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gerryborn

What Does A "good" Proposal Look Like?

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My district is reviewing some 403b / 457 proposals from some of the "big ######", but nothing really looks that great to me. There are six proposals and the two "best" ones leave me wanting less. Here are some details:

 

Company A: Initial administrative cost of about 90 basis points, use of mutual funds charging from 20 to 125 basis points, no self-directed option to escape the plan, agreement is for a period of one year. Company A's model allocations have no fee information; I could sit down with a spreadsheet and enter in the expense ratios and do some math, but my life is not that pathetic. The bottom line, why is there a lack of fee transparancy here?

 

 

Company B: no administrative cost based on assets under management, yearly account management fee of $35, use fee-bloated mutual funds with fees of 100 to 150 basis points, a self-directed option ($50 a year) that is limited to 4% participation among plan members (if exceeded, it appears they can change the terms of the agreement...undoubtedly to their favor), agreement is for a period of 5 years. Thing that rubs me wrong: use of T. Rowe Price target retirement funds (R shares) that have the highest expense ratios; this expense includes a 60 basis point "kick back" to Company B. Of course, this is purely for adminstrative purposes.

 

Supposedly, one of the benefits of consolidating our 403b and 457 plan with one company is that we should be able to leverage our retirement monies to get a really good plan. So far, I don't see that shaping up. The chosen company will deliver personal service and educational seminars to our district, but I envision more glib talk and glossy pamplets. Of course, I don't expect that there will be any mention of how high costs are detrimental to your long-term retirement savings. (I wonder, do these sales reps have index funds in their own retirement plans? If so, why?)

 

I don't know what I'm trying to say here...it is starting to look like the 403b boondoggle is going to continue. What I am seeing touted as new and improved products looks live the same old ...just without an annuity wrapper. The frustrating part is that I know how good the Vanguard 403b(7), the Fidelity 457, and Georgia's Peach State Reserve plan would be for people who already know what is good for them. The problem with those plans is that they don't have the hand-holding component that so many participants want. Unfortunately, the hand-holding comes at a tremendous price; usually in the tens or hundreds of thousands of dollars.

 

 

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The frustrating part is that I know how good the Vanguard 403b(7), the Fidelity 457, and Georgia's Peach State Reserve plan would be for people who already know what is good for them. The problem with those plans is that they don't have the hand-holding component that so many participants want. Unfortunately, the hand-holding comes at a tremendous price; usually in the tens or hundreds of thousands of dollars.

 

 

 

Your statement says it well. People want the handholding but don't want to realize how much that handholding is costing them. If they did they wouldn't have it. Companies do everything they can to hide and disguise fees- this is by design. Very few explain to their clients the fee stuctures in a way that helps the customer window shop for the best deal and best product for them. Its just a sell the darn thing and collect your commission and adios amigo!.

 

People around here are complaining about gas costs. Some of these very people refuse to acknowledge that their financial advisor/salesperson is basically selling them a subpar product and is even costing them much more than gas. Pathetic-especially when the opportunity is there to learn!!! Look at the morgage mess. Is the consumer at fault? Yes but did the morgage brokers happily sell to unqualified buyers just to make a quick buck? Yes. Greed!!!

 

We are simply too trusting and as a result we are getting ripped off by the very people that portend to be helping us. The government plays a hand in this for the sake of protecting big business at the expense of the middle class that is struggling at the moment. Its time for complete disclosure and transparency.

THE SEC must do more but the consumer has just got to get smarter.

 

 

 

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