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Valic Reacts To The Sound Of Approaching Hoofbeats?

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The following news release appears to be some good news to those trapped in the VALIC 403B. Since it is brand new, I have not really had the time to investigate it. Will there be some hidden special VALIC fees?

 

 

AIG VALIC Launches New Low-Cost, No-Load Mutual Fund Platform in 403(b) Market

Profile Retirement Program Offers Top Money Management Talent and Web-Based Account Services for Participants; Compliance and Administrative Support for Plan Sponsors Facing Newly Expanded Regulatory Requirements

 

HOUSTON--(BUSINESS WIRE)--AIG VALIC, a national leader in retirement plan services for public and private education, healthcare and government organizations, today announced the launch of a new low-cost, no-load mutual fund retirement savings program for the K-12 403(b) market.

 

The company's new Profile Retirement Program offers a robust investing platform and a wide array of mutual fund choices for 403(b) plan participants who prefer a direct access retirement savings option. The program also provides plan sponsors with the same high level of administrative and compliance support to assist them in satisfying requirements imposed under final regulations governing 403(b) plans. AIG VALIC already provides this level of support to thousands of plan sponsors today.

 

Profile offers more than 30 no-load mutual funds covering all major equity and fixed-income asset classes. Choices include passive index, life cycle, and actively managed funds, the latter managed by industry-leading money management firms, including American Century, T. Rowe Price, Oppenheimer, Blackrock and Wellington Management. Expense ratios for the funds range from .35% to 1.17% and average 0.8%.

 

"With this new program, AIG VALIC is reasserting its leadership in the K-12 403(b) marketplace," said Bruce R. Abrams, President and CEO of VALIC and the VALIC Retirement Services Company. "For more than 50 years, we've partnered with America's school districts, large and small, to deliver effective retirement savings plans to their employees. The introduction of Profile Retirement Program reaffirms our commitment to this partnership. Profile significantly broadens the program options we offer plan sponsors and addresses their specific need for experienced compliance support in today's more rigorous regulatory environment."

 

Profile Retirement Program is designed for individual investors who prefer direct access to a low-cost investment program with a broad selection of mutual fund choices and a robust platform to manage their accounts. Profile offers direct telephone enrollment and Web-based account management tools, along with support services and investment advice available from professionals at AIG VALIC's Client Care Center and Retirement Education Center.

 

Profile's investment choices include no-load mutual funds and a separate fixed-rate annuity option. The mutual funds offered, representing a range of investment styles, are managed by highly respected and experienced third-party money managers. AIG VALIC acts as adviser for the funds and hires sub-advisers to manage individual portfolios. This structure offers several benefits over the use of public mutual funds, including lower overall costs, better access to institutional investment talent, and greater efficiency in the fund selection and monitoring process.

 

AIG VALIC also acts as custodian for the funds, providing experienced compliance infrastructure and support to plan sponsors, along with written assurances in the form of "hold harmless agreements" and other service provider agreements to assist the plan in meeting strengthened regulatory requirements.

 

"At a time when many 403(b) service providers are stepping back in the face of new compliance responsibilities, AIG VALIC is standing firm with our education partners, providing reasonable written assurances that we can assist their plans in meeting the new 403(b) requirements, protecting the compliance integrity of the plan and participants' retirement assets," added Abrams.

 

AIG VALIC is one of the leading retirement plan service providers in the United States. For more than half a century, it has specialized in providing retirement programs and related investment, recordkeeping and administrative services to employers and employees of for-profit and not-for-profit elementary and secondary education institutions, hospitals and healthcare organizations, higher education institutions and governmental entities. AIG VALIC serves 28,000 client groups and more than two million participants. AIG VALIC is the marketing name for the group of companies comprising VALIC Financial Advisors, Inc.; VALIC Retirement Services Company; and The Variable Annuity Life Insurance Company (VALIC); each of which is a subsidiary of American International Group, Inc. As an IRS-approved non-bank custodian, VALIC is the custodian of the 403(b)(7) custodial account, and VALIC is the issuer of the 403(b) fixed annuity included in the Profile program.

 

American International Group, Inc. (AIG), world leaders in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Paris, Switzerland and Tokyo.

 

 

 

 

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Guest Skeptical

There will be any number of ways for AIG to hide expenses and produce subtstantial revenue. Those expense ratios will appear low(er) but will unlikely tell the whole story. A better deal than an annuity with a fat M&E charge? Sure. But don't forget the revenue sharing techniques honed by TPAs and Funds.

 

We'll see. Saying you offer a "low cost" plan doesn't mean it's truly low cost.

 

Jim

 

 

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I can predict two things they will likely be doing. First, they will be probably be using high profit margins on annuities to subsidize the operation. Second, they will almost certainly be forcing any other investment provider to pay an entrance fee, and they will try to make the numbers high enough to keep out mutual funds that, with their thinner margins, can't eat the cost.

 

My sources may be completely off base, but rumor has it that AIG-VALIC will at least do those two things. I also agree with Skeptical that you are going to have to look closely at mutual funds share classes and expense ratios. You will also need to look very hard to see if anybody is getting a wrap fee or admin expenses from assets or contributions.

 

What people should be buying is a service package that is investment-independent, in the sense that it costs what it costs and that allows the employer, employees or investment providers to bear the costs, as preferred by the employer. In all events, the plan should be open, and fees and who pays them should be fully disclosed.

 

Tom Geer

 

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I called my school district's Valic salesman about this new plan two weeks ago. He didn't have any information on the plan and said he would do some research and mail me some information. I still haven't received anything... I'll post on the board when/if I find something out. And yes, reading everything for fees will definitely be a must.

 

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Guest TR1982

TG,

How would subsidizing this business with other annuity sales be any different than what they were doing before? If they are going to lower their expenses isn't that a good thing? It seems as if you think what Valic is doing is somehow "different" than what other financial services firms are doing. The truth is that all firms structure these packages to give employers and consultants what they are asking for (they have to or they will lose the business). This has been going in the 401k business (and still is) for almost 2 decades. Where have you been? Go work for a mutual fund company in their group plan business and you will see how they do this.

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TG,

How would subsidizing this business with other annuity sales be any different than what they were doing before? If they are going to lower their expenses isn't that a good thing? It seems as if you think what Valic is doing is somehow "different" than what other financial services firms are doing. The truth is that all firms structure these packages to give employers and consultants what they are asking for (they have to or they will lose the business). This has been going in the 401k business (and still is) for almost 2 decades. Where have you been? Go work for a mutual fund company in their group plan business and you will see how they do this.

No, I think the AIG-Valic product is a very good idea, and an excellent first cut at the problem. I assume that the product is, in substantial measure, intended to preserve market share, and it will be very helpful in that regard. However, the devil is, as always, in the details, and notwithstanding rumor, I don't know what those details are. There are plenty of technical hitches in 403(b) to make improperly structured products blow up.

 

Also, cross-subsidies are very good targets for lawsuits. If you read, and think about the implications of, the Marsh & McLennan and NYSUT cases, you will see the notion of fraud, including securities fraud and insurance fraud, being applied in novel ways to standard industry practices. The "all my friends do it" argument is not viable when some of the friends are getting successfully sued for doing "it." You don't have to have an ERISA case to have a lawsuit.

 

What consultants and employers ask for is conditioned by the regulatory scheme and what the dominant providers offer. In essence, the existing patterns are seen as normal, because they are. But we have a new regulatory scheme here, that is intended to make the 403(b) environment more and more like the 401(k) world. And the normal patterns in 401(k) are nothing like the 403(b) environment.

 

I have no arguments with mutual fund families, and acknowledge that it was Fidelity that catalyzed the massive systemic and philosophical changes that crated the modern 401(k) marketplace. In fact, on average and on the whole, I would rate single fund family plans very highly, perhaps behind only multi-family platforms. I also think that GACs play an invaluable role in the marketplace. And individual annuities have been vital in 403(b) markets, because they provided the compliance components that employers were unwilling to take on, and insurers have been paid a premium for doing so.

 

Now, though, the employers are stuck with taking those responsibilities on, directly or by outsourcing. As a result (1) the lack of a trading platform and data communications technology for individual annuities is going to become more important and the error rate in individual annuities is likely to be higher than for properly integrated investment vehicles, (2) the employer-based compliance scheme is going to reduce the value of the compliance component in individual annuities, and (3) the various surrender charges and market value discounts in the annuities are going to become more obvious and more aggravating as the transition into the final regulations causes people to move money around and towards those items the employer will allow into the ongoing plan.

 

Individual and group annuities will not, and should not, go away. At the very least, the financial features they can offer very real benefits that mutual funds can't have. In fact, if I were betting on it, I would bet that annuities will remain the dominant investment form for an indefinite period of time and that annuities will become more and more important in payout period planning because of their ability to guarantee revenue streams, either as rollover vehicles or as alternatives under the plan.

 

I am not going to respond to your polemics, except to note the possibility that the future may be different from the past, as occasionally happens.

 

Tom Geer

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TG,

How would subsidizing this business with other annuity sales be any different than what they were doing before? If they are going to lower their expenses isn't that a good thing? It seems as if you think what Valic is doing is somehow "different" than what other financial services firms are doing. The truth is that all firms structure these packages to give employers and consultants what they are asking for (they have to or they will lose the business). This has been going in the 401k business (and still is) for almost 2 decades. Where have you been? Go work for a mutual fund company in their group plan business and you will see how they do this.

 

No, I think the AIG-Valic product is a very good idea, and an excellent first cut at the problem. I assume that the product is, in substantial measure, intended to preserve market share, and it will be very helpful in that regard. However, the devil is, as always, in the details, and notwithstanding rumor, I don't know what those details are. There are plenty of technical hitches in 403(b) to make improperly structured products blow up.

 

Also, cross-subsidies are very good targets for lawsuits. If you read, and think about the implications of, the Marsh & McLennan and NYSUT cases, you will see the notion of fraud, including securities fraud and insurance fraud, being applied in novel ways to standard industry practices. The "all my friends do it" argument is not viable when some of the friends are getting successfully sued for doing "it." You don't have to have an ERISA case to have a lawsuit.

 

Tom Geer

 

 

Tom:

 

Is the NYSUT case still pending? I thought the matter had been settled.

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Our system no longer uses Valic. There days are numbered in schools. Be sure your sins will find you out. I simply do not believe anything there reps say. There is no fiduciary trust with them. That is a joke!!!

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