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Everything posted by danc

  1. No - what you want to do is not allowed. I believe that 403(b) Plans are (by Law) limited to investment offerings of annuities or mutual funds. Gold coins, commodities, gold stocks, commodities stocks - all of these are not permitted investments. These could be used within a mutual fund or annuuity that is a plan option. If you do not believe your 403(b) provides investment options that make sense for you, then I'd just pay the tax on income and invest without the limitations of the 403(b) plan. As to the wisdom of your investment tactics, that is really a separate issue. Good day & good luck! DC
  2. One way to solve our current economic challenge is to double the price of everything. Double everyone's pay, double the price of every home, etc, etc. Voila! - your mortgage now looks good relative to the value of your house, and the payment is now affordable. And if you happen to believe that prices will continue to rise, then you are quite interested in accelerating your purchases because tomorrow the price will be higher. Demand is strong, the economy grows (in nominal terms) and yes - we have higher inflation. Effectively, this approach is approximately equivalent to halving the outstanding mortgage value for those whom have leveraged themselves into a home (or homes). The losers of this approach are those that loaned the funds (lenders & holders of mortgage backed securities) as they get paid back but the real value of their loan has declined. Oh & by the way, US Debt (as a % of Nominal GDP) Levels decline. This has been done before. An nobody from the Fed or Treasury is ever going to announce that this is the gameplan. But the approach is certainly more politically viable than an explicit motgage reduction (Cram-Down) strategy that some have advocated. Just too much for us to handle - so we get to the same place using other means. Deflation concerns in the very near term - Yes. But periods of Deflation are highly unlikely (Bernanke has already said he'll drop $$ from a helicopter to avoid that) to persist. Worldwide fiscal & monetary stimulus is happening each day - appropriately. And new initiatives will be added - until growth again kicks in. Policymakers will err on the side of doing too much. What not to own: Long-term Bonds with fixed coupon rates. Go buy that foreclosure or any other real asset & use leverage to do it. Danc
  3. In my experience, a good quality TPA will give you a well-specified budget for a well-specified scope of work. The good quality TPA will give the sponsoring employer the option of raising revenue from participants by assessing a per capita fee and/or asset based fee or some combination of the two. (Participants with small balances are better off with asset based fees while those with large balances are better off with per capita fees - so some combination can produce a reasonable compromise). The TPA that charges a flat 1% is in my view - automatically disqualified. Why? Because the fee schedule generates revenue that is un-related to the amount of work, resulting in either too much revenue for the TPA or too little (relative to the work), either of which are not good. Free Advice: Find another TPA that provides a clear explanation of how their fees relate to the amount of work they have to do to serve the plan. Cheers, Danc
  4. You have raised an interesting question and a complicated issue. I will give you my opinion as to the question - Will an insurance company be OK as a TPA? Why or why not? My response is maybe and it depends on who (as a participant in the plan) you are. Those who want "full service" and the attendant higher fees will get those elements. Those who want "self service" and low cost & index funds might get those elements. The insurance company is not in the business of being a TPA only, and therefore is willing to serve these two participant archtypes if & only if those wanting the full service approach is sufficiently large relative to those wanting self service. In formulating its bid, the insurance company will assess these issues and price the case accordingly. It will also make some sort of assumption about the current & future of the relative sizes of these participant archtypes. Over time, to the degree that the self service group expands relative to the full service group, the insurance company's margins will decrease. The self service approach will therefore be discouraged exist precariously as the insurance comany will make every effort to minimize the absolute & relative size of that group. Just like Lunch, there is no such thing as free TPA services. Regarding how insurance companies and TPAs can get paid for services (when the plan uses non-proprietary mutual fund companies), I'd encourage you to do a web-search using words such as revenue sharing, sub transfer agent, 12b-1, dealer concession, plan expense credit, PEC, etc, etc. Good luck with your research and influence on the Committee. Danc
  5. My opinion is that you have little recourse here. General Rule: If you want a high degree of investment flexibility - avoid employer-sponsored retirement plans. Usually participation in the Hospital 403(b) Plan is voluntary. Is that your situation too? Key question: Does the Hospital provide any sort of contribution - fixed, matching or otherwise? Your wife has an account within the Hospital Plan. Technically, the Hospital Plan owns all the assets of the Plan (even voluntary contributions are owned by the plan - the contributor has a legal interest in the plan - not the underlying investment funds). If your response to the question above is yes, then there is strong likelihood that the Hospital Plan is a so-called ERISA Plan & the Hospital has a fiduciary duty to Plan Participants. The Hospital has a duty to operate the plan for the best interest of all participants, which includes compliance with regulations (which may be also be part of the reason why investment fund choices are being limited). If you believe that the Hospital has a fiduciary duty & has violated its fiduciary duty (by modifying the investment fund choices) you can file a complaint with the Department of Labor. Talk with the fund companies about how to end-run closed funds; they may make an exception in your situation and let you re-establish the positions in the brokerage account. Good Luck with it! Danc
  6. Intruder - if you want to go off in another direction - feel free to start a new thread. DC
  7. I applaud Vanguard because their position is completely consistent with doing what is in the best interest of ALL their mutual fund shareholders. Their refusal to attempt to be all things to all people is a key ingredient of how they are able to deliver unique investment offerings to investors. Let's face it, the SD 403B market is really messed up (read: costly to serve) - particularly when there are multiple vendors and weak 403b Plan governance structures. I do not agree with the position that Vanguard is in the wrong. ScottyD - tell us why you think they should agree to all the ISA's? I'd really like to understand - is there some obligation I am not aware of? SD's who want Vanguard Mutual Funds can readily make that happen. 403b participants need to wake up and realize that the primary implication of the new regs is to move the decision on vendors and investment fund options to the SD's. If the teachers (such as Ft6 & the other "smart" ones) that want Vanguard or Fidelity Mutual Funds or a Vendor are so upset about the loss of low cost & index alternatives from V & F, then it is time to get active and influence YOUR EMPLOYER who is responsible for the SD Plan & its structure. Cheers, DC
  8. Kaye; 1. Stop thinking so hard. 2. Definitely - do what you need to do to maximize hospital contributions - this is the single most important factor in building up your retirement fund. It is highly unlikely that your costs outweigh the benefits of 4.6% per year employer contributions to your account. 3. You are choosing investment funds for long term capital accumulation. So even though the Hospital is going to one Vendor, your interest is in multiple and "good" investment choices. 3. Keep lobbying for low cost no-load & index investment funds. Even within the single vendor the hospital selects, these types of choices should be available. I know AIG will offer a menu of no-load & low cost index funds - pay attention to what your fund choices are. 4. Know your 403b investment expenses. The hospital plan should give you the ability to pay reasonable fees. What is "reasonable" is hard to say, but if you are paying alot more than 1/2% for index funds or 1% for active management, you may be approaching the limits of reasonableness. FWIW, your plan is probably subject to ERISA (Federal Law) and therefore is under the regulatory jurisdiction of the US Department of Labor (DOL). The DOL Webite can direct you to more information about the hospital's fiduciary obligations to plan participants under ERISA. Hope this helps a bit. DC
  9. Nobody here is offering anything but praise for Dan Otter & the Portal he has provided. Clearly it offers a great advantage over Vendor Offerings. And I appreciate the information furnished about the reasons why MCPS has engaged the BWise Team. The difficulty I have is HOW the Portal is paid for. I present the following scanario for consideration. MCPS has a choice to offer Vanguard Institutional Index Funds at 3 BPS or Fidelity Spartan at 10 BPS. Vanguard will NOT agree to Fund the Portal but Fidelity will. The Portal costs only 2 BPS, so with a bit of arithmetic, Vanguard with explicit Portal fees is 5 BPS and Fidelity with implicit Portal subsidies, nets 8 BPS, but still costs participants 10BPS. Net, net Fidelity costs participants 5 BPS more - for the same service. What is the best solution for participants? (I know - who should squabble over a measily 5BPS) Thoughts? Cheers, Danc
  10. TR is quite correct here. The vendors always pass these costs on to plan participants, and therefore they never really pick up the tab. It is always funded by participants. And as such, whether a consulting fee, a portal contract charge, or computers for the HR staff (which I have seen) the burden is on participants. And unfortunately, these fees are passed to everybody - even the participants who have done their research and need no added services or portals. As Jim has stated, those vendors with low margins & high integrity will never play. No Vanguard, No DFA. Dan, I would suggest that you get out in front of the issue and just declare the fee structure; what is the big deal? Nobody is saying you should not charge a fee, but when you do not disclose, you raise legitimate concerns. Cheers, Danc
  11. The "Independent Consultant" for the Model Plan is Gallagher Benefit Services. The "Independent Consultant" is either a Broker or has an affiliation with a Broker & therefore - the search was of no interest to entities that do not pay brokers. Compensation & revenue sharing (that is 100% paid out of the fees participants are assessed on the investment options) resulted in a skewed set of candidates. Nothing noteworthy or attractive about this. DC
  12. 1. Typically the M&E is a contract charge and is uniformly applied to all investments made under the contract. Investment Fund expenses are per fund, so the total M&E plus OER (Operating Expense Ratio) gives you a combined amount unique to each fund. And yes, that is a mighty "headwind" to be up against! 2. In my opinion, get away from AXA if you have a better option. To determine that you need to carefully examine your AXA contract versus other alternatives available to you. You'd be amazed how easy it is to have a different understanding than the AXA people! Best way to avoid a surprise at Surrender is to have them give you an illustrated surrender valuation (in writing). Expect the worst, hope for the best! With the amount of time you have to go, you'll be way ahead financially (& psychologically) if you distance yourself from AXA. 3. Read your AXA contract. Understand it - you seem to already be getting it! Caution regarding Fidelity for there are many varities of Fidelity. Fidelity wrapped by another annuity carrier, Fidelity Advisor, Fidelity Direct (non-advisor shares). If you actually have Fidelity Direct, you might be onto something reasonable. Generally - read all of that fine print & understand it prior to investing. Good luck - you're on the right track! Danc
  13. danc

    New 403b Plan

    Default investment election = Vanguard Target Date Fund (Age appropriate assuming Normal Retirement Age of 65) Most of what you'd get of value from independent investment advisor is an asset allocation. Target Date Funds do that & since all components are index funds, this offering gives participants low-cost, a reasonable approach to asset allocation & returns that follow the markets - with good precision. For those participants that want/need more customized advice, active management, other bells/whistles, let them purchase it (on their own) rather than layer the fees/services for everyone. Although it does not likely apply to your plan, The PPA 2006 provides Fiduciary Safeguards to 401(k) Plan Sponsors who elect a Target Date Fund default methodology. Private sector plans are using the approach to reduce fees, improve returns, reduce fiduciary liability & assist participants to make more appropriate investment choices. My Opinion Only. DC
  14. danc

    Fund Question

    A Standard & Mandatory question/part of a carefull RFP Process: Please provide a SPECIMEN of the SERVICE AGREEMENT or CONTRACT that we will need to execute. To all purchasers & investors - READ BEFORE YOU SIGN. Do not be fooled by what is said. My experience is that once you sign, you will be held to the terms of your contract. Caveat Emptor!!
  15. danc

    Axa Equitable

    AXA is a typical high cost, expense laden provider. Your "advisor" is paid to distribute product and keep you in line, and keep you in the fold, year after year after year. You have read these posts by Joel & APTeacher & Tony and other well-informed educators. You have also read the posts from agents -who do not want to see the status quo change a bit. Very simply - once you wise up to the game - minimize your fees, determine an appropriate asset allocation, and pay attention so you do not get ripped off. If you have another vendor that can help you do these things, go for it. By the way, nice to see that the profanity filter is working! DC
  16. Hi 5th; The New Regs really do not offer you much that is positive. And they make a Multiple Vendor 403(b) Structure (like the one your district has) more risky & costly to administer. A Limited (or a Single) Vendor Structure is probably the solution. Going from 28 down to 8 or 9 Vendors might work, but your District may have to consider further consolidation to accomplish its objectives. Candidates refuse to bid on situations that are poorly structured (from the canddidate's perspective) & therein lies the information you need to obtain. Vendor consolidation is a ticklish thing to do. You'll have upset participants & things like surrender charges to address - and of course, the selection process for your surviving vendors. Your Distirct may face a legal challenge; so be prepared & get an attorney involved early.
  17. BenefitsGeek; I am not a fan of AIG. That said, their products are getting better. A Plan Sponsor I work with has them and the average OER for funds offered in the lineup is 0.75%. Low cost? - Not too bad when all plan services are built into participant-borne expenses. The investment options are all non-annuity choices (mutual funds) so there is no M&E. The Plan's lowest expense offerings are Vanguard Target Date Funds upon which AIG levies a 0.35% expense surcharge. BTW, this Plan selected to go with Wells Fargo Stable Value instrument & not the AIG Guaranteed Account. Again, an expense surcharge was levied by AIG. In light of AIG's recent recent write-down related to the mortgage-backed segment, we are somewhat insulated against deteriorating credit ratings. DC
  18. Hi 5th; Sounds like you are in a good position to begin to influence change. I am offering a few responses to your questions; there is no "playbook" for this stuff, so please take my comments as suggestions/opinions only & apply your judgment to the situation. The Blind leading the Blind is not acceptable - get some experienced help - and keep doing research. 1. I do not know of any step by step guide. I'd start with the facts you have. The district has a 403(b) program & a list of approved vendors, and now a Committee of some sort. And your program involves both employer & voluntary contributions. A couple items I'd look for: Is there a Plan? Or a Plan Document now or being worked on? Does the District have a Legal resource (in-house or retained) working on these issues? If nobody is looking at these issues, there is a significant hole in the districts process that needs to be attended to. Depending on Vendors for these resources is not wise; the District will need to spend some bucks to do this independently from Plan Vendors. By the way - does the District have any contracts with any of the 27 approved vendors? If yes, those contracts should also be reviewed. (I am not an attorney & have no dog in that fight) Regarding the Committee, I would suggest that you obtain a Charter for the Committee. A Charter should provide a basis for existence of the Committee, and specify what, if any authority is being delegated to the Committee by the District. If there is no Charter, you run the risk of participating in a frustrating (to say the least) Committee process. 2. My opinion is that the New Regs lay out formal operational rules that must be complied with to have a 403(b) Plan; the implication is that non-compliance may result in dis-qualification and result (seems unlikely to me) in tax liabilities to the District & Plan Participants. Compliance with the Regs should be a primary focus of the district & its Legal resource. Reliance on Vendors for "Free Advice" is not a good idea. 3. Hard to say because there are so many unknowns; read - poor risk/return tradeoff for Vanguard. The economics do not make sense to them. I'd get your ducks lined up better and then go back to them. 4. You are fortunate that you have a front-row seat with the Committee. First of all - find out what authority the Committee actually has. Next, I'd suggest organization of the topics at the Committee Level into Legal/Regulatory, Administrative & Financial/Investments. (Maybe they already have some of this) These issues are all inter-related & will ultimately impact your program's ability to get a Vanguard or Fidelity to work with you. 4-5 annuity choices is not a good deal. Final word of caution - You take this stuff seriously. If you find that the Committee does not or you are getting the run-around on the topics I raise, consider just how far you will bend. As a Committee Member you take on responsibility and you are therefore entitled to information & a certain level of formality. Check the gut & if it does not feel good - either change the Committee's approach or get away from it. Good luck with it - Danc.
  19. Skeptical; I have not looked deeply at Plan Sponsor (PS) for several years, but when I did I found there was a relationship with an investment advisory organization and that the PS-affiliated RIA received soft dollars for guiding plan-sponsor search activity toward the very organizations that advertise in the publication. It appeared to me that PS was pursuing a clever business model focusing on its target market (Plan Sponsors) and using a highly evolved "pay to play" approach. Disclosure was lacking. I have no idea of what the setup is today. I think they called the search product "Pathfinder". Just wanted to add that providers that tend not to engage in "pay to play" are typically low-cost, not-load mutual fund organizations ( Vanguard Fidelity T. Rowe) that already dominate the market. Thus PS would guide a search toward a group of higher priced candidates. I do not think Plan Sponsors generally understand that there is bias in the Vendor Search process. Danc
  20. Let the attorneys earn their pay. Do you have anything constructive to add to this discussion? Intruder, how would You address Steve's concern? Cheers, Danc
  21. Steve; Here is a suggestion: Negotiate for the formation of and Union representation on a 403(b) Governance Committee. What you really want is to give your members access to good value investment funds (Vanguard & otherwise). As you are probabaly well aware, there is a great tradition of Taft-Hartley Plans very effectively managed by Trustee Committees consisting of representatives of Labor & Management. The 403(b) Governance Committee would be comprised of an equal number of members of the union and administration. To Intruder: What discretion (participants would still have to elect these options) & fiduciary Liability for these plans exempt from ERISA?? That is quite a reach. I thought your position is that there is no fiduciary responsibility. Have you changed your thinking? Scare tactics once again..........Hmmmm Cheers, Danc
  22. Intruder; I am eagerly waiting for your reply to Jim's excellant post including each question he raised. Respectfully, are these real issues? Give us some hard data please. Thanks, Danc
  23. Gollhofer111; How to get Vanguard involved? Here are my commments. 1. Disclosure of your legal status as a purchasing agent for the SD. Are you a broker, a fee-compensated search agent, an SD contractor, or what? (I do not care or need to know - but Vanguard will) 2. Gollhofer, correct me here - but I thought you mentioned that you are an insurance agent in Colorado. If you are requiring commission-based compensation, you probably should consider that Vanguard will not engage in pay-to-play. Nor will other genuiine no-load shops. 3. Describe the purpose of the Request for Proposal. Is it a "cattle call" or is there a particular purpose of the RFP? 4. Structure of the services as described in the RFP. What is the SD doing with incumbent vendors? How many Vendors? Will there be any consolidation? I work with Vanguard all the time, and they are very selective about where expend resources on getting new business becasue they can be - so your best chance of getting them involved is to be clear about the items above. From your post, it sounds like this is your first time handling this kind of RFP (insurance & no-load mutual fund alternatives) for an SD? If so, find an SD who has done it before (with success) and draw from their experiences. Cheers, Danc
  24. I too, would like to hear from anybody regarding the applicable Fiduciary Standards that do apply to Governmental Plans (457 or other) that are not governed by ERISA. I am aware of several municipalities that have a DCP Committee who's decisons regardiing its Vendors & Fees have been influenced by elected officials who also happen to be a board members of an association of municipalities which has an endrorsement arrangement (for a fee) with these municipality's primary Vendor. The situation is almost identical to the ING/NY Teachers Union situation, but the entities are different & different jurisdictions and statutes probably apply. Is there an exclusive benefit rule & who enforces it?? Any ideas would be appreciated. Kind Regards, Danc
  25. SBS; Based on my experience with T. Rowe, they probably were not furnishing (or willing to furnish)administrative services & compliance testing. Your employer probabaly did that work in-house or had engaged a TPA to perform that work. Cost for that could have been as much as $30,000 per year. There may have also been legal fees or other fees. It is hard to say without a careful audit. I imagine Snith Barney sold your employer (probably the CFO) on the concept that a bundled service vendor would pick up all of these tasks, and eliminate company overhead budgets. The fact that fees to participants increased is really not that big of an item for the CFO as those fees are not coming from the company. This is not at all unusual - and The decision maker(s) can really do whatever they want including letting you keep T. Rowe, but the deal (as poor as it seems to you) they can get with Principal & Smith Barney (both entities are going to receive on-going fees) is predicated on assets transferring to them (and hence fee flow) from the old arrangement. In my experience, your best tactic is to try to educate your Director as to why T. Rowe is a better proposition than Principal. It will not be easy. Good Luck, Danc
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