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Florida "model" 403(b) Plan

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Fredalan,

 

From what I can gather, you seem to be saying that you want "financially astute" participants to sacrifice their interests for people who cannot be bothered to learn anything about investing. Forget that nonsense.

Virtually anyone is capable of learning about investing, and if they choose not to, that is their problem.

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Guest Sierra

 

Joel's Question.: If the Trustees of the PEORP felt that the only way to go---to truly execute its fiduciary duties was to offer a single low cost plan---not two additional higher cost options---why was this standard not good enough for the guys/gals that put this 403(b) Model Plan together?

 

Joel's Answer.: They were giving into the retail distributors' lobby. It doesn't take brain science to figure this out.

 

Fred: I would like to hear your answer.

 

Thanks,

Joel

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why not use your enormous knowledge and influence to convince Districts to change their approach. Just suggested to BH for one of her California clients:

Market the 457 - excellent plan that has very very low participation

for 3 years

1. Unions contribute $3 per member (represents about 1/3rd of the annual all-in pay packaage of Union President - who is worth what he is paid)

2. Administration $3 per employee

3. Vendor $5 per employee

Utilize the sophisticated communication facilities of the Union and the District plus the almost $1 million annually in a financial education program. The program is really "let us tell you why u r stupid to be in one of these 403b's when u can be in the Districts 457" - said nicer. 457 is employer plan and no prohibitions against doing this.

 

In 36 months, you have a far better educated group that will now, through education, abandon the terrible 403b plans they are now offered. Today, as you know, the excellent 457 has dismal particpation except among the most financially astute.

 

why don't you organize and effort in California to do this statewide. havin low bp plans only helps those who know how to invest ... unless you fund an education program.

 

From what I can gather, you seem to be saying that you want "financially astute" participants to sacrifice their interests for people who cannot be bothered to learn anything about investing. Forget that nonsense.

Virtually anyone is capable of learning about investing, and if they choose not to, that is their problem.

 

Also, Fred, you had no comment about the Connecticut 457 plan with its .12% administration fee and access to Vanguard Institutional (and other) funds. I suppose that is the type of plan that is just for the financially astute, eh? Wow, Connecticut is really doing its public employees wrong, isn't it?

 

Isn't it interesting how folks like Intruder and Fred fail to respond when their arguments are demolished?

 

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Joel's Question.: If the Trustees of the PEORP felt that the only way to go---to truly execute its fiduciary duties was to offer a single low cost plan---not two additional higher cost options---why was this standard not good enough for the guys/gals that put this 403(b) Model Plan together?

 

Joel's Answer.: They were giving into the retail distributors' lobby. It doesn't take brain science to figure this out.

 

Fred: I would like to hear your answer.

 

Thanks,

Joel

 

 

one is a state mandated plan

the other is a District opt in

 

 

 

why not use your enormous knowledge and influence to convince Districts to change their approach. Just suggested to BH for one of her California clients:

Market the 457 - excellent plan that has very very low participation

for 3 years

1. Unions contribute $3 per member (represents about 1/3rd of the annual all-in pay packaage of Union President - who is worth what he is paid)

2. Administration $3 per employee

3. Vendor $5 per employee

Utilize the sophisticated communication facilities of the Union and the District plus the almost $1 million annually in a financial education program. The program is really "let us tell you why u r stupid to be in one of these 403b's when u can be in the Districts 457" - said nicer. 457 is employer plan and no prohibitions against doing this.

 

In 36 months, you have a far better educated group that will now, through education, abandon the terrible 403b plans they are now offered. Today, as you know, the excellent 457 has dismal particpation except among the most financially astute.

 

why don't you organize and effort in California to do this statewide. havin low bp plans only helps those who know how to invest ... unless you fund an education program.

 

From what I can gather, you seem to be saying that you want "financially astute" participants to sacrifice their interests for people who cannot be bothered to learn anything about investing. Forget that nonsense.

Virtually anyone is capable of learning about investing, and if they choose not to, that is their problem.

 

Also, Fred, you had no comment about the Connecticut 457 plan with its .12% administration fee and access to Vanguard Institutional (and other) funds. I suppose that is the type of plan that is just for the financially astute, eh? Wow, Connecticut is really doing its public employees wrong, isn't it?

 

Isn't it interesting how folks like Intruder and Fred fail to respond when their arguments are demolished?

 

 

 

as one elitist to another I guess everyone can become financially astute. right!

I love 457 employer plans. am totally in favor if there is a solid educational component.

what is the percentage participation in the Conn Plan? love the Conn plan

 

 

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why not use your enormous knowledge and influence to convince Districts to change their approach. Just suggested to BH for one of her California clients:

Market the 457 - excellent plan that has very very low participation

for 3 years

1. Unions contribute $3 per member (represents about 1/3rd of the annual all-in pay packaage of Union President - who is worth what he is paid)

2. Administration $3 per employee

3. Vendor $5 per employee

Utilize the sophisticated communication facilities of the Union and the District plus the almost $1 million annually in a financial education program. The program is really "let us tell you why u r stupid to be in one of these 403b's when u can be in the Districts 457" - said nicer. 457 is employer plan and no prohibitions against doing this.

 

In 36 months, you have a far better educated group that will now, through education, abandon the terrible 403b plans they are now offered. Today, as you know, the excellent 457 has dismal particpation except among the most financially astute.

 

why don't you organize and effort in California to do this statewide. havin low bp plans only helps those who know how to invest ... unless you fund an education program.

 

 

 

Fredalan,

 

We are not enemies here, LAUSD's problem goes a lot deeper than education and we both know that you know that.

 

The reason people seem to be attacking the "Model Plan" is because it has been released as God's Gift to 403(b) Participants but no information has been released to evaluate it objectively.

 

The IBC has been quick to state that they have no financial interest - which they apparently don't, but their underlying districts do - that is fine, just be upfront.

 

In California we ARE doing something truly out of the ordinary, I have been working (for quite awhile actually) to bring about change and the answer isn't simply to push everyone into a 457.

 

457 plans are good for the right people, in other cases, 403(b) plans are much better.

 

In California the California State Teachers Retirement System used their buying power to lower plan costs and offer a 403(b) that on average has a total cost of around .66%. We started a mirrored 457(b) plan that is available to school districts to adopt. CalSTRS is starting an education campaign as well that will eventually provide DC education up and down the state. However, they also understand that education alone will not get the job done. If it did the 401(k) world would look much different - education hasn't worked that well in the 401(k), but it helps.

 

CalSTRS created Easy Choice portfolio's for those people who want to contribute but are having a hard time with the investing area. Easy Choice portfolio's are target date portfolio's that also take into account risk, thus for each target date, there is a Conservative, Moderate and Aggressive portfolio. An enrollee only needs to answer two questions - about when do they want to retire? and what type of investor are they (Conservative, Moderate, Aggressive)? Most people have an idea. They are popped into a portfolio that will adjust as they get older and should fit their risk profile - all for about .60% total.

 

I don't need a lecture about helping to change the status quo - I've been doing it. CalSTRS also started a compliance service for school districts to allow them to offload the responsibility to a fee-for-service TPA.

 

I've been using my knowledge and influence to change things as have people like Dan Otter and Steve Schullo - and slowly things are beginning to change.

 

The fact that I've been critical of Florida has more to do with the fact that there are no facts available to anyone - we can't even test the claim that you'll save people billions.

 

The IBC may have done an excellent job, but we can't measure that - it boggles my mind that the IBC would release this model plan and just expect everyone to immediately sing its praises when they have essentially unveiled a concept, but no real plan.

 

Add in the revenue sharing and the claims of no financial interest......why not just release the information? Why throw stones. We aren't enemies PM, we disagree on some things, but surely we are both wanting what is best for the participants.

 

ScottyD

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have to go to dinner but $3billion is operating budget of Dade County Schools vs $12 per participant in a 403b plan. conflict?

 

so the idea is to educate people to become educated and that is great. go and how can I support u

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I didn't say it was a conflict, I said that it represents a financial interest.

 

BTW, there are 16,500 teachers in Dade County Public Schools - don't know how many total employees, but lets estimate around 40,000 (probably closer to 35, but I can't find the data).

 

40,000 employees with an average 30% participation rate would equal 12,000 participants, times $12 would equal $144,000. Divide that by $3 billion and you get .00005% of the budget for compliance costs. Nationwide compliance costs tend to be higher, around $30, that would equal .00012% of the budget.

 

My point is that by requiring revenue sharing you change the nature of the RFP process as to who will bid. If the IBC were truly wanting to accomplish their goal, they would not have had this requirement.

 

Do you know when the details of this Model Plan will be released? For the districts sake, the sooner the better.

 

Have a great dinner! Look forward to continued spirited discussion.

 

ScottyD

 

PS - You going to the PlanSponsor conference in April?

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as one elitist to another I guess everyone can become financially astute. right!

I love 457 employer plans. am totally in favor if there is a solid educational component.

what is the percentage participation in the Conn Plan? love the Conn plan

 

Exactly. Virtually everyone CAN become financially astute. This is not rocket science, though some people in your industry would like us to believe that it is ... so that teachers would have to depend upon that industry. Thanks, but no thanks. From what I have seen of the "professionals" (a.k.a. salespeople), they are the last people I would go to for financial advice.

 

You keep writing about the education component. Exactly how well-served are the teachers who have been "educated" by the salespeople? Lies, deceit, outrageous fees, conflicts of interest ... That has been some "education" that salespeople have given to teachers. Give me an Internet-based system of education for a 403/457 plan any old time.

 

I don't know about the participation in the Connecticut plan, but anybody with half a brain can use the Internet-based education or call a live person for information.

 

"Elitist?" Right. Anyone who seeks a low-fee, solid plan like Connecticut's is apparently an elitist. Good grief.

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I agree with your statement about districts being stretched thin but I believe in much of the country it's more to do with declining home values and the commensurate reduction in property taxes that is hitting districts rather than inflation. You've overstated inflation significantly. The actual inflation rate as measured by the CPI is actually 4.3% rather than 7.4%. This is from the Bureau of Labor Statistics press release from January 2007 to January 2008, the most recent year to year measurement there is data for. The press release is here. 4.3% is still higher than it's been since 1990.

 

 

 

Mmc: According to todays news reports the producer price index for the 12 months ending Dec 31, 2007 rose by 7.4% when compared to the previous year. This is the higherst increase in PPI since 1981. The increase was driven by increases in energy costs and the PPI is a precurser to increases in the CPI because producers will pass their increases in cost to consumers in the coming months. Therefore the CPI will increase in the coming months above 4.5%.

 

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If you think a Firm like Gallagher would recommend to the IBC any number of companies without a discussion on fees, you obviously have no idea of what really went on down there in Florida.

 

 

ScottyD,

There was no discussion of fees till after the vendors were selected.

W&R only is offering no-load mutual funds like American Century

 

 

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Guest Skeptical

All:

 

From the IBC model plan website FAQ:

 

 

"Dollars invested in 403b accounts are not school board funds… they are retirement investments made by employees, themselves.

 

With school funding projected to be very tight for the foreseeable future, adoption of the Model Plan may be the best opportunity to put money in teachers and education staff professionals members' pockets, and it won't cost taxpayers—or the districts, themselves—a penny!" No emphasis added, the bold text is as it appears on the IBC site.

 

Familiar with the concept of cognitive dissonance? They acknowledge that the funds belong to the participants, and yet boldly announce this plan won't cost taxpayers or SDs a penny.

 

Second, this reporter Rebecca Moore in the article on Planadviser.com got it completely wrong (like I did in this thread) about the "model plan" admin costs:

 

"William J. "Bill" Montford, III, the CEO of the Florida Association of School Districts said there is flexibility in the plan for systems to add providers but they must meet the model plan's compliance criteria. In addition, he said districts who adopt the model plan will contribute $12 per employee per year to cover the cost of administration."

 

There will be no contribution of $12 pp by school districts, they will RECEIVE a $12 payment from the winning vendors for each participant. From the FAQ link above:

 

"All of the approved companies have agreed to remit to the school board $12 per participant, per year, to offset additional administrative expenses associated with the new IRS rules."

 

Cheers,

 

Jim

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After looking at the link that Skeptical included, I can only conclude that I am skeptical. The site touts the cost savings to participants, but, as has been mentioned several times here, says nothing about what those costs actually are.

 

It reminds me of a commercial years ago: "Where's the beef?" Or, as the son of of someone from Missouri, I would like to say, "Show me."

 

I would also love to know the 25 companies that submitted bids that were rejected. With "winners" like AXA, Valic, and Waddell & Reed (are you kidding me?!), I can only imagine the losers.

 

So Fred, can you enlighten us on that?

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Guest Sierra

 

Joel's Question.: If the Trustees of the PEORP felt that the only way to go---to truly execute its fiduciary duties was to offer a single low cost plan---not two additional higher cost options---why was this standard not good enough for the guys/gals that put this 403(b) Model Plan together?

 

Joel's Answer.: They were giving into the retail distributors' lobby. It doesn't take brain science to figure this out.

 

Fred: I would like to hear your answer.

 

Thanks,

Joel

 

 

one is a state mandated plan

the other is a District opt in

 

Fred,

 

I need some clarification and emphasis. Thank You.

 

Having said that, are you asserting it would be a breach of fiduciary duty to offer a variable annuity option to participants of the PEORP solely because it is a state mandated plan but it is within the discretionary authority of the Trustees of the IBC Model 403b Plan to offer a variable annuity option solely because the Model Plan is a supplemental plan?

 

Peace and Hope,

Joel L. Frank

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Intruder,

 

Well, we know where you stand about these plans. You've argued the same points since you joined the board. That's OK, at least you're consistent in your view. That does not mean I agree though.

 

You compare the lower costs per participant in the 401 market. Of course this is true, because the distribution costs are much, much lower. Employers the size of a typical SD don't have on site reps from multiple firms pressing their employees for a sale. They are more likely single vendor, without any expensive reps as part of the scheme. Don't confuse admin costs with distribution costs. This is the big myth you seem to hammer relentlessly.

 

Second, the myth of the vanishing 403. Do you really think the vendors who are raking in billions from plan fees and expenses will allow employers to let them vanish? Seriously. There is too much cash flow from these products. The industry will fight to the end to maintain their profits. We do not need to be afraid that SD employers will drop 403b plans because they are too expensive or complicated. Recruiting would drop to ZERO in SDs that fail to offer a DC plan. This would be a huge red flag for potential employees.

 

Third, as APteacher points out in this thread, it seems that Connecticut has figured out how to offer a low cost DC plan. Why do you think FLA could not do the same? The other posters like Fredalan point out the very real, practical, political situation that acts as a barrier to reform. But things do change my friend.

 

I'll post more later but you may find it interesting that the IBC claims to have no financial interest in this project, but FASA, one of the four member groups, has the winning vendor AIG as a business partner on their web site. That is one level above a platinum sponsorship which costs $15,000 a year. So some of these underlying groups do receive cash from and have financial relationships with these vendors. To think otherwise is to be naive. How many people will enroll in the (so-called) low cost offering via 1-800 or the web, when a shiny, smiling rep from AIG is standing in the breakroom?

 

Jim

 

 

Brief comments on the few relevant things you posted:

 

1. Smaller vendors will not drop out completely from the 403b market. They will cease taking new 403b contributions after 12/31/08 which will preserve revenue for amounts contributed as of that date. Watch for these announcements in the near future.

 

2. As for your claim that a 403b plan impacts recruiting I had a recent conversation with a senior official of a growing SD in a large affulent western city who explained that the reason why only 10% of the teachers contributed to the 403b plan with 30 options was that most dont make enough money to be able to contribute to a 403b plan. Only the veteran teachers contributed. This in turn explains why unions are not interested in supporting better 403b choices because it doesnt make sense to negotiate for better investment options if most of the members cannot take advantage of the program. Therefore unions will negotiate for higher pay for all teachers. Teacher recruiting is affected by pay not by the availability of investment choices in a 403b plan. In suburbian SD around NYC where unionized teachers make over 100k there are as many as 50 qualified applicants for each vacancy.

 

3. The reason why CT's low cost 403b program may not work in FL is because CT has abolished county government in the 8 counties in the state whereas as FL has created strong county governments in each of its 67 counties in which the SD are located which generates strong political influence.

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2. As for your claim that a 403b plan impacts recruiting I had a recent conversation with a senior official of a growing SD in a large affulent western city who explained that the reason why only 10% of the teachers contributed to the 403b plan with 30 options was that most dont make enough money to be able to contribute to a 403b plan. Only the veteran teachers contributed. This in turn explains why unions are not interested in supporting better 403b choices because it doesnt make sense to negotiate for better investment options if most of the members cannot take advantage of the program. Therefore unions will negotiate for higher pay for all teachers. Teacher recruiting is affected by pay not by the availability of investment choices in a 403b plan. In suburbian SD around NYC where unionized teachers make over 100k there are as many as 50 qualified applicants for each vacancy.

 

3. The reason why CT's low cost 403b program may not work in FL is because CT has abolished county government in the 8 counties in the state whereas as FL has created strong county governments in each of its 67 counties in which the SD are located which generates strong political influence.

 

Now here (#2) I think that you are making a valid point. I just don't see a whole lot of teacher interest in 403b plans. Heck, most of them have never even HEARD of 403b. As for union interest, I have not seen a whole lot of that, either, and when the "interest" is there, it's not so good for teachers (e.g., NEA's endorsement of Value Killer).

 

The strong political influence that you note in #3 is the very reason why state governments should take a strong position and offer plans comparable to that of CT.

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