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Scottyd

Calstrs Releases 403b/457b & Compliance Tpa Rfp

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In California you will not see single vendor because of ins code section 770.3, though you may see a vendor list that is greatly reduced and you may see Vanguard excluded.

 

Thanks for the info, Scotty. Are you familiar with LA County Office of Education plan? Many districts (including mine) simply run their 403b plans through LACOE. I'm hoping that this will just continue after the new regs go into effect. Is that possible? I hope so, because LACOE offers both Fidelity and Vanguard.

 

Also (sorry to bug you for your technical expertise), if a district develops a not-so-good plan, do the new regs allow folks to be grandfathered in to their old plan?

 

Again, thanks for your expertise.

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APTeacher,

 

My understanding is that LACOE chose the Orange County Teachers Federal Credit Union to adminster their programs. However, I don't know if all the districts will adopt OCTFCU as the TPA. You should know that OCTFCU has eliminated Vanguard from the provider list, though Fidelity remains. If OCTFCU takes over your district you will lose Vanguard and there is no grandfathering.

 

The new regs don't disallow grandfathering, though it makes it difficult for a district to do business with a company who won't adhere to the IRS guidelines. It's up to the district to keep or kick off a company.

 

ScottyD

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APTeacher,

 

My understanding is that LACOE chose the Orange County Teachers Federal Credit Union to adminster their programs. However, I don't know if all the districts will adopt OCTFCU as the TPA. You should know that OCTFCU has eliminated Vanguard from the provider list, though Fidelity remains. If OCTFCU takes over your district you will lose Vanguard and there is no grandfathering.

 

The new regs don't disallow grandfathering, though it makes it difficult for a district to do business with a company who won't adhere to the IRS guidelines. It's up to the district to keep or kick off a company.

 

ScottyD

 

Aaaaaaaaagh! No Vanguard! That is bad news. When will the change to OCTFCU take effect?

 

Does the OCTFCU plan work pretty much as the LACOE plan? LACOE does not charge a fee; it seems to be sort of a go between that sends the money from the investor to the mutual fund. investors deal directly with the mutual fund providers. Will OCTFCU charge a fee in addition to the normal fees charged by the mutual funds? For example, if I select Fidelity Spartan funds, will the only expenses be the usual .10 that most of the Spartan funds charge?

 

Thank you so much for this information. I really appreciate it.

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Scotty,

 

I e-mailed LACOE and received the following response:

 

"OCTFCU was one of two vendors identified by a committee as meeting

specific criteria for providing Third Party Administrator (TPA) services

to LA county districts. Districts interested in using a TPA to perform

403b administration services can use OCTFCU. OCTFCU may also want to

offer 403b products as part of their services. LACOE has not made any

decision on using a TPA for administration of its own 403b plan."

 

That last line gives me hope that the status quo will prevail.

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Great work APTeacher,

 

Try to find out who the other provider is.

 

It looks like LACOE followed the same strategy that the Orange County Dept of Ed followed - they do the RFP and select a few providers and then let the districts decide if they'll hire the TPA.

 

Under OCTFCU not a lot will change in terms of how the plan works, except that some vendors will be eliminated. The way the OCTFCU plan currently runs there is no charge, the people who join the 403(b) or 457(b) end up subsidizing the compliance costs for everyone else.

 

ScottyD

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Great work APTeacher,

 

Try to find out who the other provider is.

 

It looks like LACOE followed the same strategy that the Orange County Dept of Ed followed - they do the RFP and select a few providers and then let the districts decide if they'll hire the TPA.

 

Under OCTFCU not a lot will change in terms of how the plan works, except that some vendors will be eliminated. The way the OCTFCU plan currently runs there is no charge, the people who join the 403(b) or 457(b) end up subsidizing the compliance costs for everyone else.

 

ScottyD

 

Scotty,

 

I e-mailed LACOE to find out the other provider. I'll fill you in when I get a response.

 

I checked out OCTFCU's 403b options. It looks like they have two plans:

 

1) "Retirement Plan." This charges a 0.25 percent annual asset management fee in addition to the applicable mutual fund expense ratio (except for Vanguard and Dodge and Cox, which charge .65 above and beyond mutual fund expenses.

 

2) "Other Approved 403(b) Providers." This allows direct contributions to the mutual fund company without a TPA. Fidelity looks like about the only decent option, but all it takes is one! This is what my wife is using.

 

So my hope is:

 

1) LACOE keeps offering its current options, or

2) Teachers get access to option #2 above.

 

 

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Guest Sierra

A number of states have for some time opened up their state employees' 457(b) plan to local employers including public school districts, i.e.; the State of New York. California has not; thus the NEED for a statewide 457(b) Plan operated by the CalSTRS. Better late than never. In my view once the new CalSTRS 457(b) Plan is finalized California public school employee's will have what they should have had all along...two statewide retirement benefit programs operated by the State of California. The first is, obviously, the mandatory DB STRS and now the new voluntary salary reduction DC 457(b) Plan. The commissioned salespeople better look for other markets (or is it targets)? I'm expecting expense ratios in the single digits.

 

Joel

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I'm expecting expense ratios in the single digits.

 

Joel

 

 

Based upon Calstrs' 403b plan, with its .52 wrap fee, I would say that single digit expense ratios would be overly optimistic. But I sure hope that you are right!

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Guest Sierra

 

I'm expecting expense ratios in the single digits.

 

Joel

 

 

Based upon Calstrs' 403b plan, with its .52 wrap fee, I would say that single digit expense ratios would be overly optimistic. But I sure hope that you are right!

 

Hi apteacher,

 

I believe once the word gets out that THE STATE OF CALIFORNIA is operating its own 457(b) Plan for members of the CalSTRS it will not be able to sign up its members fast enough. This should have been done when the 457(b) was first made available by Congress in the late 1970s. Remember, the CalSTRS is not the Investment Provider of its 403(b) Program which it COULD have been under Revenue Ruling 67-387 but just a conduit/middlman because it decided to enter the 403b arena just 10 years ago, 14 years after the Revenue Ruling was revoked in 1982 by Revenue Ruling 82-102.

 

With the 457(b) it will be different. Under the law the CalSTRS will have to establish a formal Plan and Trust. The contributions will be owned by the Trust for the benefit of the Plan participant. The Trust/Plan will be run by a Board of Trustees and employ a Plan Administrator. The CalSTRS will be the Investment Provider if it elects to be. There will be no "wrap fee" but an account administration fee. Recognizing that the 10 percent penalty tax for pre-age 59-1/2 withdrawals does not apply to section 457(b), in my view, the CalSTRS 457(b) Plan will fast become THE salary reduction plan of choice among the k-12 community in California. This will effectively eliminated the high priced 403(b) from the community.

 

Is it not stunning to you, apteacher, as it is to me that it took the State of California so long to wake up. But at least it woke up and is aggressively answering the call. This is so much better than what the State of New Jersey has done. After 25 years of being its own investment provider for its 457(b) Plan it decided to farm out the operation to Prudential Financial with the result that the fees went up 10 fold.

 

Peace and hope,

Joel

 

 

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Is it not stunning to you, apteacher, as it is to me that it took the State of California so long to wake up. But at least it woke up and is aggressively answering the call. This is so much better than what the State of New Jersey has done. After 25 years of being its own investment provider for its 457(b) Plan it decided to farm out the operation to Prudential Financial with the result that the fees went up 10 fold.

 

Peace and hope,

Joel

 

 

I will be quite satisfied if CA does as well as Connecticut, which has a terrific plan: .12 administrative fee and access to a wide range of Vanguard (and other) funds, some at institutional pricing. However, given economies of scale, CA should do even better if it really plays hardball.

 

For a summary of Connecticut's 457 plan:

 

http://www6.ingretirementplans.com/Sponsor...mentOptions.pdf

 

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Guest Sierra

The CalPERS makes its 457(b) Plan available to local public employers including public school districts. So why is it necessary for the CalSTRS to start its own 457(b) Plan?

 

Peace and Hope,

Joel

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The CalPERS makes its 457(b) Plan available to local public employers including public school districts. So why is it necessary for the CalSTRS to start its own 457(b) Plan?

 

Peace and Hope,

Joel

 

The Calpers plan isn't bad, but perhaps Calstrs believes that it can do better. Given the experience of Connecticut, I believe that is quite possible.

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Guest Sierra

 

The CalPERS makes its 457(b) Plan available to local public employers including public school districts. So why is it necessary for the CalSTRS to start its own 457(b) Plan?

 

Peace and Hope,

Joel

 

The Calpers plan isn't bad, but perhaps Calstrs believes that it can do better. Given the experience of Connecticut, I believe that is quite possible.

 

 

If the CalPERS plan could stand improvement it should be improved just like the Connecticut plan was improved. Connecticut did not start a new plan but improved upon the one that it had.

 

To read between the lines I believe some kind of turf war is going on in California. The CalSTRS doesn't like the idea that School Districts can opt into the CalPERS 457 Plan. They, CalSTRS, want the school districts' 457 business just like they have the school districts' DB pension business.

 

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Guest Sierra

The CalPERS 457 Plan is much larger than the 457 Plan of the City of New York. So why does the CalPERS 457 Plan require about three times as much to operate (administrative and investment fees)?

 

Joel

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Guest Sierra

The fees for the NYC 457(b) Plan are:

 

Stable Value 0.17 percent

Bond Fund 0.29 percent

Equity Index 0.04 percent

Social 0.29 percent

Mid Cap 0.57 percent

International 0.50 percent

Small Cap 0.42 percent

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