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403(b) Summit Last Week

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Guest TR1982

Skeptical and AP,

One of the employer groups I work in hired an outside consultant to provide ongoing plan compliance and investment review. I don't care that they hired a consultant. However, the consultant charges an annual fee of $30,000 simply to review the 20 investment options in the plan. Guess who pays the consultants fee? We do. It's disclosed in their contract so it's perfectly legal. Do you think we eat that cost or pass it on to employees? I find it hard to understand how this site claims to be for transparency and then endorses this.

 

Dan,

Can you provide us with any empirical evidence that this kind of portal increases employee awareness of the plan? You suggest that because it is not provided by vendors that somehow more people would find forms and prospectuses than before? Again, it would be nice to know what you are really giving employees and what you are charging. Seems only fair.

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TR is quite correct here. The vendors always pass these costs on to plan participants, and therefore they never really pick up the tab. It is always funded by participants. And as such, whether a consulting fee, a portal contract charge, or computers for the HR staff (which I have seen) the burden is on participants.

 

And unfortunately, these fees are passed to everybody - even the participants who have done their research and need no added services or portals. As Jim has stated, those vendors with low margins & high integrity will never play. No Vanguard, No DFA.

 

Dan, I would suggest that you get out in front of the issue and just declare the fee structure; what is the big deal? Nobody is saying you should not charge a fee, but when you do not disclose, you raise legitimate concerns.

 

Cheers,

 

Danc

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I think everyone needs to calm down here, we aren't talking about an investment product, we're talking about a customized website for a school district to promote their 403(b) plan.

 

In some cases the employer pays for it, in some cases the money comes from the vendor (through the employer). In the cases where it is funded from vendors, it is in school districts where it makes sense. For example, Montgomery County has a billion dollars in assets among 9 vendors. Let's just plug in a few numbers for startup (I don't know how much it cost - this is hypothetical):

 

25,000

50,000

100,000

 

If we run the numbers here we get the following as a percentage of assets:

 

.000025%

.00005%

.0001%

 

Again, I have no idea how much it costs - but even it was priced at $100,000 per year (a scenario I think Dan would love, but totally improbable) the cost to the vendors is .0001%. A cost they would happily absorb as a cost of doing business to be a vendor in a plan with $1 billion in assets. We all know that the portal didn't cost this....but even if it did - has it really affected participants negatively? Are they going to rant and throw a tea party because they got an incredible website to learn about there plan? Are not the vendors and their agents also benefitting from this portal.....at least enough to pay .0001% of their assets?

 

Lets get real here and stop going after someone who has done nothing but good things for this industry. This portal is a great idea and every district should adopt one.

 

I happen to know that Dan is not going to sell a portal to a district and allow them to pass the costs onto the vendors if it will negatively affect the participants - I think his work here on this site is evidence of that.

 

I must say that I'm shocked at some of the responses here. Why should Dan disclose information that could give his competitors an upper hand (in terms of pricing at least).

 

The portal is custom built for each district and will cost less for those who have fewer vendors and less customization and cost more for those who have more vendors and more customization. I'm willing to bet my $100,000 figure is multiples of what Dan actually charges - it was just an example to show the ridiculous arguement that somehow Dan's portal is costing the employees of MCPS money. If anything, it will make them money.

 

I think Dan deserves a little more respect than he's been given.

 

Now, when he starts to advertise Equity Indexed Annuities for sale and fails to disclose how much he makes and how much the commissions are.......I'll join you and castigate him - but of course I know that will never happen....he'll never sell financial products.

 

ScottyD

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Scotty,

 

Frankly, I have been confused by this whole thing. However, I went to the MCPS web site and I must say that it is terrific. Forms, data, educational info - it was all there and easily accessible. I like the idea that a person could bypass the district office and get pretty much anything he needed to begin, change, or end contributions to his account.

 

I also checked out the funds offered by the plan and, sure enough, there was Fidelity. And yes, the same low expenses are there for its funds, including the ultra-low Spartan funds. T. Rowe Price is available with its standard low expenses, too. As far as I could tell, this plan costs employees nothing more than is normally charged by the funds. I would be pleased to have it adopted by my own district.

 

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Guest Skeptical

ScottyD:

 

I take issue with two of your views and they really bother me. First, you compare the hypothetical cost to the value of plan assets. Just about any expense number you provide as a ratio of $1 BILLION will look tiny. This is the classic technique used by vendors. Second, it doesn't matter if it's ONE single dollar or a $100K, the conflict, the bias, the lack of transparency still exists. Isn't this the core problem participants face everyday?

 

You have spoken out many times against "compliance" vendors and TPAs who generate cash flow through hidden sub-TA and other revenue sharing techniques, have you not? What if your least favorite TPA or compliance vendor decided to offer just the same custom web portal totally FREE to participants and employers? You would tear it apart.

 

What about the statement you made in the FLA Model Plan thread:"My point is that by (emphasis added)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."

How is this any different for the "Yourplan.info" portal?

 

Dan said the payment for the web portal was an RFP REQUIREMENT: "In the case of MCPS, in addition to (emphasis added) requiring vendors to fund the portal, minimum RFP bid provisions included...".

 

For the record I don't care what the pricing might be because It doesn't matter. You also seem to know an awful lot about the portal, except the price. I find that very hard to believe. Help me understand why it's OK for the "yourplan" portal to use the hidden payment practice but not the Florida IBC. I'm all ears.

 

Jim

 

 

 

 

Skeptical and AP,

One of the employer groups I work in hired an outside consultant to provide ongoing plan compliance and investment review. I don't care that they hired a consultant. However, the consultant charges an annual fee of $30,000 simply to review the 20 investment options in the plan. Guess who pays the consultants fee? We do. It's disclosed in their contract so it's perfectly legal. Do you think we eat that cost or pass it on to employees? I find it hard to understand how this site claims to be for transparency and then endorses this.

 

 

TR:

 

You are 100% correct. You pass it along, and I'll bet that "outside" investment review is almost worthless.

 

Jim

 

 

 

 

Scotty,

 

Frankly, I have been confused by this whole thing. However, I went to the MCPS web site and I must say that it is terrific. Forms, data, educational info - it was all there and easily accessible. I like the idea that a person could bypass the district office and get pretty much anything he needed to begin, change, or end contributions to his account.

 

I also checked out the funds offered by the plan and, sure enough, there was Fidelity. And yes, the same low expenses are there for its funds, including the ultra-low Spartan funds. T. Rowe Price is available with its standard low expenses, too. As far as I could tell, this plan costs employees nothing more than is normally charged by the funds. I would be pleased to have it adopted by my own district.

 

 

AP,

 

There will be many excuses as to why this is no big deal. Listen closely. Accept nothing at face value.

 

Best,

 

Jim

 

 

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Hi Skeptical,

 

I've spent my career unmasking conflicts of interests, bias, and lack of disclosure and I see nothing wrong with this amazing portal idea. It is a valuable tool for the county and the employees of Montgomery and it truly has not cost them anything. This is not the same as a TPA providing "free" services as an avenue to sell product. The website is the product - I don't understand what you want here. Do you want a disclaimer at the bottom of the page that says "the county is reimbursed for the cost of running the website by the vendors in an amount that equals $xx and amounts to .0000xx% of total assets in the plan."

 

Where is the bias? Do you believe the VALIC's of the world want 403bWise to be providing the education over their own reps?

 

There is no conspiracy here.

 

The county is fully aware of the fees it pays. The client in this case, the one who contracted for the service is the county and they are fully aware of the costs - full disclosure, full transparency - Dan isn't selling any financial services, simply a portal that seeks to help a 403(b) plan run smoother. In another county that this is offered in my understanding is that the county pays the full cost itself - do you expect them to send a notice each year to each employee telling them their compensation is being reduced by $######'s in order to provide the portal (since the vendors are not paying)?

 

I suspect that the ideal entity paying for this would be the district, that would be my ideal payment method. Some districts will pay for it, others will look at it, love it and then won't be able to pay for it - but perhaps if they take control of their plan (as MCPS did) and do some real work, they can find a way to get it paid for without it costing the participants anything (as in MCPS).

 

You stated:

 

"You have spoken out many times against "compliance" vendors and TPAs who generate cash flow through hidden sub-TA and other revenue sharing techniques, have you not? What if your least favorite TPA or compliance vendor decided to offer just the same custom web portal totally FREE to participants and employers? You would tear it apart."

 

Perhaps, however that is because the TPA is using the site to further the sale of its own products - it has the ability to manipulate the information in a way to favor one investment over another that might make it more money. That is not going on here - Dan doesn't sell financial products and never will. He has no conflict of interest and if anything his bias is toward that of the lower cost vendors.....I'm fine with a bias like that.

 

I stick by my IBC comments - the fact is that this portal didn't raise costs and that is provable. The IBC wasn't looking to create the best plan that could be created, frankly I don't know what they were trying to do, it just came out strange and sub-par.

 

Lastly, I don't know the price of the portal, but I'm sure Dan would tell me. I'd love to get something like MCPS portal here in California for CalSTRS districts that are affiliated with 403bComply. In order to do that I'll need to develop a feature set and submit it for a detailed, customized quote. Even if and when I receive it and even if Dan told me the price that MCPS paid for the portal - I would blab it on this message board for anyone to see as its irrelevant to the conversation and proprietary.

 

Its a website for goodness sake - not a financial product - why are we even having this discussion.

 

I'm not trying to be difficult, I'm just truly perplexed.

 

ScottyD

 

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Yikes. I just got back from playing ice hockey but feel a lot like Alison in Wonderland. Alright, I'll come clean. We have the following Portal pricing models:

  1. An Equity-Indexed Portal that guarantees the educational return of the market without the risk.
  2. A Two-Tiered Portal that charges 5 cents the first click, and 10 cents for each ensuing click and must be annuitized by the third year.
Please note that if you want to get out of either Portal there is a 7-year rolling surrender charge.

 

Folks, I am more than proud of what we have created for MCPS. I am also more than proud of my educational and advocacy efforts the past 8 years through my sites, my books and my speaking engagements. If anyone doubts were my allegiance lies (I'm a Bills fan) then they simply do not know what I am about. Sorry but it makes no business sense to publicly disclose the cost of what we believe is a unique educational tool (note that I am not calling it the "Model" educational tool). If anything the Portal puts even more pressure on vendors to lower fees (there's an interactive calculator that allows users to try out different fee models to gauge effect on return; one FAQ question suggests that employees get all fee information before beginning investing). As far as MCPS goes, employees of that county have had their fees lowered and they have access to objective web-based information. Their benefits officials wanted to lower fees and wanted to have a mechanism for providing their employees with objective plan information. They have succeeded on both accounts. A participant in MCPS has access to Fidelity Spartan funds (with fees I believe that are around 10 basis points) and access to objective plan information. They also have access to vendor reps for those who want that type of service (but no rolling surrender charges per the RFP). Does a participant in the Florida "Model" Plan have all of this? No. AP Teacher has seen the MCPS site and gets it. Sorry if Skeptical doesn't. Skeptical doesn't mean correct. I have asked him to provide his realistic solution for providing objective, plan-specific information to employees in multiple work locations. This level of web design is not like ordering off of a lunch menu. Creation of the MCPS Education Portal took many, many hours of work on our part. This was not a boiler plate product. This is a highly interactive, customized educational tool that is continually being updated. MCPS has many things going for it: Close to a billion dollars of assets under management; but most importantly they have a benefits official who realizes that the new regs shift control from the vendor to the employer. MCPS said to the vendors: Here's what it will take for the privilege (not the right) to serve our employees. Will all employers be able to do this? Sadly, no. But as I have said before nothing is stopping these employers from linking to 403(b)wise (which many do) or other sources for free information, or creating their own Portal for that matter. We also make available a basic model for employers who can only afford that. Anyone remotely familiar with public 403(b) plans knows that objective plan information has been in short supply. We are offering one solution (actually two if you count this website). If others have other ideas we invite them to share.

 

Dan Otter

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MCPS “Yourplan” portal

http://www.yourplan.info/mcps/

 

403b/457 plan info

Vendor info links

Forms and Plan documents

Investment reference

Calculators

 

Same State different county…..

 

BCPS Payroll Office Homepage

http://www.bcps.org/offices/payroll/

http://www.bcps.org/offices/payroll/pdf/Co...he-Benefits.pdf

 

403b/457 plan info

Vendor links

Forms

Investment reference

 

 

The MCPS portal is convenient with an all in one place site, but all the information shown is available for FREE if one just takes the effort to look. Call the vendor and ask questions, google Vanguard/Fidelity for investment info, or go to 403bwise which has great newbie info for free.

 

What isn’t shown and hard to find is showing a comparison of fees/expenses for the vendors. Why isn't there a page showing the fees?

 

Also, with a per click charge the cost is generated by some but shared by all participants.

 

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Guest TR1982

It's interesting to me to see how people color their own views depending on the stake they have in it. As Skeptical rightly pointed out, this vendor payment system is just another pass through to employees. I don't really agree with it either but I think it's humorous at the criticism some of you here level at others for doing the same things. I just want to know how you claim this portal is unbiased when you have had paid advertisers on this website from Fidelity, TIAA-CREF, and TRP. Did any of those firms pay you or help subsidize the development of this service? It would seem they would benefit from doing that. It would certainly level the playing field with firms that have advisors.

Lastly, do any of the folks who are friendly to this idea here have a stake in this financially? You know who you are. Please come clean if you do.

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My head is still spinning on this one. At this point, here is how it seems to me:

 

1. MCPS paid Dan a fee.

2. Dan developed a web site.

 

Now, is the cost of the fee somehow being passed on to school district 403b participants?

 

Not that I can see. I looked at the fees for Fidelity and TRP, and they are the same as they usually are.

 

I could be wrong, but I don't see how participants are losing even a penny on this.

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Guest Skeptical
Hi Skeptical,

 

I've spent my career unmasking conflicts of interests, bias, and lack of disclosure and I see nothing wrong with this amazing portal idea. It is a valuable tool for the county and the employees of Montgomery and it truly has not cost them anything. This is not the same as a TPA providing "free" services as an avenue to sell product. The website is the product - I don't understand what you want here. Do you want a disclaimer at the bottom of the page that says "the county is reimbursed for the cost of running the website by the vendors in an amount that equals $xx and amounts to .0000xx% of total assets in the plan."

 

Where is the bias? Do you believe the VALIC's of the world want 403bWise to be providing the education over their own reps?

 

There is no conspiracy here.

 

The county is fully aware of the fees it pays. The client in this case, the one who contracted for the service is the county and they are fully aware of the costs - full disclosure, full transparency - Dan isn't selling any financial services, simply a portal that seeks to help a 403(b) plan run smoother. In another county that this is offered in my understanding is that the county pays the full cost itself - do you expect them to send a notice each year to each employee telling them their compensation is being reduced by $######'s in order to provide the portal (since the vendors are not paying)?

 

I suspect that the ideal entity paying for this would be the district, that would be my ideal payment method. Some districts will pay for it, others will look at it, love it and then won't be able to pay for it - but perhaps if they take control of their plan (as MCPS did) and do some real work, they can find a way to get it paid for without it costing the participants anything (as in MCPS).

 

You stated:

 

"You have spoken out many times against "compliance" vendors and TPAs who generate cash flow through hidden sub-TA and other revenue sharing techniques, have you not? What if your least favorite TPA or compliance vendor decided to offer just the same custom web portal totally FREE to participants and employers? You would tear it apart."

 

Perhaps, however that is because the TPA is using the site to further the sale of its own products - it has the ability to manipulate the information in a way to favor one investment over another that might make it more money. That is not going on here - Dan doesn't sell financial products and never will. He has no conflict of interest and if anything his bias is toward that of the lower cost vendors.....I'm fine with a bias like that.

 

I stick by my IBC comments - the fact is that this portal didn't raise costs and that is provable. The IBC wasn't looking to create the best plan that could be created, frankly I don't know what they were trying to do, it just came out strange and sub-par.

 

Lastly, I don't know the price of the portal, but I'm sure Dan would tell me. I'd love to get something like MCPS portal here in California for CalSTRS districts that are affiliated with 403bComply. In order to do that I'll need to develop a feature set and submit it for a detailed, customized quote. Even if and when I receive it and even if Dan told me the price that MCPS paid for the portal - I would blab it on this message board for anyone to see as its irrelevant to the conversation and proprietary.

 

Its a website for goodness sake - not a financial product - why are we even having this discussion.

 

I'm not trying to be difficult, I'm just truly perplexed.

 

ScottyD

 

 

Dan,

 

I appreciate the work you are doing and the fact the you are a "model" for the way to discuss a topic. You always post with a level of courtesy and respect. The portal by all accounts is a valuable tool that assists participants and employers. I wish you only great success with the project. As noted earlier the pricing is irrelevent, because then a discourse on cost / benefit would occur. Just not the point.

 

My concern is the revenue model you've chosen is a slippery slope that we have all criticized for years. Cash being rebated to a third party, via the employer, for some service or function, without the knowledge of the participants. It doesn't matter if we think the service is honorable and provides tremendous value.

 

Some TPAs think that what they do is brilliant and that they operate with honor and integrity, all the while they accept hidden payments from the investment providers. ScottyD is just plain wrong on this point. TPAs offering various services do not sell products either. Few are broker-dealers with reps, they simply collect a revenue sharing payment (sub-TA) that could easily be triple their explicit, invoiced fee. This is wrong, wrong, wrong and we all know it.

 

--If a vendor is required to rebate a portion of the investment expenses back to the employer (FOR ANY PURPOSE), the RFP selection process is fatally flawed. See ScottyD's comments about the FL Model Plan.

 

I'll post more later,

 

Jim

 

 

 

 

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Guest TR1982

AP,

The question is, who pays Dan's fee? MCPS writes a check directly to Dan, no problem. Vendors write checks to Dan, hmmmm.

Suppose Fidelity wants to pay Dan more or provide more advertisements on 403bwise. Any conflict, maybe. Should it be transparent? You be the judge.

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Skeptical,

 

I am not wrong, you made my point. If a TPA offered the site for free and they are a TPA that sells products - then the site will be inherently biased.

 

What exactly are you referring too?

 

ScottyD

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Guest Skeptical
Skeptical,

 

I am not wrong, you made my point. If a TPA offered the site for free and they are a TPA that sells products - then the site will be inherently biased.

 

What exactly are you referring too?

 

ScottyD

 

Scotty,

 

To be clear, the TPA entity never actually sells a financial product either. Although an affiliated broker-dealer may well. I'm talking about a TPA who accepts revenue sharing payments from the investment provider, who then provides the education portal for "free". It's not free and they do not sell products.

 

 

 

What's the difference in the Florida IBC, a (non-profit) corporate entity, charging $250K and then $100K. They are NOT selling products either, but it doesn't mean that participant assets are not being used to pay that required fee. What if they(the IBC) offered the education portal? Is that OK with you?

 

Jim

 

 

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Hey Jim,

 

It's doubtful the "Model" plan would want our Portal and it's even more doubtful that we would build one for them. The reason? Through the FAQs and fee calculators the Portal prods participants to understand all fees before investing (see below). And given the track record of the so-called "best in class" vendors the Florida plan has selected it's doubtful they would want participants asking these kind of questions. Plus, we would not be interested in working with that entity unless they had engaged in the kind of fee reduction and vendor selection process MCPS did. We simply do not know if they have done this.

 

From the Portal: What should I know before opening a 403(b)?

Fees, operating rules, and investment objectives can vary greatly among vendors and across investments. Therefore, it is important to understand all of these before you begin contributing to any investment. Additionally, some investments impose surrender charges or restrictions on withdrawals. Find out if there are surrender charges or restrictions on withdrawals before investing.

 

All mutual funds and variable annuities are required to produce a document called a prospectus, which details specific information about investment cost, objective, risk, performance, and operating rules. Ask to see the prospectus before contributing to a variable annuity or a mutual fund. Fixed-annuity products do not have a prospectus. Instead, they have a contract that details operation of the annuity. Ask to see the contract before investing in a fixed annuity.

 

For more information on general investing principles and terms, see the Investment Reference section. For more information on the impact of investment fees on return, estimation of future savings growth, impact on paycheck of a 403(b) and/or 457(b) contribution, and exploration of various distribution scenarios see the Calculators section.

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