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Yanikoski

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  1. I will only observe, about fighting dirty, that it is the resort of people not sufficiently skilled to win a clean fight. If the 403(b) reps you are talking about fall into that category, so be it. I can't be bothered engaging with them, either. I really do need to go back to my own work, which includes co-chairing an NTSAA committee to set up industry standards for passing data to school districts (or whoever is helping them with compliance with the new regulations), a project that will actually save the schools serious money and aggravation. So I won't be coming back here to continue this conversation. I will only add, in reply to Skeptical Jim's perfectly reasonable question, that true expertise can be found in many on-site reps, though I would guess that you are right in saying NOT in a majority of them. The reason for that is largely, as I mentioned in my last post, that what they are doing is not, in fact, highly remunerative for most of them, and so there is constant turnover, until someone actually does make it over the hump and gets a chance to acquire the desired expertise. Perhaps you will recall, though, that in Plato's Apology, Socrates defends himself not by claiming that everything he said was correct, but by arguing his societal contribution as a gadfly. That is also the primary benefit of even novice 403(b) reps: they encourage people to participate in the plan and to save more than they otherwise would. Expertise is great, but information can be gotten easily these days for free. What you can't get is someone to come to you proactively and persuade you to do something you ought to do, but are probably not even thinking about. Yes, gadflies can be irritating, too, and Socrates ended up with the hemlock to prove it. But Joel and Steve are gadflies, too, in their own way, so you maybe shouldn't be wishing gadflies away. Anyway, we all want whatever is best for the participants (even if we disagree on the details of what that means). So in this holiday season I am going to content myself with hoping that we all get the thing that we all want, however that comes about.
  2. Greetings, gentlemen. It seems that you want to hear from me, though I know that Joel is usually impervious to any kind of argument that doesn't support his position. But for the record: I am NOT in favor of annuity companies having exclusive representation in a 403(b) plan. I am in favor of CHOICE. I believe that any plan that does not offer BOTH a low-cost provider and a high-service provider is not doing right by plan participants. Even if 90% of participants wanted a low-cost option and were savvy enough to take it, but 10% weren't paying attention and would not participate unless they were talked into it, it would be proper to have someone there to do the talking. I know Joel wants the school districts to cover that cost, and maybe here and there they can be persuaded to do it. But if it is unfair, as Joel argues, to expect Jim (a current participant) to pay for Joe (a new participant) to be persuaded to sign up, why is it any fairer for Sam (a non-teaching taxpayer) to pay for it? It is much fairer for Jim to pay, because Jim probably received the same free benefit when he first signed up. Over time, everyone who participates pays, and everyone who participates benefits. If Sam pays, Jim and Joe benefit, but Sam only loses. Honestly, which is more fair? Joel has always wanted teachers to have a free ride, and he's entitled to want that. He just isn't entitle to get it. And as long as Joel and other plan participants have the option to go with a low-cost provider, which is part of what I am advocating, I don't think he has a legitimate complaint if I also say that a higher-cost / higher-service provider should also be an option. No one's making anybody choose it. But some people will choose it, maybe even a majority. Does that make sense? Yes, for the same reason it makes sense that people can choose between Dell and HP. Some people want to do their own research, get on line, and order their own computer for less. Other people know they aren't smart enough about computers to do that, and would rather go to a store, talk to a salesperson, maybe even try out several machines, and then pick the one they like. Who are you to say that the latter group is wrong? Who are you to say that YOUR idea of the "smart" choice should be the only one offered? It's simply untrue, by the way, that annuity reps are making a killing. I suppose there must be occasional agents who make six figures selling 403(b) plan contributions, but the vast majority of insurance company agents wipe out in the their first four years, and go find work doing something they can actually make a living at (like teaching, for instance). The insurance industry keeps careful tabs on these statistics, and you could look them up. Joel makes sense sometimes, but he is blinded by ideology. He also fights dirty, which he would not have to do if truth were on his side. I resent his misrepresenting my remarks about the financial impact of EGTRRA on my company. My point at the time was that I did NOT oppose the regulations EVEN THOUGH they were going to take a significant amount of money directly out of my pocket. I wonder what Joel would have done in my situation?
  3. It's perfectly natural to be resentful, at least for a moment, toward those who are profligate with their own money, then try to feed at the public trough. But it's rather a waste of energy. The real question is: who DESERVES to be helped, and who doesn't? It is hard to think of a way to answer that question legitimately, even if you could collect perfect information about people, which of course you can't. So it does make sense to provide benefits based on current need, which is measurable, instead of by past vice or virtue, which isn't. For that matter, someone might well argue that you and most of the other savers have already gotten your benefits. Other tax-payers have subsidized your tax breaks for all these years, and will continue to do so in the future. What more do you want? It's just too hard to say what's really fair, and what isn't. I think, frankly, that if you play by the rules and take advantage of the breaks that the government gives you, you're OK. But the same goes for other people. If they happen to choose to take advantage of different breaks than you do, that's their choice, and it's just as legitimate as your choice. But I still say your choice is the better one. By having savings, you have options that the non-saver has forfeited. If you really think it's better, for example, you can blow all your savings and live off the public dole. But we all know that that isn't better, so you won't do it, because you ARE better off for having saved money of your own, even if there are some minor negative consequences along with the good ones.
  4. I'm a contrarian by nature, so I found myself agreeing with a lot of the observations in this article. But I doubt that more than a small percentage of people are saving "too much." Too many people in our business act as if there is some magic number that people should be trying to attain, and that's simply a fallacy -- partly because life is so uncertain and therefore even if there were a correct target amount you couldn't know in advance what it is, and partly because it is impossible to even define (let alone quantify) what a "good life" is, so that even if there were no computational problems and no uncertainties about the future, it would be hard to come up with the "ideal" number. So more is almost always better than less, because it helps us deal with those imponderables and uncertainties -- and if we end up with more than we need, we can always find worthy recipients for the excess. The same can't be said for ending up with too little. Those few who are impairing the quality of their current lives so they can save "too much" are, I'm guessing, mostly people who are compulsive or overly risk-averse by nature, and they are actually meeting a deep psychological need by over-saving, so that saving less now would not, in fact, improve the quality of their current lives. I like seeing this sort of discussion this article raises, though. We need to shake the trees as much as we can, because so much of what's going on now is just too simple-minded anyway. Even a wrong-headed discussion is better than no discussion. But encouraging people to save less is not so great an idea -- too many people already have too little motivation to save. This is more so outside of the public schools than inside, because teachers usually get pretty good pensions -- but just as one never hears anyone on their deathbed say "I should have spent more time at the office," one elso never hears, "I shouldn't have saved so much money."
  5. The question is: when you change churches, do you change employers? You can do a rollover only if you are changing employers. If you are considered self-employed, or if you are considered to be employed by the denomination (or by a local or state grouping of some kind) and you are NOT changing employers when you change congregations, then you do not have an event that permits a rollover. In that case, you can still keep your existing funds as you have them, but whether or not you can contribute NEW money into those funds will depend on what arrangements you can work out at the new church.
  6. For purposes of aggregating plans under Section 415, the EMPLOYEE is considered by law to control all 403(b) plans. So all 403(b) plans, regardless of which employer sponsors them, are subject to a single $45,000 limit. The reason 401(k), 401(a), and other such plans have a separate $45,000 cap is that the EMPLOYER is deemed the controller of those plans, while the EMPLOYEE is deemed the controller of the 403(b) plan. Separate controller means separate limit. So if both of your plans are 403(b) plans, they do still have a combined limit of $45,000 (plus an extra $5000 as BenefitsGeek says, if you are 50 or older). This is true regardless of whether contributions are voluntary or mandatory. Of course, BenefitsGeek is also correct in adding that voluntary employee contributions are capped by the lower elective deferral limit, and that limit is a combined limit for ALL employer-plans you participate in, except for 457 plans.
  7. In 2007, the limit will be $20,500, for people in your position. This amount applies to all voluntary contributions you make to ALL 403(b) plans COMBINED. So if you contribute $20,500 to your other 403(b) plan, you may not contribute anything at all to the part-time employment plan. If you are not contributing so much to your full-time plan, though, you can generally contribute up to 100% of your part-time salary (less, of course, any deductions that are already being taken out of you salary -- and less any contributions that employer is making on your behalf, though presumably that is zero). If the part-time employer is offering investment options you prefer, you might consider using that plan as much as you can. But otherwise, if you are already putting the max into the plan at your full-time employer, you can just ignore the part-time plan -- or find some other tax-advantaged way of investing it.
  8. Your comparison is, to some extent, apples and oranges. You are talking about a 2-year loan from your 403(b) vs. a 30-year loan from the bank. If you have the cash to repay the 403(b) loan, then you should have the cash to repay the extra $10,000 on the bank loan in two years (these days, I think all mortgages allow partial prepayments at any time). The comparison you ought to make is between the after tax interest rates. With the 403(b) plan, if you pay 8% interest, you will probably be credited only with 7% (maybe less) on your 403(b) account. So you lose 1% off the top. Beyond that, you lose whatever market appreciation your funds would have gained -- though, as you say, if the market goes down, this is actually a positive. What you gain is the after-tax interest you are NOT paying on the bank loan. It is not clear to me what interest rate you are using for the bank loan. Let's do the math the simple way. Assume 5%, as you do, on market appreciation. Assume 6% for the mortgage rate. The bank loan therefore costs you 5.1% a year, after taxes (at a 15% tax bracket). The 403(b) loan costs you 6.0% a year (loss of 1% on the less-than-full crediting of interest to the 403(b), plus 5% in market appreciation) -- all of this being after tax. In this example, therefore, unless you expect to earn less than 4.1% in market appreciation, the bank loan is cheaper for you, on a year-by-year basis. Your actual figures may be somewhat different, of course. The point is, the difference is not necessarily very big, and it is speculative at best. Over a 2-year period, it's too trivial to care about, unless the markets make a really big move in one direction or the other. All the gains you hypothesize come from the fact that you are projecting the bank loan for 30 years. But if you do that, then you need to project the lost accumulation in your 403(b) account for 30 years as well. But that's a lot of extra math, for no good purpose. Just looking at the net interest rates tells you what you need to know.
  9. Yanikoski

    90-24 Transfer

    It may be interesting to see what effect, if any, a Democratic Congress will have. In the short run, perhaps not much: the IRS answers to the Treasury Dept, which under Republican control has been pushing to make 403(b) plans more and more like 401(k) plans. And of course, the Treasury Dept, as part of the Executive branch, will remain under Republican control for another two years, at least. But ultimately the rules are subject to legislation, and the Democrats have always had closer ties to teachers, while the Republicans have had closer ties to the securities industry, which is the big winner in the merger of 403(b) and 401(k). Since the 90-24 transfer rules are generally considered to be detrimental to plan participants, the Democratic Congress might be inclined to preempt or overrule this regulatory change. Not that I have heard or read anyone say that (it's a pretty small point, in the overall scheme of things, after all), but I wouldn't be surprised if it happens. It is even possible that the IRS will further delay the new regulations altogether, in recognition of a change in the political winds. It is not in their best interests to issue regulations and then have to do it again because of legislative changes.
  10. Yanikoski

    Roth 403b

    Starting in 2008, Roth 401(k) and Roth 403(b) plans can be directly rolled over to Roth IRAs. Whether the funds are thus rolled over or not, distributions will not be required at age 70.5. The new pension bill passed late this summer contained these provisions. There are no provisions that allow a traditional 403(b) to be converted to a Roth 403(b). But of course a 403(b) can be rolled over to an IRA (assuming the proper conditions are met), and then converted to a Roth IRA.
  11. You may not be able to find what you are looking for, or if you do, you'll probably have to pay for it. "DC tax-exempt" would include 401(k) and other plans, as well as 403(b). You MIGHT be able to get a breakdown by plan type from the Employee Benefits Research Institute, maybe even with historical data. As for current market shares, such information is generally proprietary and, if collected by a research organization, is both incomplete and available only for a price. I know the Cerulli consulting firm has done some work in this area in the past, relating to the 403(b) market, so you might check them out. I believe they were working with NTSAA fairly recently on a study of the market, though I don't know whether it included market share info, or whether the results are out yet.
  12. Yanikoski

    Tips

    Yakers's point about the 50/50 allocation makes sense, as does the point that if you have a pension plan with a good COLA, inflation is less of a risk -- though it's worth keeping in mind that most pension plans, including most public plans, are underfunded, and that as the Baby Boomers retire government budgets are going to be under more and more strain -- so assuming that COLAs will remain strong long into the future may itself be a risky assumption. Your need for inflation protection also depends on your age. If you are still far from retirement, it probably should not be a big issue for you. If you are well into retirement (say, 75 or over), it may again not be a big issue, especially if you have COLAs through Social Security, a pension, or an annuity with inflation-adjusted payments, because most elderly people slow down on expenses once they get into their 80s (certain expenses continue to rise, but most actually level off or decline, and some disappear entirely). But if you are within 5 years or so of retiring, or are already retired but under age 75, inflation may be something you want to plan for. Having most of your invested assets in stocks and bonds does expose you to inflation risk, but one way of dealing with it is to ride it out. High inflation depresses stock and bond prices, so if you need to liquidate them for living expenses during such a period, you lose. But if you have other options that could get you through for several years until (hopefully) inflation comes back down, your stocks and bonds will rebound, and you will not have lost much or any ground in the meantime. That's why this is more of an issue for retired people, since they are more likely to need to liquidate assets to meet cash needs. There is also the risk of a long-lasting inflationary period, which even the reasonably prudent investor might not be able to totally ride out. But if this is what you are really insuring against, is it worth it? We have not had a period of extended significant inflation in this country since the early 80s -- and rarely before that. The Fed has been determined, since Paul Volcker's day, to see that it doesn't happen again, and they really seem to have figured out how to control it. Personally, I believe that paying much of a price to hedge against this risk is not all that smart for most people, since the bigger risk is that you (and/or your spouse, if you are married) will live well past your normal life expectancy, and/or need expensive medical care or long-term nursing care. It is more important, I think, for the average person to hedge against these risks. You can do it by insuring against those specific risks (using annuities to guarantee lifetime income, say, or by buying long-term care insurance), or you can use the all-purpose hedge, which is MONEY. By investing (prudently) for solid long-term returns, you will very likely grow a bigger pot of assets than if you give up returns for inflation or other hedges. By having more assets, you can use them for WHATEVER risk materializes, whether it be high inflation, a long life, medical adversity, nursing home care, or anything else you can think of. But a lot of this is psychological, too. If you really worry a lot about inflation, and TIPS will ease that for you, then by all means, go for the TIPS. But if you are just the typical person who faces a variety of potential risks all of which seem about equally uncertain and potentially damaging, then personally, I'd say don't.
  13. Yanikoski

    Tips

    TIPS and other inflation-adjusted investments are a form of insurance. The risk is inflation, and the adjustment feature covers it, in full or in part. The "premium" you pay for this insurance is a lower starting rate of return. If inflation rates are low, your return remains low, and you "lose" (just as if you buy home insurance and never have a fire or other major claim). If inflation rates go up, you "win" -- even if you are not fully covered, your return will go up to a point where it exceeds a non-inflation-adjusted investment. As with any insurance, it is "priced" so that, by at least the issuer's opinion, the gamble favors the house. (This may or may not be true with government-issued securities, which may be unbiased, or even subsidized, though it's hard to judge this). But even so, insurance can be a smart buy depending on your exposure to risk, and on how much that exposure concerns you. We are all exposed to inflation risk, but some of us more than others. For example, if you have a lot of money invested in bonds or bond funds (as it appears you might), you have a higher than normal exposure to inflation. If inflation increases to, say, 10% a year, interest rates will skyrocket, and the value of your bond funds will plummet (some of us lived through this 25 years ago). So if you like bonds, having some portion of them inflation-adjusted can make a lot of sense. Stocks also tend to do poorly in an inflationary environment. Even though there is some upward pressure on prices due to inflation, high interest rates hurt most businesses, and equity returns don't compete well against returns on newly issued bonds with high coupon rates. However, real estate (including home equity) does tend to do well in inflationary times -- though if you have an adjustable rate mortgage you are more exposed to inflation risk. Your other income and expenses may or may not be strongly exposed to inflationary pressures, depending on what they are. So only YOU (or your financial advisor) can tell you whether you are exposed to enough inflation risk to make TIPS (etc.) worth the price.
  14. ReadingTeacherSpouse may be giving you good advice -- or maybe not, depending on the totality of your financial situation, your personal goals, your health, and other factors. Certainly in most cases, it is best to preserve your retirement savings if you can. However, if you have fully considered your alternatives, and getting money out of the plan is in fact your best option, you probably only have two options, neither one of which may be any good. First, your plan may offer a loan feature. This also usually is available, if at all, only under certain conditions, but the conditions are somewhat looser than those for a withdrawal, and it's possible you may qualify. In addition, the loans have to be paid back, so this would NOT be a good option unless you have good reason to be confident that your current financial pinch is temporary. Second, if you MUST get at that money, your wife could quit her job and (one hopes) get one in another nearby school district. Getting another job in the SAME district would NOT be considered a termination of employment. This may not be possible, of course, as a short-term expedient, even if she is willing to do it. A more remote possibility is that you could find a lender who would front you the money until you could get it from your plan. You can't put a lien on a 403(b) plan, though, so technically this would be an unsecured loan, and you would probably have to find a relative or other private lender. As Joel points out, retirement assets can generally be protected in bankruptcy proceedings, so the lender would be at higher than normal risk, and unless it is a close relative or good friend, would therefor charge you pretty high interest to compensate for this risk. Unless your wife expects to leave her job in just a few years, this is probably not a good option, even if you can find a lender. Note that if she does terminate employment and is still young enough to have to pay the 10% penalty tax, this can be avoided if your are able to spread the distributions out over a period of years. The basic income tax is pretty much unavoidable, though.
  15. Employer contributions, whether on a matching basis or otherwise, are NOT considered compensation, and so there are no payroll taxes that apply to them.
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