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Everything posted by fischermh

  1. On the ERISA side, many times 404© does not apply due to the sponsor not meeting all of the 404© requirements. To the point at hand, for many years I have heard the theory that non-ERISA 403(b) plans may come under the scope of state fiduciary laws. However, I am not aware of a single case that one has. I think it is a red herring, until such a case arises.
  2. California RE Gains tax is also an issue. If you haven't closed on the sales, you may want to look into a 1031 Tenant-in-Common investment. Many are not good,but there are some good ones.
  3. So if an employer types 0.00 in for an employee's wages on a W2, even if he made $100,000, the employer is not liable to withhold taxes on $100,000? Usually when I ask for guidance and the guidance makes sense, I do not ask for cites or a PLR.
  4. Do you have a cite for the Employer not being liable for an excess contribution? I have discussed the issue with the IRS, and they do not concur with your interpretation.
  5. That is great news, an employer is not responsible for withholding income taxes from employees pay. I would advise all school districts based on intruders position to immediately cease withholding taxes from its employees checks. In fact, I believe I heard some arguing that income taxes are unconstitutional. Let's all stop paying them. The government won't throw us in jail. Asking a simple question on a form is very burdensome, and think of all the wasted ink.
  6. Unless you have experienced a distributable event, your money will have to remain with an approved vendor. Setting aside the bias of the decision makers, your 403b plan can have multiple vendors. NFP does not have to be the only investment option. The committee should consider including low cost investment options.
  7. The employers liability for excess contributions are the penalties for under withholding of payroll taxes. There would also be an argument if the excess contributions were egregious, there is a slight chance that the plan would be disqualified. From a practical standpoint, this is an absurd debate. All that is necessary for a SD to do to eliminate the potential liability is to ask if the participant participates in another plan. This can be done on the SRA, in an annual notice or any other number of ways. It is not burdensome or difficult, thus I don't understand why anyone would recommend not to do it.
  8. Steve and Tony, We are going to have to respectfully disagree. In my experience, I know that tactical asset allocation can add value to an investment portfolio. Additionally, for many investors, it is more important to err on the side of safety, than to not miss a move in the market. Tony, your point that the market is not rationale is part of the argument against Modern Portfolio Theory. If CAPM/MPT were to hold true, the market would not be on sale. Finally, be careful with the market is on sale mantra. It is actually a long used broker sales pitch. Back a few years ago was the NASDAQ on sale at 4,000 (20%) off its high?
  9. Scotty is correct. The district must ask for the information. The district is responsible for taking reasonable measures. If they chose to not ask, then they have not taken reasonable measures to maintain plan compliance. If they ask, and the employee lies, then the district will not be held liable. My guess is that the district was pressured to add the funds, and wanted to wash its hand of any liability. Unfortunately, they are wrong. The employee is not the plan administrator. The employee is acting as their own advisor, but that is distinctly different from being an administrator.
  10. If you believe the market is going to be rocky for the next few years, going to short term bonds and or cash is not a bad idea. Keep in mind that if you are wrong, you may miss out on potential arket gains. However, if you sleep better at night, it may well be worth it. Personally, I am also concerned with the economy. From my perspective, it makes sense to lighten equity exposures substantially. Over the next year or two, I think worse case is a serious bear market and the best case is the market bouncing around in a trading range. I do not think that we will see substantial gins in the market over the short term. So from my perspective, there is little downside to standing on the sidelines. That being said, talke my perspective with a grain of salt. I definitely could be wrong. The economy has surprised us before, and it may do it again.
  11. Unlike 401ks, the tax law does not provide for an in service distribution from a 403b. Unless you have had a distributable event, you cannot take a distribution. It is totally a function of tax law and has nothing to do with the vendor. In fact, the vendor is doing the correct thing by not allowing it. If they did, they would be putting the employer at risk. You can take a loan, but make sure you pay it back on time. Buying investment property is not a hardship.
  12. If they are front end load (A Shares) funds, you will not have a charge on the fund side. You may end up with a charge from the trust company maintaining the IRA.
  13. My guess is that lawyers can cite it, and may be successful in applying it to ERISA plans. Non-ERISA plans would not directly apply. Although, as we have speculated in the past, state laws may provide a rationale for a non-ERISA action.
  14. There are two ways to do administration. One is labor intensive, one is initially capital intensive. Big insurance companies will invest millions of dollars to build an automated administration system. In a large part the administration is automated and does not require many people to operate. The capital investment is amortized over a long period of time, so it makes sense from a capital budgeting standpoint. On the other hand, small administrative companies that do not have large capital resources, rely on employees and off the shelf systems that were not designed for 403b multiple vendor administration. This is why it is critical to conduct very thorough due diligence, before contracting with an independent TPA. You may be surprised by what you find. Professionals: How do you resolve the fact that annuity providers have enough profit margin within their products to even offer what is considered an expensive, labor intensive service? The simple fact is their pricing has remained mostly stagnant (high) while their operating costs have plummeted due to technology, and participant longevity. Just look at the rates for term life which are a fraction of what they were 10-15 years ago. If the participants interests were the primary focus, these costs would have come down long ago. But when the people who make the decisions aren't spending their own money, what do we expect? Let me ask again, how do you folks square the unfair practice of allowing some participants to unknowingly pay for an admin service that benefits all participants? Jim EDIT: Note, I used the term "operating" costs, not distribution costs, a completely different matter.
  15. Some of us find it hard to believe that they will act in terms of the agreement.
  16. Love you too, after all it is St. Valentine's day. I don't disagree in some cases. The vendor that wants a preferred vendor status is not offering for a totally free service. There are some, well at least one, that is doing it without any strings attached. I think I actually wrote an article that advocated due diligence. Or on the other hand: Insurance Rep- As you know we already have a payroll slot with the district. I would like to let you know about our free admin services. There is no cost to the SD or to the participants. Mark, See I think these are two separate scenarios. The "free" admin services are contingent on the purchase of another item, the annuity. The way you describe the herbal wrap, it's a give away. This is not happening with 403b remitter services.The SDs are required to provide a payroll slot in order to get the "free" service. How long would the insurance company continue to do so, if not a single employee purchased their products. Not long I think. You and I both know that unless someone is carrying the freight, the "free" services disappear. You are correct that "free" remitter services are often "free" to the SD, I'll agree with that. But then we are qualifying the statement free. This doesn't make sense, hence my term that your view is gray, rather than black & white. I just do not think its' helpful to give industry providers a free pass. They choose their words carefully in order to get people to take action. Ins Rep: And by the way, we'd be happy to handle your admin requirements as a common remitter for free SD administrator: Really? Cool. So you'll do that at no charge? Ins Rep: Yes, we will. As long as you offer a payroll slot. SD admin: Huh? Can we get the admin services without that? Ins rep: Uh, no. We only offer it for free if we can sell our retirement products. SD admin: OK. So how about if we use your admin services at no charge for a year, and if we like it we'll consider adding you as a retirement provider. Ins Rep: Well, we wouldn't be able to do that, it's only free if you add us as a vendor. SD admin: Then it's really a bundle, Admin services plus products, because I have to offer your annuity to get the remitter service. So it's not really free then? Ins rep: Yeah, I guess it depends on your definition of "free". SD admin: Exactly. We'll pass. I don't think some of our participants should subsidize the cost of admin for everyone else. Thanks though. Reality? SDs say, "cool it doesn't cost us anything so who cares". And those participants who know better buy the low(er) cost offering, and let their unsuspecting peers pay the freight. We can disagree over the definition of "free". That's OK. Best regards, Jim
  17. Just because the company makes a profit, does not equate to the administrative service not being free. Today on the radio, a local herbal wrap company offered a free wrap to the first 5 callers. Those 5 callers received a free wrap. Yes, the company hopes to make them repeat customers and generate future profits. However, the customers are free not to return. If they do return and the company generates income, the first wrap was free.,
  18. Actually, I see things in black and white. Free is free. If I have an American Fund 403b account, and Insurance company A is doing the administration. Insurance company A charges me zero dollars for the admin. Insurance company charges the district zero dollars for the admin. The admin is free. If I choose to buy Insurance company A's annuity, I incur the same expense, regardless of whether they do the admin or not. Thus, the admin is free. Don't let your dislike of the insurance products cloud your view of reality.
  19. First, I am not comfortable with the insurance companies that offer free remitting and administrative services. That being said the services are truly free. My definition of free means there is no cost to the district or participant. The company does gain a benefit from the service, but that does not mean it is not free. The companies are using it as a loss leader to maintain their payroll slots. Given that some districts are going to a single vendor, free administration services give them a leg up on the competition. Second, for every sponsor that uses their services, they do not incur the costs of information sharing and dealing with third parties. Again, let me stress that I am not advocating or not advocating the use of free administrative services.
  20. Scott, Did CALPERS review the bank account? I would think it would be important to know who has signing authority, who is credited with interest, etc. Someone is earning interest on the account, it may be Omni or the bank. It may be credited to another treasury management account. Does the insurance provide coverage, if an owner of Omni were to embezzle funds? What recordkeeping system does Omni use to process common remitting funds? Are they audited as to their ability and performance to keep accurate records? I think any district that uses a common remitter needs to perform thorough due diligence of the remitter. Mark
  21. Jim, I think we may be splitting hairs. I agree that the transaction is a sale of a security not the sale of advice. However, the broker can legally and does give advice. In the practical order, the line between being a broker and advisor is determined by compensation. If the person charges for advice, then he must register as an IA or IAR. If he does not charge for the advice, he is not required to register. Regardless, the client needs to be keenly aware that it is a sales business. The broker is not an investment expert nor a portfolio manager. He is a guy adapt at getting people to sign checks and give them to him. Most of what a clint/prospect hears is a pitch not advice.
  22. The following is from the Ohio Division of Securities: Are you a securities dealer or salesperson licensed by the Division whose performance of investment advisory services is “solely incidental” to the conduct of your business as a licensed dealer or salesperson, and who does not receive “special compensation” for the advisory services? If you answer yes to the question, you are not required to register as an investment advisor. Ohio's law is similar or identical to nearly every state and the SEC. It is unreasonable to think that a broker does not give advice. Nearly every sale requires advice. That being said, the broker main job is to sell. The quality of the advice is irrelevant, the only measuring stick is gross commissions. Thus, the client should be very skeptical of the broker's advice.
  23. While reps do not act as investment advisors, unless they are licensed and retained by the client to do so, they do in fact offer advice. Legally, they may offer advice as long as it is incidental to the sale of a security. Whether or not one should rely on the advice is a different matter.
  24. At least your are honest about your dishonesty.
  25. If I had a dime for every time a rep used that lie. I think a rep disclosing his compensation is important for two reasons. First, the pitch that Judy heard implies that the rep is a corporate salesman and is paid a salary. Based on this implication, the client does not realize that he does not get paid a dime, if he does not make the sale. Knowing that the investment is directly putting money in his pocket is important to understand when evaluating whether or not his advice is in the clien's best interest. Second, the load compensates the rep for the advice and service he gives the client. In order to determine whether the service and advice is acceptable, a client needs to know how much it costs. Finally, TR the client does have another option, to buy a no load fund and forego the load.
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