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Single Vendor 403(b) In School Districts

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Can anyone explain to me the advantages/disadvantages of a single vendor approach for School District 403(b) plans? I work in the ERISA 403(b) marketplace, where single providers are common, and low cost providers (e.g. Fidelity or similar) are the rule among mid to large size plans (500 employees and up). Among these plans the issue of onsite vendor representation is moot, as most all vendors (including the no load mutual fund providers) will provide onsite reps to meet with participants.

 

However, even after reading some of the articles on the 403(b)Wise website, I must admit to still being unfamiliar with the reasons why SD's would be resistant to such plans. Are many SD's too small to obtain decent value in a service provider even with consolidation? If so, can't they band together to obtain a low cost vendor? Or is the 403(b) such a low priority for school administrators that they are too busy to give it a second thought and have no budget to hire a consultant to give it a second thought? Forgive me if my questions seem naive as someone who does not work with school districts.

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Can anyone explain to me the advantages/disadvantages of a single vendor approach for School District 403(b) plans? I work in the ERISA 403(b) marketplace, where single providers are common, and low cost providers (e.g. Fidelity or similar) are the rule among mid to large size plans (500 employees and up). Among these plans the issue of onsite vendor representation is moot, as most all vendors (including the no load mutual fund providers) will provide onsite reps to meet with participants.

 

However, even after reading some of the articles on the 403(b)Wise website, I must admit to still being unfamiliar with the reasons why SD's would be resistant to such plans. Are many SD's too small to obtain decent value in a service provider even with consolidation? If so, can't they band together to obtain a low cost vendor? Or is the 403(b) such a low priority for school administrators that they are too busy to give it a second thought and have no budget to hire a consultant to give it a second thought? Forgive me if my questions seem naive as someone who does not work with school districts.

 

 

Answer: all of the above. Your questions are right on target. SD 403b plans are different from ERISA plans because there are no mandatory contributions and secondly many states require that a SD remit contributions to all 403b vendors who ask to be a provider to the SD 403b plan.

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Benefits Geek

 

I too think your questions are good ones that need to be answered. I am not a technical 403B expert like some of the others here are but I think a single low cost vendor is what most school districts should go with. It allows the school system to focus. Employees can learn about the plan much as they do with medical insurance plans either by studying the options available or slowly by osmosis. When you are the only game in town , conflicting messages offered by different vendors and salepeople will not exist . Everyone will be on the same page. Lunch gatherings will all be talking about the same options when it comes to retirement.

 

I think the financial intelligence level of the whole school system will be elevated. The only caveat is the chosen vendor must be a good choice that allows a wide range of options with low costs. This may be a challenge because most school sytems are much too willing to listen to all the noise presented by insurance

companies. You will need to have a commitee of sophisticated investors on board not affiliated with any insurance companies or have a relative who is-if you know what I mean.

 

I would love for my school system to go with just vanguard. It offers an array of options including easy target retirement funds for those total interested in handholding. Eliminate the middleman and you eliminate all the conflicting information and forces the individual to learn on their own. These guys don't offer handholding , they instead enable the employees to stay stupid-which is to their advantage.

 

My wife is a perfect example. She knows nothing about investing, but because she was forced to learn about her medical benefits and coverage she read the manual over and over again, referencing it often to the point

she can tell me whats what about our insurance coverage. If she can do that she can learn about investing.

Its just that she has never had to, not that she's not capable.

 

Of course its never as easy as it sounds but that my opinion why one vendor would be good for the school system. The above doesn't even begin to address how easy it would be on the business manager as well.

 

Consolidation may be a solution as having a state 403b plan.

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Guest Sierra

 

Can anyone explain to me the advantages/disadvantages of a single vendor approach for School District 403(b) plans? I work in the ERISA 403(b) marketplace, where single providers are common, and low cost providers (e.g. Fidelity or similar) are the rule among mid to large size plans (500 employees and up). Among these plans the issue of onsite vendor representation is moot, as most all vendors (including the no load mutual fund providers) will provide onsite reps to meet with participants.

 

However, even after reading some of the articles on the 403(b)Wise website, I must admit to still being unfamiliar with the reasons why SD's would be resistant to such plans. Are many SD's too small to obtain decent value in a service provider even with consolidation? If so, can't they band together to obtain a low cost vendor? Or is the 403(b) such a low priority for school administrators that they are too busy to give it a second thought and have no budget to hire a consultant to give it a second thought? Forgive me if my questions seem naive as someone who does not work with school districts.

 

 

Answer: all of the above. Your questions are right on target. SD 403b plans are different from ERISA plans because there are no mandatory contributions and secondly many states require that a SD remit contributions to all 403b vendors who ask to be a provider to the SD 403b plan.

 

 

Employer contributions are irrelevant if you have the best interests of your employees/investors at heart. In my view any school district that adopted the one vendor approach would be on solid ground notwithstanding the fact that some states (not "many" as intruder asserts) require all vendors to be accepted by the sponsor. If in fact legal opinion asserts that such state laws are indeed an impediment to the single vendor approach we can always have those state legislatures repeal the law which was handcrafted by the variable annuity industry/lobby and is not in the best interest so school districts and their employees.

 

BenefitsGeek, in my view the sd are first learning about the 403b issue in light of the new regs. They have been in a coma for about 45 years. I have said for decades that 403b should be offered through a statewide plan where the high priced retail products are banished. The public retirement system to which teachers belong seems an ideal outfit to establish and administer such a plan. Another public agency ideally situated to do this job is the statewide 457(b) Plans where in some states sd employees may belong.

 

Peace and Hope,

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

 

 

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Joel:

 

The problem with all of your grandiose theories is that this is no traction for repealing any state take all comer laws and there is even less interest in state entities establishing their own 403b plans because of the cost and adminsrative issues in establishinbg such entities.

 

The one vendor approach advocated by you is inappropriate because it cannot serve the needs of all SD employees.

 

By the way Joel, we are waiting for your response to the professors's question on why his SEP contributions are not aggregated with his 403b contributions under Reg. 1.415(f)-1(f).

 

 

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The one vendor approach advocated by you is inappropriate because it cannot serve the needs of all SD employees.

 

 

Intruder.

 

Could you explain to me why for instance one vendor could not serve the needs of all school district employees?

 

Could you list all the needs/services employees of a school district could possibly need ?

 

Now tell me how an outfit like Fidelity or Vanguard could not service those needs?

 

If I'm missing something let me know but would you respond to this by answering my questions in a way that I can understand you?

 

 

Tony

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Guest Sierra

 

 

Joel:

 

The problem with all of your grandiose theories is that this is no traction for repealing any state take all comer laws and there is even less interest in state entities establishing their own 403b plans because of the cost and adminsrative issues in establishinbg such entities.

 

The one vendor approach advocated by you is inappropriate because it cannot serve the needs of all SD employees.

 

By the way Joel, we are waiting for your response to the professors's question on why his SEP contributions are not aggregated with his 403b contributions under Reg. 1.415(f)-1(f).

 

 

INTRUDER:

 

You are wasting your time with me!! YOU ARE ONE MEAN SPIRITED INDIVIDUAL AND I HAVE DECIDED TO IGNORE YOU AND YOUR POSTS COMPLETELY!

 

IN CLOSING I URGE YOU, AS ONE WHO FIGHTS FOR THE LITTLE GUY/GAL, TO PLEASE WRITE TO ALL THE FEDERAL LEGISLATORS IN THE CONGRESS AND TELL THEM THAT THEY ARE NOT MEETING THE NEEDS OF ALL FEDERAL EMPLOYEES BY HAVING A ONE VENDOR APPROACH FOR THE THRIFT SAVINGS PLAN. TELL THEM THAT IF THEY REALLY CARED ABOUT THE FEDERAL WORKER THEY WOULD OFFER RETAIL PRICED VARIABLE ANNUITIES SO THE NEEDS OF ALL EMPLOYEES MAY BE MET.

 

 

 

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Guest Sierra

Can anyone explain to me the advantages/disadvantages of a single vendor approach for School District 403(b) plans? I work in the ERISA 403(b) marketplace, where single providers are common, and low cost providers (e.g. Fidelity or similar) are the rule among mid to large size plans (500 employees and up). Among these plans the issue of onsite vendor representation is moot, as most all vendors (including the no load mutual fund providers) will provide onsite reps to meet with participants.

 

On-site reps from no-load firms at the workplace. Oh My God, what is the world coming to? And we no-load advocates were under the false impression that you only get this service from a retail priced vendor. Chuck Yanikowski from Still River...what say you? Why must you resort to lying?

 

To those of you who really want to see change in the 403b arena make sure the decision makers know that on-site reps are also common in the no-load single vendor community. And please correct anyone who tells you differently.

 

Peace and hope,

Joel

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Guest Skeptical

Joel,

 

I missed something I think. You said:"Chuck Yanikowski from Still River...what say you? Why must you resort to lying?"

 

Is this benefitsgeek?? Sorry, I don't get the reference.

 

Thanks!

 

Jim

 

 

 

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Guest Sierra

Joel,

 

I missed something I think. You said:"Chuck Yanikowski from Still River...what say you? Why must you resort to lying?"

 

Is this benefitsgeek?? Sorry, I don't get the reference.

 

Thanks!

 

Jim

 

 

Hi Jim: Chuck Yanikowski is the owner of Still River, a retirement software co. He is not BenefitsGeek.

 

I referred to him as a liar because of what he published. Sorry for the confusion.

 

Joel

==================================================================

 

Chuck Yanikowski of Still River writes: Unfortunately, a single-provider solution has serious disadvantages: • In the 403(b) world, one size does not fit all. There tends to be a dic######omy in products between lower-cost mutual fund providers and high-service annuity pro-viders. The low-cost products are better for self-motivated and financially savvy participants, because the investment choices are varied and the participant does not pay for unwanted on-site marketing and customer services. But the majority of participants need more hand-holding than that and are better served by compa-nies that charge more but deliver more. In particular, companies with on-site rep-resentatives are in a position to persuade non-participants to sign up, or to per-suade small contributors to save more. Despite the cost of such services, partici-pants who respond to them end up with more retirement savings – which is, after all, the goal of the plan. So both kinds of products are valuable, and adopting only one leaves part of the employee group ill-served. And choosing only a com-promise vendor somewhere in the middle may leave almost everyone ill-served. ====================================================================

The above is proof positive that the sharks are what they are, just sharks. Notice just how careful Mr. Yanikowski was not to use the term "advice". I give him credit for recognizing just how legally culpable it is for the professional distributor of retail investment products to dispense "advice".

 

So now the hand-holding comes wrapped up in a box called on-site marketing and customer services. The on-site rep is being paid by teacher Joe who has already signed up, every two weeks, to sign up teacher Jim a non-partipant, and to persuade teacher Joe to save more. Why should teacher Joe pay the rep anything at all for signing up Jim and for spending time with Joe to get him to contribute more? Why should Joe continue to pay the on-site rep every two weeks even after he tells the rep that he will not be increasing his contributions for the next three years? Why should Joe continue to pay the on-site rep for the time he spends in marketing his broker/dealer products? What is Joe getting in return for making these commission payments to the on-site rep every two weeks for an entire work life; i.e. 30-40 years? I ask, Mr. Yanikowski: When during this 30-40 year period do you suggest teacher Joe is no-longer in the need of hand-holding; after 5 years, 10 years, 15 years?

 

Peace and hope,

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

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Guest TR1982

I must say that suggesting that onsite reps by no load fund companies is a common practice seems like a stretch. In fact, I have never heard of that kind of service in a multi location employer environment. I have seen Fidelity reps at benefit affairs, but only once, maybe twice a year. TC is even worse. I work in a fairly large school district (6500 employees) and TC wouldn't come once a year to a new employee orientation.

 

I also know that most no load firms would levy an additional charge for more meetings than once or twice a year. Those costs are not cheap. I seriously doubt that most school districts would lay out thousands in fixed costs for educational meetings at the building level.

 

I do agree that the single vendor approach will yield better results. I just finished a 10 week enrollment of the school district I mentioned. The enrollment was about 1500 employees spread across 5 vendors. It is now 3000 employees with one vendor. Our team did meetings at the building level and employees were enrolling in droves. We also offered online enrollment and the results were pitiful. Less than 150 employees enrolled that way. Tony, I think a no load approach with a firm like Vanguard would not be well received. You can't make people educate themselves and most will not. Most people want some level of help and that help is not free. All employers have to settle that issue. Some provide cheap investments and no help and many rank and file employees don't save. Some provide more expensive investments and pay for the help that way.

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Hey TR, I thought you left.

All you have to do is mention "Vanguard" and they will enroll. Thats been the experence with our 457 plan which has 3 VG funds. I don't have to tell you which funds have the most money. Apparently that are more educators who are aware of VG than you care to think. If you don't believe me just ask our TPA at LAUSD. They reported the data to our committee last month.

Happy holidays,

Steve

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Tony, I think a no load approach with a firm like Vanguard would not be well received. You can't make people educate themselves and most will not.

 

 

Tr

 

 

I know in our school system only 1/4 of employees even enroll in any 403B plan. Vanguard has been the most rapidly added choice. Its wishful thinking on your part that people won't educate themselves when they are put in the position to do so . I have more people talk index funds and target retirement plans now since Vanguard was added. People will learn and move forward. They certainly seem to understand that more than all the jargon and misinformation that is put before them by advisors.

 

I still think a one provider approach would work for employees, but I certainly know it wouldn't work for advisors. I just had my former American Funds advisor visit me yesterday and basically told me to stop recommending people to sign up for the Vanguard Retirement Funds because I was not an advisor. I was taken back by his comments.

 

You know darn well its eating into his business. He showed up with a new program of funds that are "guaranteed to beat the index" I asked him if he guranteed his plate of funds would he make good on the difference in money when his funds don't beat the index. His response was that was against the law to do. So what is my guarantee ?

 

I think the new regs have got him worried especially since American looks poised to pull out of the 403B market.

 

I am not saying you advisors don't have a reason to exist. I am just saying don't understimate people's ability to learn.

 

Tony

 

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Guest TR1982

I'm not underestinating the ability of people to learn. I am underestimating their desire to learn. Why is it that you and other's lament the ignorance of teachers and then when people like me acknowledge it, I am "underestimating" them? You get to say it but I don't? I really don't care if Vanguard wants to be in the 403b business. They can have at it. I just look at what they are doing. There is an old saying: what you do speaks so loudly I can't hear what you are saying. Vanguard isn't in the 403b business and doesn't want to be. They provide investments, not investment advice.

 

 

Hey TR, I thought you left.

All you have to do is mention "Vanguard" and they will enroll. Thats been the experence with our 457 plan which has 3 VG funds. I don't have to tell you which funds have the most money. Apparently that are more educators who are aware of VG than you care to think. If you don't believe me just ask our TPA at LAUSD. They reported the data to our committee last month.

Happy holidays,

Steve

 

 

Assets in a fund might suggest that a few are putting in a lot. Quite common. Why don't you tell us how many employees actually participate with VG versus the rest?

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Guest Skeptical

TR1982,

 

Hi! What's your business model for this 3000 person enrollment, as a registered rep or insurance agent? I'm curious because you made the statement: "Vanguard isn't in the 403b business and doesn't want to be. They provide investments, not investment advice."

 

Did you conduct this enrollment as an Investment Advisor Representative? With all courtesy, if you did so as a RR or Agent then of course you are selling products and NOT advice (which, if any, is incidental to that sale). Maybe you were 'enrolling' folks in a managed account program through the vendor. Please clarify? Regards,

 

Jim

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