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gerryborn

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Posts posted by gerryborn


  1.  

    Dan,

    "I am currently struggling what to do once I get the message that Vanguard won't be available anymore because they won't sign all the Security Benefit forms/agreements. I'm hoping that this won't happen but I can't see our TPA administering Vanguard funds when they would rather sell their high cost products."

     

    I feel your pain. I am involved with the RFP process in my school district. It looks like we are already at 75 basis points for plan administration and plan consulting fees. This does not include any fees for the underlying mutual funds; they will be chosen later. We chose AIG Retirement to administer the plan since they were the best option presented. (I guess a shit sandwich is better than a smorgasbord of shit.) We do have a self-directed option that is supposed to make fee-conscious investors happy, but I am still unclear as to how much this option will cost. One thing is for sure, it will cost more than our Vanguard 403b account.


  2. My district is reviewing some 403b / 457 proposals from some of the "big ######", but nothing really looks that great to me. There are six proposals and the two "best" ones leave me wanting less. Here are some details:

     

    Company A: Initial administrative cost of about 90 basis points, use of mutual funds charging from 20 to 125 basis points, no self-directed option to escape the plan, agreement is for a period of one year. Company A's model allocations have no fee information; I could sit down with a spreadsheet and enter in the expense ratios and do some math, but my life is not that pathetic. The bottom line, why is there a lack of fee transparancy here?

     

     

    Company B: no administrative cost based on assets under management, yearly account management fee of $35, use fee-bloated mutual funds with fees of 100 to 150 basis points, a self-directed option ($50 a year) that is limited to 4% participation among plan members (if exceeded, it appears they can change the terms of the agreement...undoubtedly to their favor), agreement is for a period of 5 years. Thing that rubs me wrong: use of T. Rowe Price target retirement funds (R shares) that have the highest expense ratios; this expense includes a 60 basis point "kick back" to Company B. Of course, this is purely for adminstrative purposes.

     

    Supposedly, one of the benefits of consolidating our 403b and 457 plan with one company is that we should be able to leverage our retirement monies to get a really good plan. So far, I don't see that shaping up. The chosen company will deliver personal service and educational seminars to our district, but I envision more glib talk and glossy pamplets. Of course, I don't expect that there will be any mention of how high costs are detrimental to your long-term retirement savings. (I wonder, do these sales reps have index funds in their own retirement plans? If so, why?)

     

    I don't know what I'm trying to say here...it is starting to look like the 403b boondoggle is going to continue. What I am seeing touted as new and improved products looks live the same old ...just without an annuity wrapper. The frustrating part is that I know how good the Vanguard 403b(7), the Fidelity 457, and Georgia's Peach State Reserve plan would be for people who already know what is good for them. The problem with those plans is that they don't have the hand-holding component that so many participants want. Unfortunately, the hand-holding comes at a tremendous price; usually in the tens or hundreds of thousands of dollars.

     

     


  3. After reading that article about AIG Valic's new improved 403b offering, I have yet to come across any more inforamtion about the product. There is nothing about it at their website, or have I missed something? Will this plan be offered as a 457 plan option too? If you have any info or links, please post it. It is amazing to me that AIG Valic is not advertising this new improved plan.

     

    Gerry Born

    LaGrange, GA


  4. FUN WITH NUMBERS

     

    I am sure many of you saw the John Bogle interview on PBS. He has an interesting take on the financial services industry.

    http://www.pbs.org/wgbh/pages/frontline/re...iews/bogle.html

     

    Here is my attempt to get to the heart of the interview:

    http://403boondoggle.blogspot.com/2006/07/...ks-it-down.html

     

    John Bogle Breaks It Down!

    Here is yet another reminder of why John Bogle is a hero of mine. This link has some very interesting information related to the topic of retirement: http://www.pbs.org/wgbh/pages/frontline/re...iews/bogle.html

     

    In essence, Bogle explains how over a 65 year period financial institutions keep roughly 80% of the market return while the investor keeps about 20% of the market return. These numbers are very easy to duplicate with a financial calculator. Remember in this scenario the investor puts up 100% of the investment and bares 100% of the market risk. The financial institution puts up 0% of the investment and bares 0% of the market risk.

     

    Here is a section of the interview from the Frontline show:

    Interviewer: So if I do your average, what percentage of my net growth is going to fees in a 401(k) plan?

     

    John Bogle: Well, it's awesome. Let me give you a little longer-term example. The example I use in my book is an individual who is 20 years old today starting to accumulate for retirement. That person has about 45 years to go before retirement -- 20 to 65 -- and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that's 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow in that 65-year period to around $140,000. (Summary = A one time investment of $1,000 invested for 65 years at 8% should come to $140,000. Note: this scenario is a ONE TIME investment with no further contributions.)

    Now, the financial system -- the mutual fund system in this case -- will take about two and a half percentage points out of that return, so you will have a gross return of 8 percent, a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000. (Summary = A one time investment of $1,000 invested for 65 years at 5.5% should come to $30,000. Note: the 5.5% figure is the 8% market return minus the expenses associated with the average mutual fund.) One hundred ten thousand dollars goes to the financial system and $30,000 to you, the investor. Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That is a financial system that is failing investors because of those costs of financial advice and brokerage, some hidden, some out in plain sight, that investors face today. So the system has to be fixed.

     

    Interviewer: I've got to unscramble what you just said. You said that in the case of the $1,000 invested for 65 years, the financial system is taking 80 percent of the money. But most of us aren't doing that. In the first place, at 20 we're out spending it; we're not putting it away. But set that aside. We're really talking about people who are probably saving from 35 or 40 or 45 at best for retirement at 55, 60 or 65. and they are plunking the money away into 401(k)s. I'm just asking you, in that system, roughly what chunk of it are people getting back themselves out of their gains, and what chunk of that is going to go to the financial system for managing their money?

     

    John Bogle: Well, in the long run, it's 80 percent to the financial system, 20 percent to you. In a given year, it's about 80 percent to you and 20 percent to the financial system, so if you look at 10 years or 15 years, you're probably talking about 60 percent to you and 40 percent to the financial system maybe over 20 years, something like that. But the longer the period, the greater the impact of that tyranny of compounding costs is.

     

    What is the moral of this story? The financial services industry enriches itself on the backs of ignorant, duped investors. Do yourself a favor and approach all dealings with financial service reps as you would an open-water swim with a great white shark or the feeding of an uncaged tiger.


  5. Do sales reps hawking 403b, fee-bloated annuities have to invest their own retirement money in annuity products? For example, what kind of 401k plan does AIG Valic offer its employees? Certainly, they don't offer their employees an annuity-only plan. Someone please spill the beans. Do companies give expense/fee rebates to their employees while screwing the rest of us?

     

    Gerry Born

    LaGrange, GA

    http://403boondoggle.blogspot.com/


  6. Groundswell,

    My wife and I max out our 403b accounts; the 457 plan is above and beyond our 403b allowances. We also fully fund our IRAs. I use the 457 like a money market account. I am in the 15% tax bracket, so for every $1,000 dollars I save $150. This seems like a good idea to me. Plus, I am getting a 3% return. Maybe I'm an idiot, but that looks like an 18% swing in my favor. Ultimately, my 457 money will be used to buy service purchase years.

     

    As far as fiduciary responsiblity, that would not be a factor if the state plan were included. If it is good enough for the state, it should be good enough for the district. I don't understand that argument that every district needs a full service nanny to watch over the schools accounts. That sounds like foxes guarding the hen house to me. It's hard for me to understand how any true financial advisor could suggest , with a straight face, an index fund with an expense ratio of 1.4%.

     

    I spoke with one rep who was advocating an annuity with an insurance charge over 1%, invested with funds of over 1%, with a portfolio advice feature of 1% a year. That equals 3% a year! That is both hilarious and extremely insulting.

     

    As for my own investing, I'm doing fine. Most of my money is invested in low-cost Vanguard and Tiaa-Cref funds. I sleep very well at night. Sure, it bothers me to know that Valic has its fee-bloated hands on about $14,000 of my money, but I keep reminding myself what I am planning to do with that pool of money.

     

    Gerry

     


  7. TR,

    Good question. I bought a 457 just buy service purchase credit with my state retirement plan. I park money there until I need to buy years. I put it in a fixed account. I also view this account as a worst case scenario if I were suddenly unemployed. I would be able to get to the money without the 10% penality if I were to separate service from my current employer. For that reason, I do not anticipate putting that much money there. I would consider putting more in a 457 account if I had cost-effective options.

     

    I don't use my 457 for its investments; I use it for other purposes. Most of the funds have total expenses of 1.8% or higher. While this is not the worst case scenario in the industry, it is far from optimal. I receive ZERO added value from these expenses; the Georgia's state plan looks far superior to me. I would love to have access to it.

     

    Yes, I do and moan a lot about this issue. I will continue to do so until better choices are made available.

     

    Gerry

    http://403boondoggle.blogspot.com/


  8. Hey Steve,

    I have a great index fund in my Valic 457 account. It's similar to an S&P 500 index fund and it has a total expense ratio of 1.4%! What a joke. The state plan of Georgia, the Peach Reserves Plan, has the same fund for .05%. In other words, the Valic option is 27 times more expensive. Would you pay $27 for something that costs $1? Lipstick on a pig just doesn't do the trick. Index funds in fee-bloated annuities just don't do it for me.

     

    Gerry


  9. Does anyone know where I can get a prospectus for any of the Primerica 403b products. I have a co-worker who is trying to determine the fees associated with his plan. Any links or info would be greatly appreaciated. The Primerica site (www.primerica.com) did not appear to have the prospectus info; maybe I just couldn't find it.

    Gerry


  10. TR,

    What exactly are Highwater Mark funds?

     

    403bcompare.com:

    http://www.403bcompare.com/Employee/SubProducts/SubAccounts/DetailVariable.aspx?sid=10443&pid=2300

     

    AIG SunAmerica 2020 High Watermark Fund

     

    "Seeks capital appreciation consistent with preservation of capital investment gains. The Fund is designed to protect from downside risk through a guarantee to return to investors on a target maturity date the highest value achieved during the Fund’s lifetime adjusted for dividends, distributions and extraordinary expenses. Seeks high total return as a secondary objective. This Subaccount was added to Portfolio Director February 18, 2005; thus, Average Annual Total Return data for December 31, 2004 is not available."

     

    What kind of fund is this then? The guaranteed return is obviously not like any funds I know. Is this an equity index fund with a target retirement twist?

     

    Thanks,

    Gerry

     

     

     


  11. Dan,

     

    Target retirement funds would be great for the following reasons.

     

    1.) They would be cost effective. Fifty basis points, or less, would be a huge improvement over the current offerings in most plans.

     

    2.) The advice is built into the product. Target retirement funds would automatically maintain asset allocations. These funds would also gradually alter asset allocations as the fund approaches its target retirement date. This is the simplicity many investors need. Most investors are not knowledgeable enough to know how and when to rebalance their retirement portfolios. Target retirement funds eliminate many these decision-making problems.

     

    It seems that AIG Valic has seen the marketing benefit of offering a target retirement fund. Last spring they began offering their HighWater Mark funds. Obviously, Valic feels the marketing need to offer Target Retirement funds to new and current customers. What they are hoping on is that people will not find out that their funds have expense ratios of 2.4%. This is ridiculously high.

     

    And the beat(ing) goes on...

     

    Gerry


  12. Sierra,

    He is 45 years old. It is my understanding that when one withdraws TRSGA money, he only gets his contributions (5% of total salary per month). The district's contribution of 9% stays in the pot. By buying back his 15 years he "reclaims" the benefit of this 9%. You are correct: the COLA is a key benefit of this pension.


  13. I just learned that someone in my district took out 15 years of retirement to buy a house. This money came from the Teacher Retirement System of Georgia (www.trsga.com); this system is a defined benefit plan that has a factor of 2% for each year of employment. The percentage is then multiplied by the teacher's highest two-year salary average. For example, someone who worked 10 years would be receive 20% of his highest salary (10*2% = 20%). If that person had a two-year salary average of $50,000, then he would receive $10,000 a year in retirement ($50K * 20%).

     

    After completing 3 years of service in Georgia this individual can buy back all 15 years of the withdrawn service. I believe that this would definitely be in his best interest because he would receive 30% of his highest two-year salary average upon turning 60 years old. The cost to do this will be somewhere from $25K to $30K; not cheap for sure, but a good long-term retirement pension.

     

    Here's the point of interest. His financial advisor has advised him not to pursue the purchase of the withdrawn service years. Instead, he advised that the individual double his contributions to his 403b. Does this seem like bad advice to anyone? Wouldn't it be a smart move to lock in those 15 years as soon as possible? Heck 15 years is half the years needed to retire in Georgia; should this individual just leave them on the table?

     

    Does there appear to be a conflict of interest here? The financial advisor suggests that he double his contributions to the 403b and just forget about those 15 years. I will be checking the product this financial advisor is selling, but will anyone here be surprised if he is selling a fee-loaded, surrender-charge-loaded annuity? Does this sound like really bad advice to anyone?

     

    Sorry that I cannot provide too many details right now, but give me a week or so.

     


  14. Do yourself a favor and go with Vanguard. The other funds are fee-loaded variable annuities; most of these companies also have surrender charges. You should feel fortunate that you have Vanguard; most districts do not have such an outstanding choice.


  15. Chad,

     

    I agree common sense is needed, but this issue does need to be discussed and pounded into the heads of teachers. The term "advisor" lulls many teachers into a false sense of security. Sure, there probably are some good “advisors” out there, but I am yet to see one where I work. The best advisor I have come across wants me to buy an S&P 500 Index fund with a 1.4% expense ratio. This advisor’s institution has equivalents to Vanguard’s Target Retirement funds. Their Target Retirement funds have expense ratios of 2.4% while Vanguard charges .2%. The sad thing is that I am being completely serious; this is the best deal in my district. At least it was, until I got TIAA-CREF offered. Thank God for at least one decent choice. I bet I am more likely to see Bigfoot pass through the faculty lounge before I encounter a good “advisor.”

     

    My friend’s details: $50k in an annuity, began about 15 years ago, about 6 years ago was agreed to switch to a new contract. Did not realize that new surrender charge window would kick in. Now will have to give up some of his money to move his money. Granted, he should have known better, but he didn’t. While most people will say that it is all his fault, I cannot bring myself to say that. I can’t blame him for not understanding the scam that is the 403b / TSA annuity. To my buddy’s credit he has educated himself about his 403b options and now wants to move his money.

     

    For my own financial protection I will continue to consider "financial advisors" as potential thieves. I realize that my words are inflammatory, but the state of the 403b / 457 world is that bad.


  16. Sierra did have a point. Why are salesmen in the financial services industry called "financial advisors"? I have many relatives in the carpet business; are they "carpet advisors"? If they referred to themselves as such, they would be ridiculed and rightly so. Are teachers "pedagogical advisors"? (Teachers, try passing that one off in the faculty lounge.) Why should an individual who is selling financial products be considered a “financial advisor”? Sure they give some advice, but their ultimate goal is to sell something.

     

    I think the term "financial advisor" is comical and misleading. When most people hear the word “advisor” they assume that objective advice is right around the corner. Nothing could be further from the truth in the financial services industry. Most “financial advisors” want you to buy their products—end of story. Most of the products I have seen in my district flat out SUCK. Most of the “financial advisors” I have come in contact with want to sell me a substandard product. Am I crazy to view them as salesmen first and foremost? No, I am rational.

     

    Am I being unfair to those “financial advisors” who provide real advice to their clients? Of course not, but I do not care. For my own fiscal well-being I view everyone in the financial services industry as a potential thief who is out to steal my retirement via fees, loads, or surrender charges. Judging from the history of the 403b market a great deal of mistrust towards “financial advisors” is merited. Just today I spoke with a co-worker who is trapped in an annuity with a 10-year surrender charge. This individual is desperately trying to find ways out of the product without losing his .

     

    The bottom line is this: “FINANCIAL ADVISORS” DO NOT MERIT THE BENEFIT OF THE DOUBT BECAUSE TRUSTING THEM CAN BE VERY HAZARDOUS TO YOUR RETIREMENT.

     


  17. Yet another reason to assume the worst when dealing with insurance salesmen.

     

    http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-10/1120456590131180.xml

     

     

     

     

    Teachers in New Orleans, B.R. file similar suits against insurers

    Teachers sue over annuity plan

    Monday, July 04, 2005

    By Meghan Gordon

    St. Tammany bureau

    Kevin Frye had seen the fliers posted at 6th Ward Junior High School north of Pearl River and thought the investment plan they advertised could help him.

     

    "Time is ticking," the fliers said. "Don't forget!" "Today is the final day."

     

     

    The physical-education teacher wanted what the fliers offered: to earn interest on his withheld summer income, add to his retirement nest egg and maintain the same take-home pay.

     

    After microwaving his lunch in the teacher's lounge that day in May 2000, Frye paused to enroll in the investment plan. Now, he regrets signing -- admittedly in a hurry -- the stack of papers the salesman put in front of him.

     

    "It would take me three days to read through the papers I signed," he said.

     

    Frye said he and other St. Tammany Parish teachers eventually learned what wasn't splashed across the fliers: the possibility of owing more money than they put into the plan and being forced to take out an unending cycle of loans against their annuities to receive summer paychecks. The plan's sellers contest the claims and describe their plan as a legitimate investment the plaintiffs didn't bother to try to understand.

     

    "I swallowed it hook, line and sinker, because I thought the School Board was looking out for our best interest," Frye said, adding he feels let down by school officials who allowed the salesmen on campus. "I just feel like whoever looked at it didn't look at it close enough, because if they had, they probably wouldn't have endorsed it. I know I wouldn't have."

     

    He and four other teachers have asked a judge in St. Tammany to certify their lawsuit against the investment plan's hawkers as a class action and add to the list of plaintiffs dozens of their colleagues also looking to recoup money from it.

     

    The Summer Pay Annuity Retirement program, or SPAR program, was marketed to teachers who received paychecks year-round, instead of just the months they spent teaching. School districts typically offer the option of withholding income from each pay period to fund teachers' summertime checks.

     

    Plaintiff's lawyer Kevin Tully said his clients were pitched a savings plan that would have allowed them to earn interest on that withheld money. In reality, Tully said, the program established annuities with the deferred summer income, from which teachers unknowingly took out loans to cover their summer paychecks. They were expected to repay the loans in the following year or face penalties. Annuities are tax-deferred investments that guarantee specific payments, usually upon retirement.

     

    Named as defendants are John C. Hazard, who pitched the investment plan to underwriters and sold it to teachers; his company, Teachers Retirement Services; fellow salesman William Tyson Vanlandingham; and underwriters Columbia Universal Life Insurance Co. and American Heritage Life Insurance Co.

     

    Defense lawyers, who have disputed all claims of misrepresentation, hope to halt the case before it becomes a class action by challenging its timeliness. The St. Tammany teachers signed up in spring 2000 and sued three years later. Plaintiffs' lawyers have argued their year to sue didn't start until well into the program, when they first started to understand its terms. But defense lawyers said their testimony proves they knew or should have known the terms of the program at least by fall 2001, still more than a year before they sued.

     

     

    Other lawsuits

     

    Teachers from New Orleans and Baton Rouge have filed similar lawsuits in their respective state courts, also attempting to earn class status against sellers of the SPAR program. The Orleans teachers -- Sharon B. Mumford, Emma W. Landrum, Clifton J. Allen and Nancy J.H. Collins -- sued the same salesmen but a different insurance company, Jackson National Life. The Baton Rouge suit names a different set of defendants: Ronald L. Seale; his company, Tax Sheltered Savings & Investments; ING North America Insurance Corp. and Reliastar Life Insurance Co.

     

    "If you would have seen these pitches, you would have bought it," said lawyer Jennifer Willis, who represents the possible classes of Orleans and Baton Rouge teachers that she estimated to be in the hundreds. "I would have bought it. It looked like you couldn't lose."

     

    Willis said teachers who enrolled in the SPAR plan learned that they weren't going to reap the financial rewards they were promised. The plantiffs' stories, according to Willis, include that of one teacher who received a $109 check upon retirement, after investing many times that amount, and that of a Baton Rouge coach who was stunned to learn that he owed the Internal Revenue Service $4,000 after he took a job in another school district and effectively broke the terms of the investment plan.

     

    "It's sort of like that old song, you owe yourself to the company store," Willis said. "You keep getting deeper and deeper and deeper. People were just trapped in it."

     

     

    The fine print

     

    Besides the timeliness issue, defense lawyers have tried to cut down the teachers' claims that they were hoodwinked by the salesmen into a bad investment.

     

    Judy Barrasso, who represents the three insurance providers in the St. Tammany suit, described as preposterous the teachers' claims that they knew nothing of the plan's actual terms, given that they signed contracts that contained the words "annuity" and "loan" dozens of times and received subsequent mailings about their enrollment.

     

    "Lots of them said, 'Oh, we didn't know this involved a loan,' " she said of the plaintiffs' testimony in preliminary court hearings. "But it's all over there in one document, 30 times."

     

    Barrasso said the five teachers complained about their investments only after independent insurance agent Bebe Labourdette convinced them that they had been dealt a raw deal.

     

    "The bottom line was that this was ginned up by her," Barrasso said. "She's trying to sell them retirement (plans) and was upset that these guys were in the schools."

     

    Labourdette declined to comment for this story.

     

    Defense lawyer Edward Bergin, who represents Hazard, Vanlandingham and Teachers Retirement Services, said the five St. Tammany plaintiffs have fundamentally misrepresented the SPAR plan, which he called a well-intentioned investment to allow teachers to capture some of the interest that would have otherwise gone to the school district withholding their summer pay. He said the plan had fees comparable to other annuities and wasn't designed to hold a teacher's entire retirement savings.

     

    Bergin tried to establish during a June 23 court hearing in Covington that each of the teachers earned money from SPAR. Mandeville Middle School teacher Phyllis Ibos, for example, put in $4,406 in 2000, her first year, and has seen it grow to $5,080.

     

    "I don't think we've seen anybody who's really lost money on this deal," Bergin said. "The annual statements just don't bear that out."

     

     

    Teachers want out

     

    But the defendants' explanation of the program didn't satisfy the two dozen teachers who hoped to become part of the suit. Filling one side of Judge Elaine DiMiceli's court, they snickered at defense lawyers' statements at times and applauded when a fellow teacher testified that she simply wanted out of the program.

     

    Several teachers, who would not give their names, said they wouldn't have gotten into what they described as a financial mess had the school district barred salesmen from campuses.

     

    St. Tammany school Superintendent le Sloan did not respond to an interview request. Hazard said in a deposition that he outlined the program for Ron Caruso, the district's director of business affairs, and individual principals before getting clearance to enter teachers lounges.

     

    John Lamarque, School Board president in the year Hazard pitched the plan on school grounds, said he never heard about the investment plan or teachers' complaints about it. He said teachers' concerns about salesmen operating inside schools is a chief example why the board hired a third-party administrator in the past year to review insurance or financial programs offered to teachers.

     

    "It used to be that any insurance company that could get permission to do so could come into the schools and hawk their wares, and sometimes the teacher's lounge was full of insurance salesmen," Lamarque said. "That's why we went to this other system. Just because of that sort of thing."

     

    . . . . . . .

     

     

    Meghan Gordon can be reached at mgordon@timespicayune.com or (985) 898-4827.

     

     

     

     

     

     

     

     

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