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Hal

403(b) Neophyte Needs Help.

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Hi! Am just starting to consider investing in my hospital's 403(b) plan and am really glad I found this excellent site. Have been learning quite a bit reading through some of the previous posts.

Went over to human resources today and found out that there are only two vendors for the hospital: Valic and Aetna. The Valic rep comes out on Wed. and the Aetna one on Thur.

From what I have read here, it doesn't look like Valic would be all that great of a choice. Has anyone had experience with Aetna or know about their plan?

My previous experence with HR has not been all that positive and I am doubtful that they would be eager to add another vendor to their list. It's my understanding that if I wanted to use another vendor I would first have to enroll in one of the 403(b) plans the hospital uses and then later try and transfer to another vendor by using the 90-24 transfer. Is that correct?

I did ask in HR if there were any restrictions in transferring to another vendor, but they didn't know.

Am also wondering if Valic or Aetna are going to be very eager to talk with me if they know I am just using them as a stepping stone to get into another plan?

Have talked to a few other employees and they all expressed unhappiness with Valic. Interestingly, none of them were even aware that it might be possible to transfer to another vendor.

Thanks much for any help on this,

Hal

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Hi Hal,

Welcome. As you and your colleagues have already surmised, Valic and Aetna are terrible choices for 403b. Avoid them like the plague. Sure, you could use them to transfer your money to lower cost funds in TIAA CREF or Vanguard, but to do so would incur unacceptable surrender fees.

The good news is that there are other people at the hospital who are also unhappy with the choices. Get together and petition your employer to offer less expensive plans. Be persistent because what you are asking is very easy for them to do. But similar to school district personnel, the HR people could care less about the best interests of the employees. You will need to wake them up!

In the meantime, you can start a Roth IRA and you can invest your money directly into the fund company of your choice. It’s not tax deferred but it is a plan for now.

Hope this helps and good luck,

Steve

 

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My advice:

 

1.) Be 100% sure those are the only 2 companies you can invest with before you sign up...it doesn't seem right to be limited, it should be your choice.

 

2.) Make sure you understand their surrender charges if you wish to switch to a different company later...sometimes the surrender charges are outrageous (25+%).

 

3.) Do your research. It wouldn't hurt to ask the financial advisor if they hold a Series 7 and Series 66 license...this would allow them to buy/sell in the market and be credentialed to charge a fee for their advice.

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My advice:

 

1.) Be 100% sure those are the only 2 companies you can invest with before you sign up...it doesn't seem right to be limited, it should be your choice.

 

2.) Make sure you understand their surrender charges if you wish to switch to a different company later...sometimes the surrender charges are outrageous (25+%).

 

Unfortunately, there really are only two vendors at this time. I went over and talked to the HR director face to face.

 

Checking the prospectus I received from Valic, it looks like their surrender charge is 5%. I guess ,if I can manage to transfer to another provider before I put very much money into thie account, it would be worth doing.

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In the meantime, you can start a Roth IRA and you can invest your money directly into the fund company of your choice. It’s not tax deferred but it is a plan for now.

Hope this helps and good luck,

Steve

 

 

Thanks for the tip on the ROTH. I will set one up while I try to figure out what to do about the 403(b).

Hal

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I agree that in this situation with only two high cost purveyors of annuity products, I would go to the Roth. Do NOT put money into the 403b with the understanding of taking the 5% hit. The same arithmetic that keeps you looking for low fees, works backwards also, in this case, i.e. the money represented by the 5% fee, will NOT be available to compound over your career, so the loss in future dollars is very substantial.

 

If you are young, and just getting started, I would do the Roth, and something else that isn't talked about often on this site, I would invest in a home, especially given historicially low interest rates.

 

The one exception tothe above is if your employer has a match, then you would want to take advantage of that, even in a high cost annuity.

 

Gadfly

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Gadfly,

Thanks for your input on this.

 

I received the 403(b) Wise Guide in the mail a few days ago and have found that to be very helpful in clearing up some of my misunderstandings and confusion over this subject.

Your suggestion on the ROTH I think is quite good. Am going to be opening one up this week.

 

Unfortunately, I am not that young. Am turning 53 this year. I hope to be able to work until I am 70, if I am fortunate to stay healthy enough to do so. So I will, hopefully, have about 17 years in which to invest for my retirement. Of course, I should have started planning for this many years ago.:-( I keep telling myself ‘better late than never.’

 

I did call Vanguard and they are sending me information for my employer about using them as another 403(b) vendor. Hopefully, I will be able to show HR how beneficial it would be for the employees to give them this option in addition to the other two vendors.

If that doesn’t work out I may still go ahead and use the Valic plan. According to their prospectus, after having an account for 5 years and being at least 591/2 years old, a person can transfer funds out of their plan without a surrender charge. At that time I would be able to roll my money over into a no load mutual fund investment like Vanguard’s. So if I apply next year, I will only have to eat the extra costs for 5 years. Though not ideal, I think this would be better than not ever being able to use a 403(b).

 

Hal

 

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