is open to adding another vendor such as Fidelity or Vanguard. This can take months or even years and be well worth the effort, but in the meantime I think using Aspire would be a good idea.

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The EZ Enrollment Form has a spot to specify the enrollee’s pension plan and one of the options is STRS (State Teachers Retirement System)! So maybe Ohio K-12 teachers are eligible to use Ohio Deferred Compensation?  https://www.ohio457.org/tcm/ohio457/static/EZ-Enrollment.pdf

It’s worth checking it out because the fees are a bit lower than those of the Aspire 403b or 457 plans. There is no admin fee for balances less than $5000! For balances over 5k there’s a 0.14% admin fee (capped at $220/yr) that is added to some very low expense ratios. The LifePath series of target retirement funds have a very low ER of 0.06%, and the Vanguard Index funds used for a very low-cost 3 or 4 fund portfolio are offered. https://www.ohio457.org/tcm/ohio457/static/OhioIPR.pdf

 

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8 hours ago, krow36 said:

he EZ Enrollment Form has a spot to specify the enrollee’s pension plan and one of the options is STRS (State Teachers Retirement System)! So maybe Ohio K-12 teachers are eligible to use Ohio Deferred Compensation?  https://www.ohio457.org/tcm/ohio457/static/EZ-Enrollment.pdf

It’s worth checking it out because the fees are a bit lower than those of the Aspire 403b or 457 plans. There is no admin fee for balances less than $5000! For balances over 5k there’s a 0.14% admin fee (capped at $220/yr) that is added to some very low expense ratios. The LifePath series of target retirement funds have a very low ER of 0.06%, and the Vanguard Index funds used for a very low-cost 3 or 4 fund portfolio are offered. https://www.ohio457.org/tcm/ohio457/static/OhioIPR.pdf

 

Great Work Krow. I hope Jwils returns to see this and lets' us know what he finds out.

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If you use the google search on the bogleheads website, and enter "Ohio, 457, teachers" you'll get links to a number of interesting BH threads on the subject. The Ohio state 457 plan is definitely available to K-12 teachers. It should be on your district's 457 vendor list, but if it isn't, you should be able to get it added with minimum resistance. 

It's admirable that there is no admin fee for balances under $5000 and also that the 0.14% admin fee is capped at $220/yr. That means that for balances over $157,143, the admin fee will decrease, e.g. for a 200k balance the fee works out to 0.11% (220/200,000). 

 

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It would seem to me every school system should lobby their state to include teachers in the statewide 457b plan if they are excluded and not just in some states. But school districts probably won't do it without a major push from its teachers and employees. This would be a great getaway from bad 403b plans which are much too common. Most 457b plans run by the states seem fairly impressive but I know some that are just as bad as the 403b.

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On 11/7/2018 at 4:55 PM, krow36 said:

If you use the google search on the bogleheads website, and enter "Ohio, 457, teachers" you'll get links to a number of interesting BH threads on the subject. The Ohio state 457 plan is definitely available to K-12 teachers. It should be on your district's 457 vendor list, but if it isn't, you should be able to get it added with minimum resistance. 

It's admirable that there is no admin fee for balances under $5000 and also that the 0.14% admin fee is capped at $220/yr. That means that for balances over $157,143, the admin fee will decrease, e.g. for a 200k balance the fee works out to 0.11% (220/200,000). 

 

 

On 11/7/2018 at 10:25 AM, tony said:

Great Work Krow. I hope Jwils returns to see this and lets' us know what he finds out.

Tony and Krow, Thanks so much for all the help. I didn't even know that the 457 would be a viable option. I contacted HR and found out that we do have two options for 457 plans: Ohio 457 Deferred Compensation Plan and OASBO 457 (VOYA) Deferred Compensation Plan. I looked a bit into the first one and I believe this is the one that Krow mentioned in the previous post. After you pay the .14%, they seem to run their own type of retirement fund with a .06% ER https://www.ohio457.org/iApp/ret/cmd/RetFundProductInformation;jsessionid=0F1B4D83F1C18E6FCA7C7C3E3FFEF555?ENTITY=null&userSite=OHIO&pageNum=2

They also have a few Vanguard and Fidelity funds by the looks of it, but those would require some asset allocations every few years.

I've never heard of VOYA though for my other option?

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 I would stick with the Ohio state 457b plan and do a lifepath fund close to your anticipated retirement age. Its equivelent more or less to a Vanguard target fund using index funds. I have discussed in the past why  a target fund is a good way to go . Do a search on this site. Seems like they are  a very good low cost option.  I would not sweat the administrative fees. Most 457b plans have them and yours seem more than reasonable. I think you have a winner in the 457b plan. I'd go with that. But should you want to do the 403b, Aspire would be a reasonable choice. Good luck to you.

 

P.S. If you want to boost your possible performance (and risk) you could do the lifepath fund and add a small cap value fund. You have that available in your choices. Some experts and journalists advocate boosting your small  stock allocation when doing target funds. Its not necessary but it could give your portfolio a boost long term. Short term it will make your portfolio a bit more risky. Ivwould only put in 5-10% of your total monthly investment in this.

 

I don't know how old you are but when I started investing while teaching , I could not find a retirement product that had fees less than 2% a year. So you are lucky to have The Ohio 457 plan and even Aspire available. 

 

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