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403(b) Summit Last Week

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Hey Everyone,

 

Scott Dauenhauer and myself were attendees and speakers at a 403(b) Summit last week in Jacksonville, FL, put on by Plan Sponsor (who were great hosts). Below are some of our thoughts and impressions on what was said at the event.

 

From Dan (who spoke on the topic of Education — tailoring education and investments to plan participants)

  • Montgomery County Public Schools benefits official John Kevin has it right when he says the new regulations change control from the vendor to the employer
  • New regulations have already caused and will continue to cause a degree of burden for employers
  • 401(k) people (consultants, financial providers, representatives) who are eyeing the 403(b) market for the first time, generally, have a limited understanding of the 403(b) culture and history, particularly in public plans (there was general shock about the multi-vendor environment and the nefarious sales practices of some)
  • Insurance companies are lowering fees, often drastically
  • While it may get worse in the short term for the participant (loss of some low-cost options, failure of employer to add a low-cost option) five years from now fees will be lower, and companies like Vanguard will be much larger players in the market. My sense is that many firms are waiting for the shakeout.
  • It was a bad week to be flying American Airlines

From Scott (who spoke on the subject: The 10 Big Don'ts — possible misunderstandings of new rules and potential mistakes in compliance and ongoing administration: What sponsors need to know to avoid them)

  • Nobody has yet solved the "education" problem, not even the much-lauded 401(k) plans
  • Employers are still in the dark as to what route is best for them and there are few who can help them that don't have an agenda
  • There are big differences between governmental and non-governmental 403(b) plans, mainly in culture and this has to be factored in
  • The new regulations are still not clear on a variety of topics
  • The IRS isn't going to help you comply by 1/1/09, you are on your own, don't expect a delay

Note on the subject of participant education: During my presentation I demonstrated a web-based education portal that we recently created for Montgomery County Public Schools that I believe is a true solution for delivering customized, objective plan information to employees. We'll be making an announcement about this soon. In the meantime, you can learn more at: YourPlan.info

 

Dan Otter

 

 

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Guest TR1982

So, you will tell them but not us? Seems like the shoe s on the other foot, here, Dan. Are we afraid of transparency?

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TR,

 

Both the cost of the Portal and you are the same: Priceless! You simply don't get it and I suspect you never will. Vendor created web information is not the same as employer created information. I realize that employees having access to objective information is a scary notion for the lunchroom crowd. Times are changing, TR.

 

Dan Otter

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TRR,

 

Both the cost of the Portal and you are the same: Priceless! You simply don't get it and I suspect you never will. Vendor created web information is not the same as employer created information. I realize that employees having access to objective information is a scary notion for the lunchroom crowd. Times are changing, TRR.

 

Dan Otter

 

 

http://www.yourplan.info/pricing.html

We recommend that employers pass the cost of the YourPlan.info portal on to the vendors for the privilege of selling products to your employees.

 

Why would vendors want to pay for the YourPlan.info portal?

All of your vendors will have their own page on the portal, allowing them to provide specific product information, forms and contact information. This serves as a terrific sales tool, and lends a degree of legitimacy that vendors have not always enjoyed due to the past sales practices of many financial firms (selling in staff lounges, classrooms and cafeterias). If you would like more details about pricing, please send us your contact information through our online form and we will be in touch.

 

........So passing the cost on to the vendor is just like passing the cost on to the vendor when using a TPA? The vendor pays so the employee and employer don't have too?

 

Is it a one time fee? an annual ongoing fee? based on number of participants?

 

 

 

 

 

 

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Hey ricky.bobby,

 

Two, three and four year contracts are available. We have both a basic version (which a school entity in Connecticut uses) and a more customized version which MCPS chose to use.

 

Dan Otter

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Guest TR1982

Dan,

I get it. I think it's really funny that when the sunshine comes on you you are running for the shade! What's the matter, cat got your tongue? I think it's fine if you want to offer a website to employers with information. Just tell us what you charge. What's good for the goose is good for the gander.

 

Sounds like this deal will look like the same scam your buddies over at Bolton are running: get the vendors to pay for the info and pass through the cost to the employees and disclose it in the contract. What a racket. I love sunshine.

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TR,

 

You truly are great advertising for the Portal! Thanks! I get your fear of objective information. It doesn't go well with the "free" lunches you provide. Transparency... hmm... What's your real name? What company do you hock high-fee products for? I won't even ask you to disclose your fees because we know they are unsightly. Speaking of sunshine... it's setting on your kind.

 

Dan Otter (my real name)

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Guest TR1982

Hey Dan,

There's one big difference between you and me here on this site:

 

I AM NOT SELLING ANYTHING AND YOU ARE.

 

I don't provide my name or firm because I don't want any customers from here, don't need any customers from here, aren't selling any books, and don't provide any web services.

 

YOU DO AND SHOULD TELL US WHAT YOU CHARGE. Isn't that full disclosure?

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Guest Skeptical

TRR,

 

Both the cost of the Portal and you are the same: Priceless! You simply don't get it and I suspect you never will. Vendor created web information is not the same as employer created information. I realize that employees having access to objective information is a scary notion for the lunchroom crowd. Times are changing, TRR.

 

Dan Otter

 

 

 

http://www.yourplan.info/pricing.html

We recommend that employers pass the cost of the YourPlan.info portal on to the vendors for the privilege of selling products to your employees.

 

Why would vendors want to pay for the YourPlan.info portal?

All of your vendors will have their own page on the portal, allowing them to provide specific product information, forms and contact information. This serves as a terrific sales tool, and lends a degree of legitimacy that vendors have not always enjoyed due to the past sales practices of many financial firms (selling in staff lounges, classrooms and cafeterias). If you would like more details about pricing, please send us your contact information through our online form and we will be in touch.

 

........So passing the cost on to the vendor is just like passing the cost on to the vendor when using a TPA? The vendor pays so the employee and employer don't have too?

 

Is it a one time fee? an annual ongoing fee? based on number of participants?

 

 

Dan

 

Objective information is always helpful for participants. If you've chosen to generate revenue from the tool you've developed so be it. That said, I'll be very disappointed to learn that the costs will be (generally) passed on to participants through a revenue sharing strategy with vendors. (Even if you're paid directly by the SD, who then collects revenue from the vendors). This will of course create a huge conflict for you. One in which you may benefit financially from the multi-vendor status quo. It would not be in your financial interest for a SD who is using the "yourplan" portal to change to a single low cost vendor. TR is of course correct that this situation would be little different than asking FL vendors to pay an "education" fee to the IBC, a non-profit organization. It would still come out of participants retirement accounts, likely not appear as a specific charge or deduction on an account statement, and would be a barrier to low-cost single vendor solutions. Am I missing something?

 

Best regards,

 

Jim

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Guest Skeptical
Jim,

Can you please explain all of this to me? I'm pretty confused.

 

AP,

 

Well, as I see it, having a SD solicit vendors to pay for any program, whether good, bad, or ugly is a problem. If a particular program is valuable, then the Plan Sponsor (SD) should pay an explicit fee. OR where permissible, the cost could be charged directly to the participant account, while appearing as a line item expense. So if a participant sees as an example, a charge for Education: Website, Seminars, & Counseling, for say $10 that quarter, everything is on the table.

 

IF on the other hand a portion of a MF management fee, 12b-1, or M&E charge is rebated back to the SD, who then uses it purchase some other service (like recordkeeping) the participant has no idea. And LOW COST vendors who do not generate excess revenue and cannot afford to make such payments are effectively excluded.

 

So in Florida, a non-profit corporation, the Independent Benefits Council, has entered into an agreement (pdf) with the selected vendors to pay (pro-rata) $250,000 initially and there after $100,000 annually for "marketing costs". How would this be different for the "Yourplan" portal?

 

The selection of vendors then starts with the FIRST CUT: Those who refuse to make such payments.

 

Who would those likely be? The lowest cost providers. The most likely to be HAPPY to pay? The high priced annuity vendors. Does this conflict not slap you in the face? If this is the business model, I'm very, very disappointed indeed.

 

EDIT: I had NO IDEA that this was the actual revenue model for the CA 403bcompare.com website:

 

As noted under vendor registration:

 

403bCompare.com is a non profit program and all costs are distributed equally by participating vendors (per CA Ed. Code 25108). A one time establishment fee will be billed to all new vendors shortly after their registration is completed. In addition, each vendor will be responsible for paying an annual maintenance and administration fee. Invoices for these fees will be sent out during the month of August each year. For more information about fees associated with registering, please call or email the 403bCompare Administrator.</SPAN>

 

I'm very disappointed to learn this.

 

Jim

 

 

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Hey Jim,

 

We don't require vendors to fund the portal. We only recommend it. Just as vendors have every right to make a profit, employers have every right to ask vendors to provide certain services. I'd hardly call this a "revenue sharing agreement." In the case of MCPS, in addition to requiring vendors to fund the portal, minimum RFP bid provisions included: group contracts, no-load mutual funds, and no annuities with rolling surrender charges. Thanks to the action of their employer, MCPS employees now have lower cost products (including direct access to Fidelity, T. Rowe Price and TIAA-CREF) and an online tool that allows them to access plan-specific, objective information and forms (created by a party that does not sell financial product) from their home or work space. The benefits department now has a resource that reduces their documentation burden. And the employer has another tool for helping them comply with a key requirement of the new regulations: annual notification of employee ability to participate in the 403(b). From the home page of the MCPS Portal: All MCPS employees are eligible to participate in both plans [403(b) and 457(b)]. In addition to all enrollment forms, MCPS also makes their 403(b) and 457(b) Plan Documents available for downloading, giving employees direct and immediate access to the operation of these plans.

 

It's also hard to understand your criticism of the 403bcompare website. Finally, teachers in California have an educational website created by a third party that does not sell financial product. This permits the following: Free objective information about 403(b) vendors and the products they offer; and access to investment options, fees involved and product performance information.

 

Employers have every right to link to 403(b)wise or some other site that provides 403(b) information at no cost. Or they can have vendors continue to provide the education. Some of it will be good; most of it will not be objective. I would be curious about your ideas for delivering objective, plan-specific information to employees in multiple work locations.

 

Unlike the Florida "Model" plan we are not decaring the Portal the "Model" education plan. We are offering it as one way to address the acute education gap. Again, I am very interested in your suggestions for providing objective, plan-specific information to employees in multiple work locations. Finally, as far as our interest in a promoting a multiple vendor environment, we are currently discussing the creation of a Portal with several employers who either already have or are going to a single vendor platform. As always, thanks for your skepticism and participation.

 

Dan Otter

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AP,

 

Well, as I see it, having a SD solicit vendors to pay for any program, whether good, bad, or ugly is a problem. If a particular program is valuable, then the Plan Sponsor (SD) should pay an explicit fee. OR where permissible, the cost could be charged directly to the participant account, while appearing as a line item expense. So if a participant sees as an example, a charge for Education: Website, Seminars, & Counseling, for say $10 that quarter, everything is on the table.

 

IF on the other hand a portion of a MF management fee, 12b-1, or M&E charge is rebated back to the SD, who then uses it purchase some other service (like recordkeeping) the participant has no idea. And LOW COST vendors who do not generate excess revenue and cannot afford to make such payments are effectively excluded.

 

So in Florida, a non-profit corporation, the Independent Benefits Council, has entered into an agreement (pdf) with the selected vendors to pay (pro-rata) $250,000 initially and there after $100,000 annually for "marketing costs". How would this be different for the "Yourplan" portal?

 

Jim,

 

Let's see if I have this right: You are saying that if a school district asks a vendor to pay for a program, then the vendor will pass those costs on to the participants (i.e., school district employees) in a manner that is not transparent. In other words, the participants will not even realize that they are ultimately paying for these costs.

 

So if a school district asks the plan's mutual funds to pay for yourplan, and the funds do so, then the mutual funds will in turn pass on those costs to school district employees. Is this correct?

 

And in the case of Florida, the problem is that the vendors will recapture the $250,000 they paid out simply by passing those costs on to participants, right?

 

I apologize if any of this is incorrect. Please correct me if I am wrong.

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