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457 V. Annuity - Any Other Options?

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My wife and I will be meeting with sales reps from AXA and ING in regard to her investing through a 457. She is only offered options which are insurance companies through their plan. I am fortunate and have a 403B in a school district which has absolutely no limits on our investments - so I can invest freely in T. Rowe Price, direct.

However, she does not have this luxury at her job. ING seems to be the best option at this point. Their Variable annuity subaccounts appear to have decent returns, and their fees seem better than others - no loads, no surrender, no annual fee - but they basically tack on .7-.9 to the management fees - so in the end, fees are in the 1.2-2.2 range depending on the fund. know these are not ideal options, but is there anything we can do about it? Or is this as good as it is gonna get?

My question - are there any other options? I don't think she can transfer funds from one acct. to another. Our main goal besides accumulating money for retirement is to reduce our before tax income to avoid income tax. What else can we do or look into?

 

Thanks

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Guest Sierra

My wife and I will be meeting with sales reps from AXA and ING in regard to her investing through a 457. She is only offered options which are insurance companies through their plan. I am fortunate and have a 403B in a school district which has absolutely no limits on our investments - so I can invest freely in T. Rowe Price, direct.

However, she does not have this luxury at her job. ING seems to be the best option at this point. Their Variable annuity subaccounts appear to have decent returns, and their fees seem better than others - no loads, no surrender, no annual fee - but they basically tack on .7-.9 to the management fees - so in the end, fees are in the 1.2-2.2 range depending on the fund. know these are not ideal options, but is there anything we can do about it? Or is this as good as it is gonna get?

My question - are there any other options? I don't think she can transfer funds from one acct. to another. Our main goal besides accumulating money for retirement is to reduce our before tax income to avoid income tax. What else can we do or look into?

 

Thanks

 

 

A 403b investor is never stuck with a shark like salary reduction arrangement because a Revenue Ruling 90-24 Capital Transfer can be effectuated to a low cost 403b investment. This is not true with section 457(b) plans. The employee/investor is at the mercy of the employer sponsor to do the right thing. All too often they do not. Your wife's plan is an example.

 

Having said all that, I would like to know what business your wife's employer is in. I will wait for your reply before I disperse my ideas to you.

 

Peac and Hope,

Joel L. Frank

 

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Guest Sierra

She works for at county courthouse in Iowa - So, basically, she is a county employee.

 

 

Your wife and her colleagues need to speak to the Plan's Administrator and "request" no-load funds. Tell him or her that you do not see the value in paying a broker/dealer a commission every pay day to acquire the investment. THESE BROKER DISTRIBUTED INVESTMENTS DO NOTHING FOR YOUR BOTTOM LINE AND EVERYTHING FOR THE BROKER'S! YOUR WIFE SHOULD BE BUYING AT WHOLESALE NOT RETAIL.

Let's us know how you make out.

 

Joel

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I agree - we met with a guy from AXA last night - I knew this was probably not the one we were going to go with anyway, but I at least wanted a comparison before speaking with ING (which seemed to have the best options).

 

Anyway - here was the "deal" from AXA:

 

$30 annual fee until acct is at $25,000

No front load

Management fees for Sub accts (500 index at .38, most others were in the .8-1.3 range)

"Annutity Fee" 1.34-1.49 depending on the fund

Surrender charges 6% for 5 years, 5% for another 3, then 4, 3, 2, 1 (12 years total)

 

 

But, at least it came with a guarantee of a minimum death benefit of what you contributed (sarcasm).

 

 

So, basically, the cheapest fund they had was a 500 index fund that would have run around 1.7% per year!

 

I will say the agent seemed rather stunned when I kept asking about different fees, and at the endhe was pushing papers in front of us saying "so, which funds do you want me to set up for you . . . . ."

 

At any rate, In regard to getting another provider, he mentioned something right off the bat about only "insurance companies" tend to do the 457, and the mutual fund companies are just not involved in it. Obviously, that is not true. Which fund companies do work with 457's? TRP, Vangaurd, Fidelity?? Is it pretty easy to set up a plan with them? I am almost sure that no one has ever approached them about adding vendors, and it would certainly be worth a try. What would the possible issue be with adding one mutual fund vendor, to a list of 6 insurance companies from the employer perspective? With all of the attention being given to the charging of excessive fees, I would think at some point the employer would bear some responsibility in not allowing low cost options in their plan??????

 

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I agree - we met with a guy from AXA last night - I knew this was probably not the one we were going to go with anyway, but I at least wanted a comparison before speaking with ING (which seemed to have the best options).

 

Anyway - here was the "deal" from AXA:

 

$30 annual fee until acct is at $25,000

No front load

Management fees for Sub accts (500 index at .38, most others were in the .8-1.3 range)

"Annutity Fee" 1.34-1.49 depending on the fund

Surrender charges 6% for 5 years, 5% for another 3, then 4, 3, 2, 1 (12 years total)

 

 

But, at least it came with a guarantee of a minimum death benefit of what you contributed (sarcasm).

 

 

So, basically, the cheapest fund they had was a 500 index fund that would have run around 1.7% per year!

 

I will say the agent seemed rather stunned when I kept asking about different fees, and at the endhe was pushing papers in front of us saying "so, which funds do you want me to set up for you . . . . ."

 

At any rate, In regard to getting another provider, he mentioned something right off the bat about only "insurance companies" tend to do the 457, and the mutual fund companies are just not involved in it. Obviously, that is not true. Which fund companies do work with 457's? TRP, Vangaurd, Fidelity?? Is it pretty easy to set up a plan with them? I am almost sure that no one has ever approached them about adding vendors, and it would certainly be worth a try. What would the possible issue be with adding one mutual fund vendor, to a list of 6 insurance companies from the employer perspective? With all of the attention being given to the charging of excessive fees, I would think at some point the employer would bear some responsibility in not allowing low cost options in their plan??????

 

Kev,

 

Your experience with the agent was enlightening. You could tell how often he is asked about fees by the expression on his face. He probably just does not face an educated consumer very often.

 

Fidelilty definitely offers 457s through employers, and without third party adminstrators. I'm lobbying right now to get my district to approve of Fidelity as alternative to the horrendous choice we have now. So, it can be done, and if you compare Fidelity's fees to AXA's, it is possible that you will get the district's attention.

 

Keep us informed.

 

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Kev

 

Call Fidelity at 1-800-868-1023. They are in the 457 plan market and they are our plan provider. We are still in the process of getting things finalized and will do so once Fidelity sends us the enrollment kits.

 

The fees for our 457 plan with Fidelity are as follows:

 

$24.00 per year account maint. fee per participant.

The expenses for the underlying mutual funds you invest in.....That's it.

 

Vanguard is not a player in the 457 arena, but Fidelity is and they are a great alternative due to it's Spartan Index Funds with rock bottom fees of 10 basis points.

 

Good Luck

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Also try John Halchuck at AMI Benefit Plan Administrators (330-638-0172). They will trade any mutual fund avilable on NSCC, which includes Fidelity and Vaguard.

 

Tom Geer

 

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Guest Sierra

This thread has failed to realize that the 457 "Plan", "Committee", "Board of Trustees" must make the decision to add or subtract players from the investment lineup. If fund A is added it is made available to all; if fund B is deleted it is deleted for all. The contract is with the Plan administrator and the investment provider...the individual plan participant has no say in the matter other than to lobby the employer sponsor to wake up and smell the roses.

 

Peace and Hope,

Joel L. Frank

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Guest Sierra

A TALE OF TWO 457(b) PLANS

 

Employees are at the complete mercy of their employer's to do the RIGHT THING. For 20-25 years the State of New Jersey and the City of New York administered 457 plans that offered ONLY no-load funds. Suddenly, out of the blue, the State of New Jersey has decided to farm its Plan out to a shark by the name of Prudential Financial. Over the years NYC has only worked to make its Plan better and has reduced its no-load expense ratios by adopting a Separate Account concept for all the funds it offers. How could one set of public officials be so callous while the other so caring? Can someone please explain to me the respective mindsets?

 

Peace and hope,

Joel

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I understand the idea that it is ultimately up to the employer to add, or delete a particular option from its list of options. Are there any rules or hinderances to adding options? For instance, in our case, my wife's employer has a list of 6 investment options - 6 different insurance companies. Is there any substantial reason that there could not be a list of 7 - the 6 insurance companies plus, say, Fidelity? Is there a limit in the number of options provided? Is it hard to add a company like fidelity to the list.

 

I can see where getting rid of companies could potentially cause problems and frustrations (even if they are poor choices) to those who are invested throught them - but adding options?

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I am ignoring my general views on the problems with multi-vendor environments here.

 

The more vendors, the more hassle and cost.

 

The way I read DOL Regs. 2510.3-2(f)(3)(vii), if there are a few of you it should be difficult to turn you down. A mutual fund-based option is by the nature of things going to differ on items C and D-"The variety of available products" and "The terms of the available arrangements". If you have a reasonable number of employees affected (item A) and can keep the administrative burden down (item E) you have a pretty good case, if the employer feels a need to avoid ERISA plan status.

 

Otherwise, unless there is some state or local law requirement, you have to persuade the decision-maker(s). The factors at DOL Regs. 2510.3-2(f)(3)(vii) ought to be relevant in that effort.

 

Tom Geer

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