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New 403b Plan

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I am on our district's committee to look at and formulate our new 403b plan. We currently have over 30 vendors, one of which is Vanguard. Most are insurance companies. Our task is to narrow our vendors to less than 5. I am thinking once we start talking costs etc, it will be 3 or less. In then end, I believe our new plan is going to be worse than our current one because we will lose Vanguard due to them not signing an ISA - from what I read on this board.

 

My goal is to make sure that at least one of the vendors is a no-load mutual fund company like Vanguard, Fidelity, T Rowe. It would be great if one of these was our exclusive vendor. I don't think that will happen for these reasons-education and advising. My question, and I know others on the committee will ask it, is how do we advise our members on investments if we go exclusively no-load? I am fine on my own but I know that many are not. I think if many knew what it was costing them to get this advice, they would see the light and educate themselves. As an aside, I find it very interesting that people will spend more time and due diligence researching the latest digital camera or TV that may save them $50-$100, than their retirement, which will end up costing them 10s of thousands of dollars. Is there a way to get unbiased advisement without adding high cost insurance companies or load mutual fund companies to our vendor list? My idea would be to automatically enroll people in an S&P 500 index or Lifestyle fund but I know that won't go over well with everyone. Ideas?

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Default investment election = Vanguard Target Date Fund (Age appropriate assuming Normal Retirement Age of 65)

 

Most of what you'd get of value from independent investment advisor is an asset allocation. Target Date Funds do that & since all components are index funds, this offering gives participants low-cost, a reasonable approach to asset allocation & returns that follow the markets - with good precision.

 

For those participants that want/need more customized advice, active management, other bells/whistles, let them purchase it (on their own) rather than layer the fees/services for everyone.

 

Although it does not likely apply to your plan, The PPA 2006 provides Fiduciary Safeguards to 401(k) Plan Sponsors who elect a Target Date Fund default methodology. Private sector plans are using the approach to reduce fees, improve returns, reduce fiduciary liability & assist participants to make more appropriate investment choices.

 

My Opinion Only.

 

DC

 

 

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It's been clearly established that the more choices the average investor has, the worst their long term market return. Most teachers if given the opportunity to invest in many different funds will end up chasing returns, thus virtually guaranteeing a lower than market return.

 

I too am working on trying to get my district to adopt a 1-provider solution and I had about 50 of my students bring in their parent's 401(k) brochures. Almost all of them only offer 1 company and not only that but most of them limit the number of funds that you can invest in. Many of them only offer Target Date type funds.

 

If you are trying to do what is the best good for the most number of people, I think it is almost self-evident that the best system is to have one low cost provider with a limited number of Target Date type funds.

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Guest Skeptical

 

Excerpt:

 

Default investment election = Vanguard Target Date Fund (Age appropriate assuming Normal Retirement Age of 65)

 

Most of what you'd get of value from independent investment advisor is an asset allocation. Target Date Funds do that & since all components are index funds, this offering gives participants low-cost, a reasonable approach to asset allocation & returns that follow the markets - with good precision.

 

DC

 

 

 

236,

 

Danc is right on the money here. Target Date funds already have a pre-determined asset allocation and are rebalanced as needed. This is the basis for my comment in the other thread, "What your advisor doesn't know" about the limited value that retail Advisors bring to the table. Any agents or registered reps allowed to communicate with your employees will simply see it as an opportunity to sell other products. This you should avoid at all costs.

 

Jim

 

 

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236,

 

A solution that could solve many of the problems you mentioned is to look for a single provider who will offer an open architecture platform. This allows your district access to any funds they want, probably mostly no-load, but still offers your employees access to education and advice.

 

I have seen platforms where there can be two separate service charges for this. A small one (probably 5-15bps) for employees who opt to not get advice from the provider, and a larger one (probably 25-75bps) for those employees who need/want advice and education from the provider.

 

I'm sure I will get slammed for offering a solution with additional charges...but, I feel, the charges mentioned here are smaller than going with a plan that has all insurance companies.

 

Although there is no perfect solution to your problems, this offers you a way to get access to no-load funds, and offer your employees advice.

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