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Is it possible to bypass a third party administrator and simply deal directly with mutual fund companies? In other words, is it possible for a school district to contract directly with, say, Fidelity or Vanguard, and eliminate the middle man (e.g., AIG VALIC) for its 457 plan?

 

Do companies like Fidelity and Vanguard regularly do this? Or is it more common for there to be a TPA? If so, why?

 

Also, does anyone out there have a 457 directly with Vanguard? In looking at the Vanguard web site, I can't seem to find anything about a Vanguard 457 plan.

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Last time I contacted Vanguard about a 457 which was in 2004, they told me they did not offer any. I contacted Fidelity and they said they would be happy to set up a plan at our school. After about two years my school business administrator said that Fidelity will be set up as a 457 plan starting this January. Unless something has happened that he has not told me, there will be no middle man. At least from my experience you can cut out the middle man. Last time I contacted Vanguard about a 457 which was in 2004, they told me they did not offer any. I contacted Fidelity and they said they would be happy to set up a plan at our school. After about two years my school business administrator said that Fidelity will be set up as a 457 plan starting this January. Unless something has happened that he has not told me, there will be no middle man. With this addition our school will have Vanguard as a 403b option and Fidelity as the 457 option.

 

steve

 

 

 

Is it possible to bypass a third party administrator and simply deal directly with mutual fund companies? In other words, is it possible for a school district to contract directly with, say, Fidelity or Vanguard, and eliminate the middle man (e.g., AIG VALIC) for its 457 plan?

 

Do companies like Fidelity and Vanguard regularly do this? Or is it more common for there to be a TPA? If so, why?

 

Also, does anyone out there have a 457 directly with Vanguard? In looking at the Vanguard web site, I can't seem to find anything about a Vanguard 457 plan.

 

 

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There is no rule saying that you must utilize a separate recordkeeper, however there are disadvantages of going direct. The main disadvantage is that you only have access to that fund company that you choose. If you choose the right company it can be good, but as a fiduciary there typically isn't ONE company that does the best in all areas and thus having an open arch platform allows you to choose from among the best. As long as a district can prove that they are acting in a fiduciary capacity and that their choice is in the best interest of participants they could go with a single mutual fund provider. More and more the single fund recordkeepers are offering access to outside funds as well.

 

ScottyD

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There is no rule saying that you must utilize a separate recordkeeper, however there are disadvantages of going direct. The main disadvantage is that you only have access to that fund company that you choose. If you choose the right company it can be good, but as a fiduciary there typically isn't ONE company that does the best in all areas and thus having an open arch platform allows you to choose from among the best. As long as a district can prove that they are acting in a fiduciary capacity and that their choice is in the best interest of participants they could go with a single mutual fund provider. More and more the single fund recordkeepers are offering access to outside funds as well.

 

ScottyD

 

 

Scotty,

 

With a 457 plan, does a district have a fiduciary responsibility?

 

I'm asking because my district's plan is Value Builder. I have some doubts over whether the district is meeting its responsibility with such a plan. Sales loads of 5.25%? Exactly how is that performing fiduciary responsibility? I'm starting to raise a bit of hell in my district about this. What is complicating the matter is that the teachers' association has endorsed this plan. Good grief.

 

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There is a fiduciary responsibility with a 457 plan, it is up to the different states how this interpreted. My understanding after talking to a couple fiduciary attorney's is that the fiduciary responsibility may mean very little since the most you can sue for is a writ of mandamus (not even sure if I spelled that right...). From my understanding you could sue to stop them from offering a product that clearly is not in the participants best interest, but their could be no cost recovery. I am not an attorney and the more I learn about fiduciary responsibility as it applies to municipalities the more concerned I become.

 

ScottyD

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Thank you for that info, Scotty. I've contacted Fidelity, Vanguard, and Calpers to get information on setting up a 457 plan for my district. It seems as if there is a good deal of leg work for the district and the vendor, so the best that I can do is lobby for an alternative to Value Builder ... which I plan on doing.

 

It seems to me that a district that does not offer a low cost option with index funds across different asset classes is not being very responsible. That just seems like a no brainer. For a district to offer only Value Builder with its front end loads, back end loads, and high custodial fees is just ridiculous. It's GREAT for Security Benefit, and it's GREAT for NEA MB, which receives $2 million from SB, but it's not quite so great for teachers.

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Guest Sierra

 

There is no rule saying that you must utilize a separate recordkeeper, however there are disadvantages of going direct. The main disadvantage is that you only have access to that fund company that you choose. If you choose the right company it can be good, but as a fiduciary there typically isn't ONE company that does the best in all areas and thus having an open arch platform allows you to choose from among the best. As long as a district can prove that they are acting in a fiduciary capacity and that their choice is in the best interest of participants they could go with a single mutual fund provider. More and more the single fund recordkeepers are offering access to outside funds as well.

 

ScottyD

 

 

Scotty,

 

With a 457 plan, does a district have a fiduciary responsibility?

 

I'm asking because my district's plan is Value Builder. I have some doubts over whether the district is meeting its responsibility with such a plan. Sales loads of 5.25%? Exactly how is that performing fiduciary responsibility? I'm starting to raise a bit of hell in my district about this. What is complicating the matter is that the teachers' association has endorsed this plan. Good grief.

 

 

The employer is definitely a 457(b) Plan fiduciary. The employer must establish a Trust, appoint trustees, hire a Plan Administrator who is responsible for preparing a Summary Plan Description. The employer is relieved of these responsibilities in the 403b area and that is why it is the most abusive salary reduction plan in the nation. This will change with the new 403b regs.

 

Joel

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Joel,

 

In my case, the employer has taken on those 457 responsibilities, but has done so in a very poor manner. Teachers need to be aware that just because a district has established a plan, and just because a teachers' association has endorsed that plan, does not mean that the plan is any good. Teachers with the Value Builder 457 plan need to know that local associations are under pressure from NEA to give their local endorsement to VB. Again, that says absolutely nothing about the quality of VB. In fact, my local association president says as much. He says that ... well, let me quote him:

 

"The only 457 product that the [association name deleted] will "endorse" or "recommend" is the one offered through NEA Valuebuilder. We ARE NOT saying that there are not others out there that may be just as good, better, or worse. What we are saying is that we [association name deleted] have an agreement with the NEA Valuebuilder provider (whether it be here in [deleted], elsewhere in [deleted], or elsewhere in the nation) such that the "ASSOCIATIONS" could/would intervene were there a dispute or an issue that might arise between the client and the company administering the NEA Valuebuilder product."

 

In other words, forget about the quality of the product. Just focus on whether or not local associations could intervene in case there is a dispute between the client and NEA VB. This seems pretty lame. A top quality provider such as Fidelity, Vanguard, and T. Rowe Price will have a minimum of problems. Geez, I've been investing with those guys for years and have NEVER had a "dispute." What is there to dispute? That the market tanks for a while? Not even the revered Security Benefit will do anything about that, for gosh sakes.

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APTEACHER,

 

CalSTRS will be coming out with a 457 program next year, I think it will be worth waiting for. Would you mind telling us what district you are in? If you prefer you can send it to me privately, I didn't know there were California school districts still using the ValueKiller.

 

BTW, I've corresponded with the General Counsel and program head of the Valuebuilder and they refuse to be open and honest about anything, they will not answer conflict of interest questions or even program questions - and my wife is an NEA member. The local union recieves renumeration from the Valuebuilder relationship, but not very much, perhaps it is worth approaching them.

 

ScottyD

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APTEACHER,

 

CalSTRS will be coming out with a 457 program next year, I think it will be worth waiting for. Would you mind telling us what district you are in? If you prefer you can send it to me privately, I didn't know there were California school districts still using the ValueKiller.

 

BTW, I've corresponded with the General Counsel and program head of the Valuebuilder and they refuse to be open and honest about anything, they will not answer conflict of interest questions or even program questions - and my wife is an NEA member. The local union recieves renumeration from the Valuebuilder relationship, but not very much, perhaps it is worth approaching them.

 

ScottyD

 

I carried on a brief e-mail flurry with NEA Member Benefits after the LA Times story hit. The representative admitted to the $2 million that NEA MB received from Security Benefit, but tried to explain it away. When I brought up the high fees, she tried to explain them away, also. She refused to discuss matters any further.

 

It seems as if NEA is less interested in helping members become financially self sufficient, and more interested in tying them to awful products like Baloney Builder. NEA scratches Security Benefit's back, SB scratches NEA's back, and both give teachers the finger.

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Guest Sierra

Joel,

 

In my case, the employer has taken on those 457 responsibilities, but has done so in a very poor manner. Teachers need to be aware that just because a district has established a plan, and just because a teachers' association has endorsed that plan, does not mean that the plan is any good. Teachers with the Value Builder 457 plan need to know that local associations are under pressure from NEA to give their local endorsement to VB. Again, that says absolutely nothing about the quality of VB. In fact, my local association president says as much. He says that ... well, let me quote him:

 

"The only 457 product that the [association name deleted] will "endorse" or "recommend" is the one offered through NEA Valuebuilder. We ARE NOT saying that there are not others out there that may be just as good, better, or worse. What we are saying is that we [association name deleted] have an agreement with the NEA Valuebuilder provider (whether it be here in [deleted], elsewhere in [deleted], or elsewhere in the nation) such that the "ASSOCIATIONS" could/would intervene were there a dispute or an issue that might arise between the client and the company administering the NEA Valuebuilder product."

 

In other words, forget about the quality of the product. Just focus on whether or not local associations could intervene in case there is a dispute between the client and NEA VB. This seems pretty lame. A top quality provider such as Fidelity, Vanguard, and T. Rowe Price will have a minimum of problems. Geez, I've been investing with those guys for years and have NEVER had a "dispute." What is there to dispute? That the market tanks for a while? Not even the revered Security Benefit will do anything about that, for gosh sakes.

 

Dear apteacher:

 

When you make these points to the decision makers at your school district what is their reply?

 

Joel

 

 

 

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Joel,

 

In my case, the employer has taken on those 457 responsibilities, but has done so in a very poor manner. Teachers need to be aware that just because a district has established a plan, and just because a teachers' association has endorsed that plan, does not mean that the plan is any good. Teachers with the Value Builder 457 plan need to know that local associations are under pressure from NEA to give their local endorsement to VB. Again, that says absolutely nothing about the quality of VB. In fact, my local association president says as much. He says that ... well, let me quote him:

 

"The only 457 product that the [association name deleted] will "endorse" or "recommend" is the one offered through NEA Valuebuilder. We ARE NOT saying that there are not others out there that may be just as good, better, or worse. What we are saying is that we [association name deleted] have an agreement with the NEA Valuebuilder provider (whether it be here in [deleted], elsewhere in [deleted], or elsewhere in the nation) such that the "ASSOCIATIONS" could/would intervene were there a dispute or an issue that might arise between the client and the company administering the NEA Valuebuilder product."

 

In other words, forget about the quality of the product. Just focus on whether or not local associations could intervene in case there is a dispute between the client and NEA VB. This seems pretty lame. A top quality provider such as Fidelity, Vanguard, and T. Rowe Price will have a minimum of problems. Geez, I've been investing with those guys for years and have NEVER had a "dispute." What is there to dispute? That the market tanks for a while? Not even the revered Security Benefit will do anything about that, for gosh sakes.

 

Dear apteacher:

 

When you make these points to the decision makers at your school district what is their reply?

 

Joel

 

Until recently, I was not been in a position to contribute to a 457 plan. I focused only on my 403b plan. I therefore was unaware of the "options" that were available in our 457 plan. So it has only been recently that I did some research to find out what our plan involves. In fact, it was only yesterday that I fired off some e-mails to the district office person. Her responses to my e-mails:

 

1) She was under the impression that our association and district had an exclusive arrangement with NEA Value Killer.

2) She then found out that there is one other vendor available and suggested that I contact the agent. (Unfortunately, this involved more of the same high cost stuff.) She invited me to contact her again if this was not a desirable option.

 

In my subsequent e-mail, I tried to explain to her the importance of fees. I gave her a hypothetical situation of investing with Value Killer versus investing with index funds. I then suggested that the district adopt an option that included low cost index funds that cut across different asset classes. I gave her the phone numbers of departments at Vanguard and Fidelity who could help us adopt such a plan.

 

That was yesterday. I haven't heard back from her yet. I'll fill you in when I receive a response.

 

 

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