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Admin

Admin
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  1. The following comes from our FAQ section and may be of value. Why Contribute to a 403(b)? A Healthy Retirement - Most employees of educational institutions and other non-profit organizations are provided with a pension upon retirement. Few pension plans, however, provide an amount equal to salary. A 403(b) plan can provide a healthy supplement to a pension. Lower Taxes - 403(b) contributions are made on a pre-tax basis which can greatly reduce your tax bill. Generally, if you contribute $100 a month to a 403(b) plan, you've reduced your Federal income taxes by roughly $25 (assuming you are in the 25% tax bracket). In effect, your $100 contribution costs you only $75. The tax savings are magnified as your 403(b) contribution increases. More Tax Savings - all dividends, interest and capital gains accumulate in a 403(b) account on a tax-deferred basis. This means your earnings will grow tax-free until time of withdrawal. Also point out that once the plan is set up it should cost your employer very little. They do not have to offer a match though that would be nice. Dan Otter
  2. Greetings all, As the author of the October 16, 2000 article in question, I want to set the record straight. Hardship withdrawals are not exempt from an IRS 10% penalty. This was an error on my part in the MF article. I have since been in contact with MF about this. Below is information on Hardship Withdrawals from the 403(b)wise FAQ section Under what circumstances may a hardship withdrawal be made? This provision allows withdrawal of funds from a 403(b) if under severe financial distress. The participant must have no other resources available. A hardship withdrawal may be made for: Un-reimbursed medical expenses of the participant or his/her spouse and dependents. Down payment on primary residence. Tuition and fees for higher education needs, and only for the next 12 months. Eviction or foreclosure on your primary residence Hardship withdrawals are not exempt from an IRS 10% penalty. Furthermore, withdrawals are subject to ordinary income taxation in the year withdrawn. To qualify you must certify that you have no other recourse, including the possibility of taking a loan. You also are prohibited from contributing to a 403(b) for the next six months. The IRS makes it tough to access money this way for a reason: they don't want you to use the 403(b) as a form of short term savings. For exact details on your situation it is recommended that you contact both your vendor and a tax professional before proceeding. Also, while the IRS permits withdrawals, it is allowable for a plan sponsors (the employer) to not permit them. The employer has some responsibility in making hardship withdrawals. The employer has to "OK" the hardship, based on written information provided by the employee as to the nature of the hardship. The employer has to determine, based on the facts, whether the employee has an "immediate and heavy financial need." Consulting a tax professional before making a hardship withdrawal is highly recommended. Dan Otter
  3. Take a look at this story on fees. You can research these companies here. Under "Shortcuts" on the right click "Find a Vendor." You will then see an alphapbetized list. You can check out these three companies there. Do you have any no-load mutual fund/low fee companies such as Fidelity, TIAA-CREF, T. Rowe Price, Vanguard and USAA available? Dan Otter
  4. Hi newinvestor, Good for you for looking at this approach (target date retirement funds), and good for you for looking at these two companies. One other thing to look at is stock/fixed investment allocation. Vanguard tends to take a more conservative approach (i.e. more weighted toward fixed investments). This means their 2035 fund will be a little more conservative than T. Rowe Price's 2035 fund (see below). Check each company's website for details. I have read that with increased life expectancy, some (not all!), believe T. Rowe's Price may make more sense. If you haven't read our piece on these funds you might want to read this story. Good luck and stay in touch. The following information is from year 2006: T. Rowe Price Retirement 2035: stocks 90% - fixed income 10% Fidelity Freedom Fund 2035: stocks 84% - fixed income 16% Vanguard Target Retirement Fund 2035: stocks 76% - fixed income 24% For complete information on asset allocation consult each company's website. Dan Otter
  5. Joes, I think the question is not that the insurance company is providing "advice." It is that those who want to go through Vanguard should also be eligible for a match. Dan Otter p.s. Do you think any insurance reps will compare their options with Vanguard and then advise these hospital employees to go with Vanguard? I think we all know that answer. Which raises this question: Is the insurance company providing advice, or are they selling product? Is there a conflict of interest here? As I mentioned above, one could use a fee-only planner and Vanguard products and end up with solid advice at a lower cost with the added bonus of knowing the products used were recommended on their merit not because the rep works for the company.
  6. Allanreid, Point out to your co-workers and employer that a viable alternative to getting investment advice from an individual whose compensation is tied directly to the products he/she offers would be to utilize Vanguard's low-cost products while getting independent advice from a fee-only planner. This is a link to The National Association of Personal Financial Advisors where you can find more information about the fee-only approach. Dan Otter
  7. Admin

    403 Fees

    When you look closely at Equity Indexed Annuities — and most people don't bother — the blemishes are clearly visible [uSA Today]. "Some of the pitches (of Equity Indexed Annuities) are appalling," says NASD Vice Chairman Mary Schapiro [san Diego Union]. Dan Otter
  8. Hey Texasdiver, Here's a link to T. Rowe Price's specific 403(b) page. You'll see it even has a video discription of the 403(b). You will also see a link to their age based funds (called T. Rowe Price Retirement Funds). Dan Otter
  9. You have touched on one of the real challenges of analyzing variable annuities: unearthing all fees. While Valic products and fees can vary from employer to employer you may find it helpful to take a look at the information available at 403bcompare.com This is the link for the vendor search. Type in AIG Valic and then you can browse their products. Remember to look at the Fees and Charges tab and the fees and charges under the Subaccounts Tab to get total fees for this product. Good luck. Dan Otter
  10. Hey Tony, Good luck in your efforts. Show your benefits administrator and other interested parties this story which details a simple, low cost way (available via Vanguard and many other companies) for an individual to save for retirement that ensures proper allocation at every step of the investment cycle. There is a common misconception among benefits administrators that all teachers/employees need an agent/rep to aid them with their 403(b). This just isn't so. If you are in need of financial advice look at using a fee-only advisor whose recommendations are not tied to product they represent. Take a look at NAPFA. This is an organization made up of fee-only financial planners, the majority of whom are certified financial planners. Good luck. Dan Otter
  11. 403bagent, Thanks for the info. Clearly I can see why the mutual fund industry objected to at least two provisions you list: requirement to set-up payroll slots at every district and providers cannot charge any fees period. No company or industry would support this, especially the latter provision. I find it hard to believe that the companies you listed (Vanguard, TIAA-CREF and Fidelity) wouldn't support the following proposed suggestions: no surrender charges, no front-end sales charges, no back-end sales charges and no contingent deffered sales charges. I believe of the three only Fidelity offers loaded products. What specifically did the these three companies object to? You also mention that the provisions were "debated and marked-up in the House insurance committee..." When you look at the so called protections (below) and the fact this was vetted through the insurance committe, how else could one not come to the same conclusion as Mr. Caldwell? My point is that it is highly doubtful the mutual fund industry had a role in the so-called fee caps (below). Are you saying Vanguard, TIAA-CREF and Fidelity were responsible for these? I do not doubt that they didn't object to structural issues but whose interests do the following serve? This, in my opion, is why the TRS provisions are poisonous. Thanks for your feedback. Allows a front-end load and/or back-end load for annuity and non-annuity products, for a maximum combined charge of 6% Surrender charges allowed for fixed and variable annuities: capped at 10% declining annually for up to 10 years; 1% allowed each year after 10 years if applicable, for a total maximum of 12 years All other total aggregate charges as a percentage of total assets for both variable annuity and non-annuity accounts capped at 2.75% Dan Otter
  12. Hey apteacher, I don't doubt that the mutual fund industry had issues with the structure of the TRS plan. It's just that 403bagent makes it sound like the mutual fund instustry objected to the effort to require lower fee products--hard to believe when companies like Vanguard, TIAA-CREF, and Fidelity acitively market the cost advantages of their products. If this is true, as 403bagent asserts, then provide some attributable evidence. Comments like "The rules as originally proposed were a disaster and not just for the insurance industry" need to be substantiated and clarified. What were a disaster? The low fee caps? The registration process? I have provided a quote and a link to the fee structure that is now place to support my claim. Here is a link to the Explanation of 403(b) Certification pdf from the TRS. Take a look at page two which lists the fee caps. Dan Otter
  13. Hey 403bagent, I am basing my use of the term "poisoned" in regard to the insurance industry because of the quote at bottom and because of personal experience with the California reform effort. If you have attributable evidence that the mutual fund instrustry was in favor of the adopted fee structure in Texas then please share it. If you are referring to their opposition of the certification process or some element of the process then that is very different than being in favor of the fee and surrender charge threshold that was ultimately adopted. Specifically, what requirement would Fidelity, Vanguard and TC not meet? Please provide some clarification and attributable evidence beyond your opinion. Quote from an attorney familiar with 403(b) plans in Texas, and the TRS 403(b) Certificatioin process: "The initial (TRS) regulations were excellent," said attorney Wade Caldwell, whose firm Martin, Drought & Torres, Inc. of San Antonio, have represented teachers in numerous lawsuits against insurance companies selling 403(b) annuities. "These changes are a patent cave-in to insurance lobbyists — especially in the area of variable annuities, which should not be sold in 403(b) plans at all. The expense caps now allow even the highest cost variable annuities to be sold to unsuspecting teachers." Dan Otter
  14. 403(b)agent, Are you saying the following investment parameters are suitable for investors? Allows a front-end load and/or back-end load for annuity and non-annuity products, for a maximum combined charge of 6% Surrender charges allowed for fixed and variable annuities: capped at 10% declining annually for up to 10 years; 1% allowed each year after 10 years if applicable, for a total maximum of 12 years All other total aggregate charges as a percentage of total assets for both variable annuity and non-annuity accounts capped at 2.75% --- I'll stand by the words of the attorney who was involved with the case: "The initial regulations were excellent," said attorney Wade Caldwell, whose firm Martin, Drought & Torres, Inc. of San Antonio, have represented teachers in numerous lawsuits against insurance companies selling 403(b) annuities. "These changes are a patent cave-in to insurance lobbyists — especially in the area of variable annuities, which should not be sold in 403(b) plans at all. The expense caps now allow even the highest cost variable annuities to be sold to unsuspecting teachers." --- Dan Otter p.s. Interesting that you didn't challenge the validity of the insurance industry's involvement in torpedoing reform efforts in California. As the word increasingly gets out on these plans the harder it will become for the insurance industry to block reform.
  15. Hey Statereg, I would not categorize what California does as "screen" vendors. The state tried to do that in 2002 but heavy lobbying by the insurance industry killed that effort (see below). I am as thrilled as anyone with 403bcompare but it falls fall short of meaningful 403(b) reform. By and large California 403(b) participants are stuck with high fee products often sporting enormous surrender penalties. My sense is that most California teachers do not even know they can go to 403bcompare to check costs. While Texas does screen their vendors, the size of the holes in the screen are so enormous that participants continue to get stung but what is allowed through. The state tried to impose some kind of sanity on their 403(b) plans but once again the insurance industry poisoned that efforts as well. Good luck in your efforts. I hope there is a state out there that truly gets it. Dan Otter Failed California Reform Effort In 2002 a legislative effort (AB 2506) was undertaken to alter 770.3 to allow school districts the ability to engage in the RFP process. A ferocious lobbying attack was waged by insurance industry interests fearful their agent-pushed plans would lose favor under such an arrangement. Opponents of the RFP process, with a straight face, no less, argued vehemently that AB 2506 would take away investment choice. Of course they failed to point out that true investment choice does not exist in California 403(b) plans. The typical vendor list in California is stocked with lots and lots of vendor-pushed choices and few to zero low-cost direct distribution options. This is hardly choice. The RFP process would allow school districts to offer a plan of their choice. Not insurance interest's choice. Under the RFP process school districts would have the ability to choose companies offering agents in the field, and companies offering direct distribution, low-cost investments if they so chose. Under this scenario a teacher who needs the services of an agent would have the peace of mind that the agent they are working with comes from a company their employer selected. And under this scenario, do-it-yourselfers looking for direct distribution, low-cost investments would have that choice as well. This is true choice. The employer has choice. And the employee has choice. What's often overlooked in the battle for 403(b) hearts and minds is that the 403(b) is for teachers and not-for-profit workers. Not agents. Not insurance companies. And not mutual funds companies. Opponents of the RFP process can spin their turf-protection arguments a myriad of ways. They've tried to put forth the argument that the RFP process would take away choice and be akin to a world where only General Motors could sell vehicles. We think a car analogy is a perfect way to sum up the current state of the California 403(b). But the most accurate one comes from Henry Ford when he was asked about color choice in his Model T. "You can have any color you want," he replied. "As long as it is black." California teachers want more colors in their 403(b).
  16. Wildflower, What is your income roughly?
  17. Hey Oldjar, Below is some information on initiating a hardship withdrawal which may be of use. It comes from the 403(b)wise FAQ page http://www.403bwise.com/faqs/index.html: Under what circumstances may a hardship withdrawal be made? This provision allows withdrawal of funds from a 403(b) if under severe financial distress. The participant must have no other resources available. A hardship withdrawal may be made for: Un-reimbursed medical expenses of the participant or his/her spouse and dependents. Down payment on primary residence. Tuition and fees for higher education needs, and only for the next 12 months. Eviction or foreclosure on your primary residence Hardship withdrawals are not exempt from an IRS 10% penalty. Furthermore, withdrawals are subject to ordinary income taxation in the year withdrawn. To qualify you must certify that you have no other recourse, including the possibility of taking a loan. You also are prohibited from contributing to a 403(b) for the next six months. The IRS makes it tough to access money this way for a reason: they don't want you to use the 403(b) as a form of short term savings. For exact details on your situation it is recommended that you contact both your vendor and a tax professional before proceeding. Also, while the IRS permits withdrawals, it is allowable for a plan sponsors (the employer) to not permit them. The employer has some responsibility in making hardship withdrawals. The employer has to "OK" the hardship, based on written information provided by the employee as to the nature of the hardship. The employer has to determine, based on the facts, whether the employee has an "immediate and heavy financial need." Consulting a tax professional before making a hardship withdrawal is highly recommended. --- Dan Otter
  18. I am wondering if anyone knows the answer to the question below I just got from someone in New Jersey. Thanks. Dan Otter --- I understand that the employee contributions to a 403(b) plan are not considered pre-tax for New Jersey State taxes but what about the contribution made by the employer to a 403(b) plan. Are they also to be taxed in New Jersey?
  19. Hi dohmai, Good for your for seeking to educator yourself. If you are looking for a simple, low-cost way to save for retirement that ensures you will be properly allocated take a look at this story Good luck! Dan Otter
  20. Pengruffwnd, Understand that when you meet with your rep that there exists an inherent conflict of interest--his/her recommendations will be colored by the fact he/she works for a financial service company. I don't begrudge this person from making a living but I also think you need to protect your interests first and foremost. Find out exacty what services you are receiving and exactly what fees you will pay and if surrender charges apply. Only then can you make an informed decision as to the value of his/her services and products. If this product indeed charges a 5.25% load I would encourage you to think twice before investing. This means that if you contribute $100 to this fund, immediately the value of your investment falls to $94.75 (in other words you just lost 5.25%!). Factor in that annual inflation is roughly 3% and the 0.85% annual operating expense and this "investment" must return better than 9.1% for you to truly benefit. It doesn't take a math teacher to figure out this is some eye opening math. Contrast this with products from companies like Fidelity, T. Rowe Price, TIAA-CREF, Vanguard and USAA which have numerous products available well below 1% in total feels. Don't take my word for it. Spend some time at morningstar.com which tracks the financial industry. If you are looking for a low cost way to save for retirement that ensures diversification this story should be of interest: The One Fund Solution? Dan Otter p.s. Is this the Security Benefit product endorsed by the NEA? p.p.s. Here's the Forbes piece for those who haven't read it.
  21. Hi Pemcnabb, Welcome to the site. One of the best places to get detailed fee and surrender charge information is from 403bcompare This site lists most 403(b) products available in the state of California. Chances are your 403(b) will be listed here as well. To the right of this home page under "Shortcuts" click "Find a vendor." Then click "A" for AIG-Valic. From there select "product list" from the top tab. Hopefully, your product will be listed. You can then choose various "Subaccounts" and get fee and surrender information from the "Product Features" and "Fees and Charges" tab. Remember there are typically two charges: those imposed by AIG-VALIC and those charged by the subaccount. For example: AIG VALIC Portfolio Combination Fixed and Variable Annuity Subaccount: Stock Index Fund (basically S&P 500) - 6 year surrender charge - expense ratio: 0.38% - administrative fee: 1.00% - quarterly fee of $3.75 (may be waived based upon plan) Here's a story about 90-24 transfers you may want to read. Good luck and stay in touch. Dan Otter
  22. Hey Folks, I concur with FT. It is time to put this argument to sleep which may be what is happening to anyone who ventures into this thread. Dan Otter
  23. Schwarzenegger Targets A Last Bastion of Security By Harold Meyerson of The Washington Post America has a problem with its public employees. They are not downwardly mobile enough. Policemen, firefighters, teachers, hospital nurses -- they still belong to the one part of the U.S. economy where the New Deal hasn't been repealed. Fully 90 percent of them have defined-benefit pensions as of old. In the private sector, just 60 percent of employees have retirement plans, and a scant 24 percent still cling to defined-benefit plans. Fully 86 percent of public employees are covered by on-the-job health insurance; in the private sector, the rate has fallen to 66 percent. According to the Employee Benefit Research Institute, public employees make on average $49,275 a year. A sub-princely sum, that, but better than the $34,461 that is the average annual income of private-sector workers continued
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