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EricJ

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  1. EricJ

    Frustration

    EFS is Educators Financial Services, Inc. (http://tsainvest.com). Due to a great demand for such an option, they were going to offer a way to invest directly with Fidelity funds, on your own, and avoid paying their 1.04% annual fee for financial advice. This seemed to be a good, low-fee option, especially since I already had a 403(b) account with Fidelity. However, it seems this isn't an option anymore. I think now I'm going to go with the 457 plan offered, which includes some Vanguard and other low-fee options.
  2. Thanks in advance... the help around here has been tremendous. I am leaning heavily towards a 457, now that my school district employer revamped their 403(b) options and none have low enough fees to be attractive. My employer, a school district, gives me the option to contribute to the Minnesota Deferred Compensation Plan as a 457 option. I want to make sure I understand the main advantages and disadvantages of a 457 plan. I have been told by my employer that they will withhold FICA from their matching contributions to a 457, but not for a 403(b). Does this sound correct? What is the reasoning behind this? I saw a very comprehensive post by John Feldt regarding this -- but honestly I didn't understand all of it. I understand that 403(b) employer matches are not made entirely out of the employers own money, aren't considered wages, and therefore are not FICA taxed. What is different about 457 matches? Because my employer is paying their half of FICA before giving me the matching contribution, does that mean my contributions are also being reported as FICA-taxable income? Are my 457 contributions not FICA exempt, but my 403(b) contributions would be? I know with some (all?) 457 plans, the security of your money is subject to the well-being of the company -- meaning that if they file bankruptcy you may have a hard time claiming your money. With this being run by the state, or some non-profit arm of the state, is my money secure up to the point of bankruptcy of the state of Minnesota? I got the impression the money is held in a trust and is protected. I understand that employer matching contributions count towards the annual contribution limit. This is a disadvantage from a 403(b), correct? Well, I'll start with those. Thanks again!
  3. EricJ

    Frustration

    Just got this e-mail from our Benefits department: Current and new 403(b) enrollees in EFS: Fidelity Direct. We were informed by EFS late last Thursday that the Fidelity Direct investment option required further documents be signed to be implemented. Upon review by legal and follow-up with Fidelity by our consultant, we have determined that EFS-Fidelity Direct will not comply with Anoka-Hennepin’s 403(b) Plan and Third Party Administrator requirements at this time. Therefore, the EFS: Fidelity Direct investment option is not available. We are notifying you of the unavailability of the EFS: Fidelity Direct investment choice because you are or were enrolled with Fidelity. Due to the last-minute notice, we will extend our deadline for completing the new SRA and choosing a new investment option and/or a new vendor until December 19, 2008 for continuation of 403(b) reductions on January 9, 2009. SRAs completed and returned after next Friday will be processed on the next available pay day. We are sorry for the shortness of this notice but it was unavoidable based on the untimely communications to Anoka-Hennepin. Arg. This is a double whammy of goodbye Fidelity and hello middle-man fees. A summary of my remaining choices are: ING Mutual Funds, plus a .5% asset management fee P&A Financial Services - Best choice seems to be a target date fund with a 0.86% annual fee, plus their $10 + 0.25% annual charge. Educators Financial Services - TD Ameritrade funds, plus 1.06% annual fee to EFS Ameriprise - Riversource Mutual Funds with fees around 1.5-2.0%. OR I can invest with the Minnesota 457 plan, which would give me access to ultra-low-fee Vanguard funds. The catch is, I'd lose 7.65% of my employer's match to FICA... meaning I'd get $1,845/yr instead of $2,000/yr. If my math is correct, it seems that over the long run I'd be better off losing that part of my employer match in order to avoid 1-2% annually in fees. What do you guys think? I suppose there's nothing I can do about this whole thing, right? Who is really to blame for this? Thanks in advance...you guys are excellent.
  4. Thanks Judy! I did pre-order Bogle's new book, so I'm looking forward to that. Thanks for the tips on those other books. I started down this path a couple years ago inspired by the book "The Automatic Millionaire" by David Bach. It covers basics like saving and investing off the top of your paycheck so it's automatic - and praises low-fee investing with realistic asset allocation. I'll definitely have to check out those other books. Thanks!
  5. Update: I talked with EFS just now, and they said that Fidelity Direct is a self-investment option where you can go straight to Fidelity. EFS makes no money off the deal. There was so much demand for this type of option, that they agreed to provide it. I believe they are banking on you thinking positively about their company because of this, and considering them in the future for other investment services. Or whatever... I'm just glad it's as good as it sounds! Thanks everybody.
  6. Thanks for the reply. EFS mentioned that I could choose to go with their other Fidelity option, which sounds like they'd be more involved -- and they mentioned there's a 1% fee for that. He made the Fidelity Direct option sound like there'd be no additional fees... but it wouldn't hurt for me to verify that. Thanks for the tip. I suppose the biggest upside to all of this is that there are no surrender fees for any of the 4 providers, which I think means I can try any of them out with no worry about switching anytime I wish. Tony: Thanks Tony. I was getting the same general impression - that any vendor will suggest you use their services and that any fees are well worth it -- but of course they will say that. That's why it's hard to get sound advice from anyone but people that have no interest whatsoever in your money -- like the helpful folks on this site.
  7. I attended an informational session last night that explained the reason for the 403(b) changes, and introduced our four options. Here are some impressions and questions I had. Fees Ameriprise, for example, offers a Variable Annuity (RAVA 4 Access) with an M&E fee of 1.25%, with no annual fee. Question: Is that the only fee involved in an annuity? Each vendor also had mutual fund options. Fees were listed such as ".25% annual participant recordkeeping fee", or ".50% annual asset based management fee". Question: These are how the vendor makes their money, right? But the mutual funds themselves will have additional fund management fees as well, right? I just wanted to clarify. Fidelity Direct I was pleased to hear one of the vendors mention a familiar name, Fidelity, my current provider that I believed I'd have to move away from. The vendor's name is Educators Financial Services. They have a few options for investing - Security Benefit SFR, Fidelity, TD Ameritrade, or Fidelity Direct. With Fidelity Direct, it sounds like I can keep my current Fidelity account, and continue with no financial adviser and pay EFS no fees. Does this sound plausible? If you want them to contribute their services, pick any of the other three options and tack on 1% annually in fees. Two questions: 1. How does EFS make any money offering Fidelity Direct? Is this just a side-perk of them dealing with Fidelity as one of their managed mutual fund options? 2. Of course, the sales rep at the table afterward cautioned against Fidelity Direct, as he claimed that "on average, self investors don't even beat inflation". He attributed this to investors chasing the fund of the day, and ending up worse off in the long run. While this may be true, I've gathered that a properly allocated portfolio with ultra-low fee index funds at the heart will typically fare well. In fact, I've heard quite the contrary - that the majority of managed funds don't beat the index. Thoughts on this? Just sales talk? Thanks in advance for the great insight you all provide.
  8. Hi Steve! Good to see a fellow District 11 employee here! I find this interesting as well. So, non-FICA-exempt employers must pay FICA taxes on 457 matches, but not 403(b) matches? What is the FICA rate, 7.65%? So, that would mean that I'd lose $153/year off a $2,000 employer match? If so, let's do the math with an investment scenario: 30 years from retirement. $0 invested currently. Will contribute $5,000/year. Assume 8% average rate of return. Invest for 30 years into annuity with 1% admin fees and $2,000 FICA-exempt yearly match. $150,000 employee contribution$60,000 employer match $616,951 investment returns ======= $826,951 minus $140,905 in fees ======= $686,046 OR Invest for 30 years into no-load funds with 0.30% admin fees, and ~ $1,845 FICA-reduced yearly match. $150,000 employee contribution$55,350 employer match $603,285 investment returns ======= $808,635 minus $44,346 in fees ======= $764,289 Whew! Losing $155 each year on my employer's match adds up to $4,650 over 30 years. Sounds bad at first, but over the long run it seems like nothing compared to what I save in just .7% less fees. Does that sound right to you guys? Am I missing something obvious? I suppose a hybrid approach of putting $2,000 into a 403(b) to ensure a full match, and then the rest into a no-load 457 option might be even better. I'll have to do the math on that one next...
  9. Wow, now that you mention it, I looked at the details of one (Vanguard Institutional Index Fund Plus - VIIIX), and the expense ratio is a mind-boggling 0.025%. I thought my 0.15% Fidelity options were pretty good, but that's crazy. Why look to the expensive annuities if they'll match my state's 457 plan... right? If this is true, I'll have to spread the word to co-workers.
  10. Hi Scotty. I work for Anoka-Hennepin. They match $1,000 for teachers with 2 years of service, $1,500 at 7 years, and $2,000 for 18 years, with a $35,000 individual lifetime maximum. I am on an administrator contract, so the match is $2,000 regardless of years of service. I am not sure what the match is like for other positions (Interpreters, Secretaries, etc.), but here is page with links to all the contracts: http://www.anoka.k12.mn.us/education/compo...c_id=1193953875 Hope that helps!
  11. Thanks for the info! That FAQ told me pretty much everything I needed to know. So really, if my state's 457 plan has more attractive options than my employer's 403(b) vendors, I might as well go that way. I did read on the 457 plan page on Wikipedia that a possible disadvantage is that "a 457 plan participant cannot make designated Roth contributions as participants in appropriately amended 401(k) and 403(b) plans can." Any idea what this means? What does it mean to make a "403(b) Roth contribution"? I thought a 403(b) plan and a Roth IRA were two separate things...
  12. Recently I posted a question with many helpful answers. Essentially, the 4 plans my district offers all stink (ING, Ameriprise, and a couple others...) -- but since they match $2,000, I have to at least contribute enough to get the free money. Above and beyond $2,000, perhaps look elsewhere (Roth IRA). ANYWAY, a more detailed letter came out today mentioning that my district will still continue to offer the Minnesota State Deferred Compensation 457 plan. Now, I don't know the difference between a 457 and a 403(b), but I have checked out my state's website and noticed some funds from Fidelity and Vanguard. This gave me a ray of hope - but I'm not sure how this works, or how it differs from a 403(b). Anybody have any insight? Here's the link to Minnesota's 457 plan: http://www.mndcplan.com/InvestmentLinks.htm and http://www.mndcplan.com/Article_03.htm Thanks in advance!!
  13. Thanks so much for the responses. Here's what I've gathered, so please tell me if these statements are true: If I can convince my employer to add a better vendor, the choice will be easy. For simplicity's sake, let's assume I'm stuck with some high-fee annuity provider, and will be stuck with them for the next 40 years. If my employer matches $2,000, I should invest at least $2,000 into my 403(b), even if it's invested in a annuity riddled with fees. After all, that's a 100% return, and even the highest fees can't overshadow the prospect of that much free money. Let's say I want to contribute another $3,000/yr on top of that. A good choice would be to start a Roth IRA and contribute that $3,000 post-tax to, say, some low-fee Vanguard funds. I'll make out better over 40 years this way, since I am not losing money to fund fees. True? Either way I eventually pay tax on the contributions, right? With the 403(b), I get to hold on to the fed's tax I owe them, and let it earn interest before I have to give it to them upon withdrawal... correct? Whereas I have to pay the tax up front with an IRA, which seems to be a disadvantage. Still, a fund with a 8% annual return and 3% in annual fees only nets me a 5% gain, right? THANKS in advance, Eric
  14. I work for a school district, and I am in the same boat as many others. For years, we have had 15+ choices for 403(b), and now we're being reduced to 2-4. The winning vendors will be giving their sales pitches at an upcoming meeting, with opportunities to set up accounts on the spot. I am currently with Fidelity, which I believed to be the best (lowest fee) choice previously. I am 27, and have gathered from some research that my best bet for the long term is to primarily seek out low-fee, index-style funds with an appropriate mix of asset classes. Please let me know if I'm way off base with this, but that's not my real question at the moment. Anyway, I've got a couple questions for you knowledgeable folks. 1. Are any of my new choices even remotely good? The two certain providers are ING, and P&A Financial Strategy, Inc. The two providers still in negotiations are Ameriprise and Educators Financial Services. 2. Assuming none of those are in the league of Fidelity or Vanguard, would it be smart to have 2 403(b) accounts? Meaning one with a new provider in order to get my $2,000/yr employer match, and then keep investing independently with Fidelity or Vanguard? Can I still allocate pre-tax dollars to a vendor my employer no longer endorses, or will any outside investment have to be with some type of IRA? How would post-tax investing with Vanguard compare to pre-tax investing with high-fee providers? Thanks, Eric
  15. Thanks Joel and Anonymous. That makes perfect sense now. I'll check with my employer to see what can be done under the new regs.
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