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New Heros In 403b Reform Movement

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Warren,

Wow, those products are much worse than we thought. Our simple suggestion has been all along--avoid them. As a consumer, if you have not other choices for your 403b, max the Roth IRA, petition to get low cost companies on your list and/or go the after tax route but avoid those horrible annuities from large insurance carriers like the plague. Those fees are carefully hidden for a reason.

Go with TIAA CREF and Vanguard.

Thanks so much Warren for your report. You put a lot of work into this and your employees will never know how positively it will affect them. Nevertheless, they don't have to know because you know! That’s integrity.

Steve

 

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Shame on your legal team for tossing "the book" at you.

 

Tell those guys that hiding behind one provision of the law only makes them subject to suits from the employees--big time. It will all come out in the wash, and you will find that the employees will be contributing to your legal defense fund.

 

Press On.

 

Ted

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Here's one for your legal team:

 

See April 2002 BenefitsLink.com for a wonderful article

"When Will the Secret for 401(k)[403(b)/457]s be Exposed:

Most Employees Know Too Little To Suceed "

 

Also search for E. Thomas Garman and various articles on Personal Finance Employee Education.

 

Ted

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Follow up:

 

 

"As a consumer, if you have not other choices for your 403b, max the Roth IRA, petition to get low cost companies on your list and/or go the after tax route but avoid those horrible annuities from large insurance carriers like the plague. Those fees are carefully hidden for a reason." Steve Schullo

 

You're right! The fees are hidden for a reason. Part of that reason is the employer/district/plan sponsor or a combination of all them is afraid or embarrassed of the the fact that they are passing on costs of running a plan that the employees will pay with thier own contributions. The employer and the vendor doesn't want the participant to know what they are paying for.

 

After taking some of the recommendations presented by this website and you, the forums contributors, our legal team is "on notice" and the finance team is now more aware of thier fiduciary responsibilities.

As a result, we are now providing, effective immediately, a detailed "full disclosure" of the fee structure to participants within the plan. This is a small step, but a step none the less in educating participants of the impact on thier accounts so they can individually make an educated decision as to where to invest for retirement.

 

Additionally, the finance committee is now reviewing our current plan, its impact on the organization and the participant. This was accomplished by the recommendations and direction that many of you had provided. Thank you to all.

 

1.) Especially useful in affecting this preliminary change were the recommendations emphasizing REQUIRED FIDUCIARY DUTY and the acting in the EMPLOYEE'S and COMPANY"S best interest. Pointed out by Dan Clark.

 

2.) The preparation of support materials that illustrate, VISUALLY, the impact of plan fees. I used not only the upfront major plan fees, but separately illustrated the wrap fees within bundled "lifestyle" portfolios, the 12b-1 fees, the sub-asset transfer fees.

What was especially enlightening to all, was the irony that the AIC charges, that are the most visual to the participant, are reflected in the performance of the individual investment choices.(performance table: 3mo., YTD., 1 Yr., 3 Yr., 5 Yr., 10 Yr.)

 

The part that WASN'T REFLECTED in performance was all the participant fees and other miscelleneous fees. After representing all of these expenses, the disclosed returns, as represented by the plan, were wiped out completely in all time frame performance periods. All growth was negative to the participants, no matter what investment choice they had contributed or for what time period they had invested. Net return was negative, not even considering inflation or taxes due upon withdraw.

 

The result of this presentation had a major impact on those present. Visibly shaken, they were. A series of conversations ensued with our legal representatives and policies are now changing. The decision makers decided to release all fee structures to participants as an interim measure to reduce liability and to readdress the deferred compensation issue and providor contact.

 

Thank you again, to all. Your contribution's on this forum have helped alot of people who don't even realize where they have been or where they were headed. Hopefully, our efforts will empower others to initiate change and encourage a more financially sound future for all.

 

Respectfully,

Warren P.

 

PS. After 3 years of my whining unsuccessfully to our director and CFO about fees within this plan, the above steps, as recommended by others on this forum, proved successful in getting the message across.

 

 

 

 

 

 

 

 

 

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Guest Daniel Clark

Warren;

 

I am pleased to hear that you are making progress in enlightening your executive management & disclosing information to participants.

 

The reality of properly managing a retirement plan (or any investment program) as a prudent fiduciary is really quite mundane & boring. A recognition that the financial markets are very efficient and that fee management and appropriate use of index funds are important subjects does not do anything to help the media sell air-time or Madison Avenue create catchy promotions for the financial services industry.

 

There is a powerful structure in place to keep individuals from getting the information to draw the conclusions that you have come to. I hope you will continue to challenge the status quo & encourage others to do so as well.

 

 

Best Regards,

 

Dan

 

 

 

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Guest Guest_LBJackson

All these good works by these dedicated individuals. Could this be the start of a groundswell toward better plans?

 

Thanks guys!

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Hey LBJackson,

When I first started this discussion, I had no idea there was such a profound interest in our new heroes. Of course, there will be "a groundswell toward better plans!" How can reforming 403b be a bad idea for educators' best interests.

Steve

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Guest Guest_Tampa Gator

Now lets just hope we are all successful in our efforts and it doesn't take that long.

 

I am still waiting on my boss getting back to me regarding a 25 page report on our 403b plan with VALIC and its downfalls. I gave it to him a week ago and we meet on Tuesday, so hopefully he reads it by then. He was on vacation and at a conference for the last week or so and is catching up on stuff. We meet with VALIC in about 2 weeks and I want him (CEO), the CFO, HR Director, and me to be fully prepared.

 

I will report back with more news when anything happens.

 

Thanks,

 

John (Tampa Gator)

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Hi John,

I would love to see the reaction to that Valic agent when he realizes you guys are prepared. Those agents hate prepared people who ask those questions about fees, commissions, back and front end loads, transfer fees, surrender fees, M & E fees and annual expense ratios. That’s why very, very few of them comment on this forum.

Between this site and the Diehard Forum, you are prepared. You have interacted with the best minds on investing in the 21st century at the Vanguard Diehard forum. There are some very, very savvy people over there who think about this stuff 7 days and week, 24 hours a day. I have learned much from them over the years. They know every losing game in the books, starting with the Wall Street game, the broker’s game, superstar manager’s game, the beating the indexes game. It’s all a game in which we lose and the so called professional wins by cashing in all the trades and commissions generated by the trades. It’s the costs of investing that counts most of all. Costs matter and if we can control costs to the smallest possible in an index fund either in Vanguard or in TIAA CREF, we win the game because it is our low cost, buy and hold for long periods of time game.

Best wishes,

Steve

 

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Just to comment more on Valic, they should be ashmaned of themselves by offering the products they do. I honestly believe that they don't care about the people that invest with them. We're going to switch to TIAA-CREF and just to give Valic a chance to redem themselves, I had them in here about a month ago to go over our plan and to see if they had anything else to offer. Besides the portfolio director plan, they can also offer a brokerage account through Schwab for those employees who want better investment choices. But the annuall fee for this account is $50 for accounts with less than $50k and I figured that most of our employees would not use this type of account. I then asked the state Valic Rep if they could offer us some low cost index funds and he said he would look into it. Later on in the meeting he looked at me and said, "what am I supposed to get for you?" He then told me that he would send me some information. I never received it. But I'm not surprised. It's been tough getting information from these guys. Good luck John.

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gschech:

 

Reviewed the 25 page document with my CEO today. He was quite impressed and thought I should write some articles for our industry journals. Nevertheless, my CEO and I are meeting with our HR director Friday to go over some questions we have regarding the contracts and asset allocation by funds and by employer/employee. We meet with VALIC in about 2 weeks, but that is just the normal annual meeting.

 

However, unaware to mine and my bosse's knowledge the HR director gave some of my preliminary info to VALIC so I guess they will be somewhat prepared. We might also get our internal legal advisor involved in the next few days as well as an independent party such as AON or Hewitt to assist us a little to confirm my initial report.

 

Don't know how it will go, but I think over the next 2 weeks to 2 months we should get far.

 

My boss told me today that I should be the one that reviews all our different programs, such as life insurance, disability insurance, etc from now on.

 

Thanks,

 

Tampa Gator (John)

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Sounds like your boss has confidence in you. That's great. TIAA-CREF is coming in Friday to do a presentation to our executive staff. I think everything looks good to move forward with the change. My CEO will have to present this to the Board for their approval, but I don't see that as a problem. We'll probably make the mover in October or November when it's open enrollment for the employees. The thing I'm wondering about is how well the transistion is going to go. I know TIAA-CREF has done this many times, but I wonder if Valic will give them or us a hard time. As far as the investment options in the plan, that will be the next thing I'm going to look at. TIAA-CREF offers 10 low cost annuity accounts as their primary investments. They also offer 9 low cost managed funds, 9 index funds, 2 Vanguard funds and 4 DFA funds if we choose to add these to our plan. DFA are very good funds that can only be purchased through select investment advisors. I don't think we should offer too many choices. I want to keep the plan as simple as possible. However, I would like to pick up the index funds. Keep us up to date on your developments.

 

Garry

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We meet with VALIC in about 1.5 weeks, but I think they know we are coming after them based on what my HR Director told me. However, I have some questions now knowing that the contracts are between VALIC and each one of our employers.

 

1) Can we add a second plan such as TIAA-CREF/VANGUARD to the fold which would allow employees to select between VALIC and TIAA-CREF/VANGUARD? We can't force employees to roll their money since the contracts are between VALIC and them. In addition, employees would have to pay surrender fees.

 

2) Can we force employees to move their EMPLOYER contributions over to the new plan? This will upset VALIC more if we threaten them with this.

 

I would assume VALIC will be willing to lower their M&E fees if we threaten to use another vendor along with them. This is because employees will learn that TIAA-CREF/VANGUARD is much cheaper than VALIC.

 

I also assume the only VALIC gives up or lightens the Surrender fees if we decide to only stay with them.

 

Any ideas on being more prepared and how to be ready for questions like the ones above?

 

I will probably think of more questions and I will post them later.

 

Thanks,

 

Tampa Gator

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Tampa:

 

You cannot FORCE anyone to make any directed decisions on where to place their money, but I think that an employer with a qualified plan, such as a 401(k), 403(b), etc. must offer more than one vendor as their fudiciary responsibility in offering "choice" of plans to their employees. And by vendors, I mean different and competitive companies, not an assortment of "choices" from a single company such as VALIC. That would be like offering different tire tread patterns on the same Yugo (remember that piece-of-junk jalopy from what was Yugoslavia?).

 

If VALIC is so confident in the value and competitiveness of their product, then the entry of others would barely give them rise and afford them the opportunity to show the world that they are the better product by comparison. In effect, you guys are actually helping VALIC with real time comparisons. And if VALIC can prove to out perform and out-value T-Cref and Vanguard, then they have nothing to worry about.

 

However, one of the more enlightened 403 wise guys can elaborate on this area better than I.

 

Hopefully, this helped you a little.

 

 

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