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Florida "model" 403(b) Plan

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One additional question that needs to be answered (perhaps it was and I missed it), was one of the criteria that the vendor be required to pay the school districts money for compliance as a condition of being chosen.

 

I just can't see how W & R could ever be put in the low-cost category. I'm waiting for the info.

 

ScottyD

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Fredalan,

 

I hope you can understand our skepticism, everyone needs more information about this - "trust me" is simply not enough.

 

I find it hard to believe that W & R would offer no load mutual funds while paying $12 per participant. If they are, the funds must be limited to revenue sharing funds. Finally, the will probably rely on cross-selling to subsidize the plan - I assume they'll be relying on rollover business to help them overcome the lower costs.

 

When do you think we'll be able to get a look under the hood?

 

Scott

 

 

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Fredalan,

 

I'm with Dan, let's listen with open ears and an open mind but your previous post speaks volumes, "There was no discussion of fees till after the vendors were selected". Huh? Can you tell us more.

 

Jim

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Scotty D,

 

not a "trust me". as said before:

 

1. Model Plan was driven by present reality of K-12 market. Tell me shat percent of the K-12 districts have, to date, created a plan comparable to NYC or most major HC institutions? Precious few. The IBC looked at them and talked to a lot of other non-Florida Districts. Will this environment change? Sure over next 5 years

2. Everyone on the IBC and Association leadership understanding that vast majority of Florida's 130k and 60k inactive 403b participants have bad plans ... and wanting to do something effective about it

3. IBC not wanting to duplicate another failed plan that was price driven but did not understand present market reality nor provide any funded educational program

4. Most don't know that the now hearalded Florida PEORP program evolved in pricing and options. So will the IBC Model

 

People keep asking the wrong first question - what the fees? talking about driving for lowest bp's etc is just conversation unless you have the poltical circumstances allowing a funded educational program.

That is the real first question.

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Fredalan,

 

I disagree, the first question has to be and must be in all circumstances What are the costs? To do anything different would be a massive breach of duty to those who are to be part of the plan. No decision can ever be made as to value unless the costs are known in advance.

 

I agree that fees are not the only factor, but they are a major factor - especially if it is a mulitple vendor environment where you have a tiered structure. If you're going to have a low-cost provider category, I would think that one of the low-cost providers would be a true low-cost provider - something that W & R is not.

 

Given all of that we've all said that we would be open to hearing about the plan and if we think its smart, we'll say so. The question that remains to be answered is "when will the hood be popped so that we can all look under it?"

 

ScottyD

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Jim,

the "$12 fee" paid to the District per participant was what I was respoding too.

 

This is an opt in program since each School District in the nation is a seperate decision making autority.

There are about 350k Florida educators in 67 Districts. Estimated 20+ of Florida Districts are in top 100 in size in nation. Ergo many sophisticated organizations.

 

All of the funding for Consultants etc was provideded by the Associations - roughly $250-300k+ in hard costs. Each Association contributed soft costs and pro bono expert contributions from the Risk Managers.

 

When the RFP was submitted a $1500 process fee was required - to weed out. Post finanalist selection, each winning vendor was told there were two requriements:

1. $12 per particpant fee annually

2. $50k first year and $10k annually thereafter to fund the "roll out" and educational cost. Associations will pick up the difference in costs (estimated another $100-150k).

None of the winners objected and this is obviously insignifcant dollars spread out over Florida.

No Association had any financial interest in the outcome.

Each winning company signed a "Committment Letter" which is pretty tight.

Plan Administrator was hired to work with Districts over next 120 days to assist Districts.

 

Obviously, the vendors will have seperate marketing programs of their own.

 

I was involved in the first two IBC's (PEORP and Healthcare) but not in this process except at the very beginning in mid 2006 and on sidebar converstions in 2007. Never attended a meeting or met the Consultants as I was in Asia and Europe on business much of time since mid 2006.

 

With that said, I did get briefed after IBC made the decision in late January 2008. i think they did a great job and hope a lot of other states emulate them.

 

 

ScottyD

I disagree ... fees are the second question.

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Fredalan,

 

Again, we appreciate your willingness to speak on behalf of this "Model" plan. And you are right that fees aren't everything. But, they mean quite a lot. You can't on one hand say on the website: "On average, over a 30-year career, an employee can expect his/her investment account to accumulate 1/3 more assets from the Model Plan than existing contracts. For example, a $450,000 accumulation under an existing plan might be worth $600,000 with the Model Plan. If an employee were to choose the lowest priced plan, the gains could be even larger" and then post: "People keep asking the wrong first question - what the fees?" all the while the website lists "Expense charges" as the first criteria in vendor selection.

  • Expense charges
  • Investment options
  • Participant services
  • Company experience
  • Conversion and implementation
  • Administrative services
  • Account administration service

I think you have done a lot right and your goals seem very well intentioned, but, and this is a big BUT, you can't call these providers "best in class" without providing more information including fee information, and it is equally presumptuous to anoint your plan a "Model" with caveats about the current climate and promises it will get better. Surely you see the red flags in how you are presenting this plan?

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I disagree ... fees are the second question.

 

Of course fees are secondary. You are not paying them.

 

 

Your response is silly.

 

First you have to understand what the goal is of the group, district employer etc. then you find out how much and what the employer is contributing to the program research, organization, education, administration etc etc. If HR is going to operate this as a component of their other benefit programs and invest in success, then you drive for lowest fees possible. the vendors role is decidely different.

If your Districts are conributing in a manner most School Districts do, you can have the provider fund or annuity pay the individual to invest (admittedly a little hyperbole) and people won't invest.

 

Not only look at the LAUSD 457 or at the great 401k or 457 plans offered in grandfathered Districts in Florida. A geat 457 plan in Dade County has 51 participants out of 40k employees while some scud annuities have 2k.

Minimal particpation, except by the more sophisticated financially - 5%, is guaranteed result. There are countless examples and we can either call most educators dumb or we can accept that we need to find a halfway house for them.

 

 

Again, give me a list of all the Districts that treat this program correctly. start with Jeff County Col, NYC, Minneapolis ... now you continue

 

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Cost cutting for the companies in FL will be done in several ways. One of the "experiments" that a couple of the companies are trying there is to eliminate the reps and go to "800" type service. There will be no local contact for several of the vendors just an 800 number for clients to call.

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Fredalan,

 

Thanks for taking the time to provide more information. I must say I completely misunderstood the participant fee scenario. This fee will be a revenue source for the Districts, not an expense. So the districts and IBC will engage in a revenue sharing arrangement with the vendors, correct? A portion of the fees and expenses charged to a participant account will be redirected to the IBC and individual districts.

 

Jim

 

 

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Cost cutting for the companies in FL will be done in several ways. One of the "experiments" that a couple of the companies are trying there is to eliminate the reps and go to "800" type service. There will be no local contact for several of the vendors just an 800 number for clients to call.

 

 

 

Gee some of us are getting it.

The game has changed

 

 

Cost cutting for the companies in FL will be done in several ways. One of the "experiments" that a couple of the companies are trying there is to eliminate the reps and go to "800" type service. There will be no local contact for several of the vendors just an 800 number for clients to call.

 

 

61 of Florida's 67 District have the same TPAish firm. They are paid by the District. The new regs require more work and the District can eitther take the $12 for itself or give the $12 to the firm to do the work. The overwhelming percent of Districts will likely pay to have the work done by the firm.

 

For non Model Plan firms, the TPA will do the work but those companies, if a District decides to add another company, is charged a higher fee. That was the decision by IBC and Risk Managers.

 

All fees that are charged directly or indirectly are always passed through to the customer .. in one form or another ... unless you live in North Korea

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Yes, you folks tend to think that we peons are "silly" when it comes to fees. We just don't get it.

 

I'm not prepared to give you an entire list of good plans, but let's use Connecticut's:

 

- .12% administration fee.

- A family of five lower cost “target date” lifecycle funds

- Lower cost passively managed index funds (including Vanguard's Institutional Plus shares)

- Actively managed mutual funds

- Diversified stable value option consisting of assets managed by multiple financial organizations

 

You can get Vanguard Index 500 at 0.025%, Explorer at .27%, Total Bond at 0.7%, REIT at .10%, and TC International Index at .18%.

 

Try these links:

 

http://www6.ingretirementplans.com/SponsorExtranet/CTHome/

 

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

 

But what do I know? I'm just "silly."

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