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Everything posted by MNGopher

  1. Thanks Tony, Our meet and confer suggestions are supposed to be non-confrontational suggestions to improve the school climate. I don't feel comfortable submitting a petition, because they always feel confrontational to me. I just want to raise awareness to the issue. Two years ago I sent a similar proposal and got positive response from both the union representative and our districts business manager, who both said they shared my concerns. At the time we had an interim superintendent who had a one year contract, and never responded. So I just want to basically raise awareness to the new Superintendent. Maybe I should leave out the part about signing the fiduciary responsibility? To me it just blows my mind that insurance salesman can just wander into our school and peddle their crap investment products. Why don't we just let car salesmen, time share, and Amway people in too.
  2. Please let me know if you see any factual inaccuracies.
  3. A couple of times a year our union representatives at my school district get together with the Superintendent for an event called "Meet and Confer" to discuss non contractual issues, grievances, concerns, etc. that employees can submit anonymously. Usually it involves things like supervision times, staff dress code, leaving the work place during working hours and things like that. I thought I would submit something about improving 403Bs. Please give honest and brutal feedback. I won't submit it to my union rep for a day or 2. If the graph on page 2 doesn't display, it is just the one from Dan and Scott's power point presentation provided for us on this site about why fees matter. Meet and Confer Topic November 2019 I submitted a similar topic a couple years ago, but since then we have had changes in the Superintendent position as well as union leadership, so I will throw it out there again. I would like to see Monticello become a leader in 403B reform at the K-12 level. This is an issue for thousands of school districts at the state and national level. The problem is that since its inception, almost 60 years ago, the K-12 403B market has been dominated by high priced and complicated insurance products usually called variable annuities, tax sheltered annuities, indexed annuities, etc. The salespeople that sell these products are allowed access to our buildings, often during school hours, calling themselves “financial advisors”, even though they have no fiduciary standard to follow and often no training or certification in financial planning. Unlike its cousin, the 401K, which is regulated by ERISA (Employee Retirement Income Security Act of 1974), K-12 403Bs are only regulated by the less rigorous insurance industry standards. As a result salesman push high priced, complicated insurance products on educators that limit their ability to effectively save for retirement. The biggest misconception that the insurance salespeople push is that you need an annuity to get the tax deferred benefit of the 403B. This is absolutely false. The 403B tax code itself allows for deferred income if the employer allows it. Purchasing an annuity within a 403B plan is expensive, redundant, and unnecessary. It’s akin to wearing a raincoat inside your house (double tax protection that you don’t need). The 403B(7) is the specific code for deferred income that can be invested directly in the underlying assets like mutual funds, bonds, CDs, etc., without the insurance wrap-around. This issue has been in the news again the last few weeks as the SEC (Securities and Exchange Commission) investigates the predatory sales tactics of the insurance industry directed at school employees. One of the companies under investigation is one of the most widely used and visibly present in the Monticello School district (see links below). The Barron’s article is shorter, https://www.barrons.com/articles/sec-looks-at-aigs-sales-of-annuities-to-teachers-51572426001 and the Wall Street Journal goes into more detail: https://www.wsj.com/articles/sec-launches-investigation-of-practices-in-retirement-plans-for-teachers-government-employees-11570651944 The price difference for the investor, between annuities and investing directly with a low cost vendor is staggering, with annuities often being 10-20 times the annual cost. I had an annuity product for many years that had expense ratios averaging over 2% (200 basis pts.) annually. Low priced vendors can give you the same exposure to investments but averaging only about 0.14% (14 basis pts). These fees are assessed every year on your entire account, not just on money going in. See chart below to see how fees make a huge difference over time. *The chart above, which compares the average variable annuity, to an actively managed fund, and an indexed fund, makes the following assumptions: 35 year career, $250 invested monthly ($125/pay period), and a 6% nominal return. If you contributed more than this small amount over your career the differences would be obviously much greater. So, what is the solution on the local level? The good news is that the Monticello School District does have some low cost vendors on our approved list that do offer non-annuitized options for employees. That is great, but I feel like we can do better. Here are some ideas that I have. 1. Explain and promote our great options at new teacher orientation. Let new teachers know that we have low cost options for tax deferral, since they are the ones most often targeted by insurances salespeople. 2. Cut down some of the names of insurance companies on our approved vendor list. Experts at 403Bwise.org (a non-profit organization) will tell you that more choices are not better for employee participation rate. 3. Put more restrictions on allowing salespeople into our building. Make them sign a fiduciary agreement, disclose all fees on their products (including commissions, load fees, expense ratios, and surrender charges), disclose their education and or certification that allows them to give financial advice. 4. Provide educational opportunities for current employees that maybe haven’t started savings, or that could use help switching from a high cost plan to a better option. Better retirement savings options are a benefit for employees, employers, and students. Financially secure employees are more satisfied employees that can retire sooner, ultimately saving the district money. Teachers that need to teach until full retirement age in their late 60’s probably don’t benefit students, and certainly cost the district more in terms of salary. With somewhat stagnant wage increases and the future of defined benefit pensions in question, it is all the more important to allow employees to take more control of their future. Lastly, what a great recruitment and retention tool for the district, to be able to brag about our great 403B program to perspective employees.
  4. These 3 are my least favorite financial pundits, with Kiyosaki being the worst IMO. All three have made far more money from their books, seminars, and endorsements, than from following their own questionable advice.
  5. I think that we will see a decline in the AUM model of financial advice and a move to more "fee only" type financial advice. New investors just need someone to explain what's available at their place of work and motivate them to get started. They don't need someone to handle their 403B contributions for 1-2% per year. Coworkers should help with this, or at the most maybe a one hour consultation with an honest fiduciary advisor. On the other end of the financial spectrum, your multi-millionaire investor doesn't want to shell out 10's of thousands in AUM fees when they just need a couple hours of consultation. The active manager model is bad, not just because of their AUM fees, but also because of the transaction fees and taxes that come along with the active management that they feel they must do to justify their fees. A double whammy against the uninformed investor!
  6. This is great news for investors. Early in my teaching career (early 90's) I was talked into contributing into an annuity product that I unfortunately can't remember the exact name of. I only put in about a $100 per check for about a year. I received a notice of a class action law suit against this company about a year later. It stated that the insurance company was being sued for falsely representing itself as an investment product. I signed up for the class action and got quite a bit of my contributions of the past year back. That would be great if the SEC investigation opens doors to keeping these annuities out of our schools and maybe even suing these companies on the basis of falsely representing themselves.
  7. I bought "Teach and Retire Rich" used on Amazon. I highly recommend it also. I don't remember what I paid but it was fairly inexpensive. As an extra special bonus the inside cover appears to have an authentic note and signature from Dan Otter dated 2008. Does this greatly increase the value of the book?🙂
  8. "Have you been listening to Dave Ramsey?" I'm chuckling at that response. These guys are friendly and personable, but make no mistake they are ripping you off. The standard to sell insurance is very low. He is not acting in your best interest and none of his plans are cheaper than Fidelity or Vanguard.
  9. I once had about $75 in a 401K from a non-teaching summer job that I did years ago. They kept sending me statements, but I didn't do anything with it because I figured it wasn't worth hassling over such a small amount, and that I would just wait and spend it at age 59.5 and buy a nice dinner or something. A couple years ago, I guess they wanted to clean things up, and they asked me to either cash it out (taking an IRS penalty) or roll it over to a different account. I did exchange it over to Vanguard, but for all the calls, paper work, and trips to the post office, it probably wasn't worth the 75 bucks. Your amounts are over a thousand, so I think this would definitely be worth the hassle of exchanging it to Vanguard.
  10. It's unfortunate that you didn't get enrolled when you thought you did. I don't mean to be blunt, but you should have checked your pay stub. This sounds like it was a 4% match of your contribution, but you never contributed any money, so there was nothing for them to match. Maybe I am misunderstanding.
  11. Is your wife's financial advisor the salesman for both AXA and Aspire? If he is just the AXA guy, I wouldn't trust him to help with the exchange to Aspire. Just get help from the new company. I haven't had personal experience with either company but Aspire has a better reputation. As far as the surrender penalty, you should call and find out when the penalty period ends. If it's just a couple years away, you might want to just leave it dormant, while meanwhile starting contributions to the new company. This might be better than taking the $780 hit.
  12. I could be wrong but I thought 403B's required employee contributions (defined contribution plan). You might have a different kind of thing here.
  13. I think the DOL fiduciary rule was pretty much negated (or maybe just delayed) by the current administration. So a salesman saying he is a fiduciary really has no legal meaning that I know of.
  14. Yes, the first is a link to the image from the Bogleheads website. https://www.bogleheads.org/wiki/File:Slide2.JPG And this one is an article and 5 minute video that explains it. https://financinglife.org/learn-how-to-invest/tax-advantaged-accounts/#transcript
  15. On a $100,000 account there is a hundred dollars difference in annual cost between VTSAX and most of the Target date funds. You decide if it's worth it. As the size of the account grows, owning the funds separately might become more desirable.
  16. I found this chart useful when trying to decide which funds belong in which account.
  17. You didn't mention your age, but from the information given I'm guessing maybe early 50's? At that age most people would recommend a stock/bond asset allocation of somewhere between 50/50 and 75/25 depending on your risk tolerance. How much more expensive is the target date fund you are considering than the vanguard total stock market fund (VTSAX)? The difference between my 2025 TDF and VTSAX is only 0.14 - 0.04, so I use the TDF in my 403B for the convenience. As far as which funds go in which account, I like the following rules of thumb. 1. Highest risk funds (stocks) with the most potential for long term growth go in the Roth IRA. The reasons being you won't need it for a long while and the (hopefully large) gains won't be taxed. 2. Bonds, including those in a target date fund, are better in your tax deferred 403B. Bonds kick out a lot of dividends that would be taxed as ordinary income if you don't have them in a tax advantaged account. In tax deferred you have control of when you pay the taxes. 3. In a taxable (brokerage) account you also want tax efficient funds like VTSAX that don't pay out a lot of distributions. What else you have here depends on how long until you need it and personal preference. Besides VTSAX, I also have some VTIAX for foreign exposure, and also some total bond market (not too efficient) and a money market fund. I'm sacrificing tax efficiency for liquidity, because I will want to spend some of this before age 59.5.
  18. I'm confused about why he keeps mentioning "the city" in his responses to you. Is there a third party that oversees both the school districts and other city employees retirement plans?
  19. That's great that your district puts a warning about annuities and insurance salesmen right on their website! I bet if you call the HR/benefits office at your school they could tell you which companies are allowed vendors for 403Bs. The fact that they warn you about annuities indicates that you probably have some low cost mutual fund custodians available to you.
  20. Yes, they are very good at hiding fees. Expense ratio (er), expressed as a percentage, is the main way to compare fees assessed on investments, but this is not the only fee with annuities. As Tony mentioned, if you list the other choices from your district's approved vendor list, then the people here can usually quickly tell you what the best option is.
  21. Thanks for the link. Not only is your teacher pension an annuity, but for all practical purposes so is Social Security. And teachers in all but about 15 states also pay into social security. There is really no reason to invest in an annuity during the accumulation phase of your life, and most certainly not if you have a pension and/or Social Security.
  22. The example in this article, "Frazzled Francine"" was paying $44,000 (4.4%) in fees on her 1 million dollar annuity every year! This is more than a standard safe withdrawal rate. She could literally be living a middle class lifestyle for the rest of her life, just in what she is paying in annuity fees!
  23. I've never heard the author's claim before, about surrender charges improving performance by essentially protecting investors from making behavioral mistakes. I suppose that could be true in some cases, but it seems like twisted logic to me. It's kind of like a kidnapper saying he is protecting his hostage, because the victim is less likely to be in an auto accident or struck by lightning, etc. if they are chained up in my basement. 😆
  24. The TPA that my district uses doesn't charge individual employees an annual fee, but I'm pretty sure the administration pays them something. I don't totally trust their judgement, and I can't help but wonder if they are being partially compensated by the insurance companies that sell annuities. The one time they came out and gave a presentation at my school they seemed to want to steer people towards the insurance companies. They didn't want to talk about Vanguard at all and quickly changed the subject when I asked about them.
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