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JudyS

Easy Question Re: Agreement Form

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Fellow Travellers --

 

I THINK this is an easy question. I have been informed that my district is finalizing an agreement form for vendors, and once they do THAT, the 403b issue will be brought to the Benefits Committee. So does anyone know of a ###### agreement form that has been developed that is being accepted by companies such as American Century and Vanguard?

 

Thanks,

 

Judy

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Fellow Travellers --

 

I THINK this is an easy question. I have been informed that my district is finalizing an agreement form for vendors, and once they do THAT, the 403b issue will be brought to the Benefits Committee. So does anyone know of a ###### agreement form that has been developed that is being accepted by companies such as American Century and Vanguard?

 

Thanks,

 

Judy

 

 

Judy: I have spoken to Vanguard about this very issue just a few weeks ago. They will sign what they descibe as the industry standard information sharing agreement and expect the employer (emphasis on employer!) to sign that standard agreement also. This Vanguard/industry standard information sharing agreement is available on the Vanguard website for downloading (do a search on the Vanguard site for information sharing agreement). Vanguard will not sign certain information sharing agreements that third party administrators generate because they vary from the industry standard version. I was told by Vanguard that their version of the ISA meets all IRS requirements. Some third party administrators are apparently getting creative with what is included in their version ISA and Vanguard is not about to play their game and have to have their legal department review version after version of the ISA. It would not surprise me if certain third party administrators generate unique ISAs in order to eliminate Vanguard from the mix and force more teachers to deal with higher cost investment providers. I also suggest that you contact Vanguard directly.

 

Herman

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Fellow Travellers --

 

I THINK this is an easy question. I have been informed that my district is finalizing an agreement form for vendors, and once they do THAT, the 403b issue will be brought to the Benefits Committee. So does anyone know of a ###### agreement form that has been developed that is being accepted by companies such as American Century and Vanguard?

 

Thanks,

 

Judy

 

 

Judy: I have spoken to Vanguard about this very issue just a few weeks ago. They will sign what they descibe as the industry standard information sharing agreement and expect the employer (emphasis on employer!) to sign that standard agreement also. This Vanguard/industry standard information sharing agreement is available on the Vanguard website for downloading (do a search on the Vanguard site for information sharing agreement). Vanguard will not sign certain information sharing agreements that third party administrators generate because they vary from the industry standard version. I was told by Vanguard that their version of the ISA meets all IRS requirements. Some third party administrators are apparently getting creative with what is included in their version ISA and Vanguard is not about to play their game and have to have their legal department review version after version of the ISA. It would not surprise me if certain third party administrators generate unique ISAs in order to eliminate Vanguard from the mix and force more teachers to deal with higher cost investment providers. I also suggest that you contact Vanguard directly.

 

Herman

 

 

H:

 

What are the creative provisions in ISAs that VG won't agree to?

 

Why is there a problem with reviewing ISAs since VG reviews other agreements with plan sponsors? All they need to do is hire a few more lawyers to comply with the regs as the other vendors who want to stay in the 403b market will do. After all VG has $1.4T in assets.

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Guest Sierra

 

 

Fellow Travellers --

 

I THINK this is an easy question. I have been informed that my district is finalizing an agreement form for vendors, and once they do THAT, the 403b issue will be brought to the Benefits Committee. So does anyone know of a ###### agreement form that has been developed that is being accepted by companies such as American Century and Vanguard?

 

Thanks,

 

Judy

 

 

Judy: I have spoken to Vanguard about this very issue just a few weeks ago. They will sign what they descibe as the industry standard information sharing agreement and expect the employer (emphasis on employer!) to sign that standard agreement also. This Vanguard/industry standard information sharing agreement is available on the Vanguard website for downloading (do a search on the Vanguard site for information sharing agreement). Vanguard will not sign certain information sharing agreements that third party administrators generate because they vary from the industry standard version. I was told by Vanguard that their version of the ISA meets all IRS requirements. Some third party administrators are apparently getting creative with what is included in their version ISA and Vanguard is not about to play their game and have to have their legal department review version after version of the ISA. It would not surprise me if certain third party administrators generate unique ISAs in order to eliminate Vanguard from the mix and force more teachers to deal with higher cost investment providers. I also suggest that you contact Vanguard directly.

 

Herman

 

 

H:

 

What are the creative provisions in ISAs that VG won't agree to?

 

Why is there a problem with reviewing ISAs since VG reviews other agreements with plan sponsors? All they need to do is hire a few more lawyers to comply with the regs as the other vendors who want to stay in the 403b market will do. After all VG is has $1.4T in assets.

 

 

Intruder foolishly asserts: "After all VG is has $1.4 Trillion in assets."

 

The $1.4 trillion is assets under Vanguard management---the 1.4 trillion is assets held in a legal Trust! It is OPM (Other Peoples Money), not Vanguard's.

 

Intruder: Do you stand corrected or are you going to stonewall me?

 

Joel

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Fellow Travellers --

 

I THINK this is an easy question. I have been informed that my district is finalizing an agreement form for vendors, and once they do THAT, the 403b issue will be brought to the Benefits Committee. So does anyone know of a ###### agreement form that has been developed that is being accepted by companies such as American Century and Vanguard?

 

Thanks,

 

Judy

 

 

Judy: I have spoken to Vanguard about this very issue just a few weeks ago. They will sign what they descibe as the industry standard information sharing agreement and expect the employer (emphasis on employer!) to sign that standard agreement also. This Vanguard/industry standard information sharing agreement is available on the Vanguard website for downloading (do a search on the Vanguard site for information sharing agreement). Vanguard will not sign certain information sharing agreements that third party administrators generate because they vary from the industry standard version. I was told by Vanguard that their version of the ISA meets all IRS requirements. Some third party administrators are apparently getting creative with what is included in their version ISA and Vanguard is not about to play their game and have to have their legal department review version after version of the ISA. It would not surprise me if certain third party administrators generate unique ISAs in order to eliminate Vanguard from the mix and force more teachers to deal with higher cost investment providers. I also suggest that you contact Vanguard directly.

 

Herman

 

 

H:

 

What are the creative provisions in ISAs that VG won't agree to?

 

Why is there a problem with reviewing ISAs since VG reviews other agreements with plan sponsors? All they need to do is hire a few more lawyers to comply with the regs as the other vendors who want to stay in the 403b market will do. After all VG is has $1.4T in assets.

 

 

Intruder foolishly asserts: "After all VG is has $1.4 Trillion in assets."

 

The $1.4 trillion is assets under Vanguard management---the 1.4 trillion is assets held in a legal Trust! It is OPM (Other Peoples Money), not Vanguard's.

 

Intruder: Do you stand corrected or are you going to stonewall me?

 

Joel

 

 

Joel: VG collects investment fees on the $1.4T held as assets. (I should have referred to formal term assets under management but I didnt want to be accused of using a complex term.) If VG isnt willing to to hire additional people to comply with the new requirements then it means that the 403b plans are not a significant part of their business. VG is not one of the top 403b providers.

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VG is not one of the top 403b providers.

Of course not. They don't send salesmen to haunt the school cafeterias with punch and cookies.

 

That not the issue. VG 403b assets are a smaller % of its total asset base than its peers which means that it collects a smaller % of its total fees from the lower fee investments offered under 403b plans than the other firms. Therefore the cost of compliance with the 403b regs will be incrementally larger for VG as a % of revenue generated from 403b plans than its competitors who have larger 403b asset bases and charge higher fees.

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That not the issue. VG 403b assets are a small % of its total asset base than its peers which means that it collects a smaller % of its total fees from the lower fee investments offered under 403b plans than the other firms. Therefore the cost of compliance with the 403b regs will be incrementally larger for VG to as a % of revenue generated from 403b plans than its competitors who have larger 403b asset bases and charge higher fees.

And all of this is relevant because ...?

 

Meanwhile, Vanguard is offered by districts like LACOE (and will continue to be after this year) so I will just merrily plunk down my money each month for some shares.

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That not the issue. VG 403b assets are a small % of its total asset base than its peers which means that it collects a smaller % of its total fees from the lower fee investments offered under 403b plans than the other firms. Therefore the cost of compliance with the 403b regs will be incrementally larger for VG to as a % of revenue generated from 403b plans than its competitors who have larger 403b asset bases and charge higher fees.

And all of this is relevant because ...?

 

Meanwhile, Vanguard is offered by districts like LACOE (and will continue to be after this year) so I will just merrily plunk down my money each month for some shares.

 

That will be true as long a long as VG receives adequate 403b fees from the SDs from whom it is a vendor. But smaller SD will find it difficult to have VG as a provider as has been noted on this site.

 

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I'm going to break ranks here and disagree with pretty much everyone but Intruder, keep an open mind here.

 

These new regulations are very, very onerous and the employer is now taking on a liability they've arguably never had. They need to take this very seriously. The question the employer must ask themselves is are they willing to allow the industry to write agreements for them and trust the industry to do the right thing for the employer? Would any self-respecting employer allow the vendor to dictate plan terms? The employer cannot afford to "trust" that the industry is looking out for them; they should have their own ISA and if a vendor is not willing to sign it.....they shouldn't be allowed to be a vendor. The ISA should be reasonable, but they should be writing the ISA to ensure that it works within THEIR plan, not allowing a vendor to write something that benefits the vendor.

 

The only reason Vanguard is available in AP's district is because AP's district didn't hire a competent TPA, instead they hired (I use that term loosely since the TPA doesn't get paid for doing compliance) a product sales organization. This organization is more than happy to open the district up to potential liability by allowing the vendors to run the show because they know that they'll still be around to sell products (the TPA). They aren't concerned about compliance, they are concerned about their own ability to sell products. AP benefits from this (and I am happy for him on that front), but for every 1 AP in the district there are 20 or 30 who end up with an Equity Indexed Annuity type product.

 

It pains me to rip Vanguard....it also pains me to hear through the grapevine that Fidelity may be following the same track. If they want to commit themselves to the 403(b) market, they need to play by the rules - it appears they don't want to. I love Vanguard, but they are the one's making the decision. I understand their position that they don't want to sign 13,000 different ISA's (which they won't as most districts will have TPA's - bring that number down easily to less than 1000) - but why were they willing to review and sign Hold Harmless Agreements previously? The problem isn't the agreement, its the sharing of information. Vanguard could easily create a product that works in the 403(b) market and be part of it - they have chosen not to and I think the employer has to look at Vanguard and say "No, our plan dictates the vendors, not the other way around."

 

I'm not a fan of these new regulations, but I think the employer is in a bind and needs to take them seriously. Vanguard has chosen to NOT take it seriously and I don't think that we should defend them when they make bad decisions, or decisions we don't agree with.

 

If VALIC was being rejected.......bet the tone would be different.

 

I mean no disrespect to all of my friends on this board - but in this instance - Vanguard is in the wrong.

 

ScottyD

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[intruder foolishly asserts: "After all VG has $1.4 Trillion in assets."

 

The $1.4 trillion is assets under Vanguard management---the 1.4 trillion is assets held in a legal Trust! It is OPM (Other Peoples Money), not Vanguard's.

 

Intruder: Do you stand corrected or are you going to stonewall me?

 

 

 

Joel:

 

I am not stonewalling you. Please see my response.

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Guest Skeptical

ScottyD,

 

Your view is understandable given that you earn a living as a vendor, specifically from the sale & marketing of compliance services to SDs.Your business is in direct competition with the TPAs, some of whom also sell financial products. I've watched your vid clips about how to pass though the cost of your compliance services to participants. You are a vendor just like the TPAs and firms you criticize. Readers, especially the new ones should have a clear picture of your role in the industry and the context of your remarks. For that matter there are only a handful of regular posters here, like myself, who are not vendors, and do not generate income directly or indirectly from participant's retirement savings.

 

Jim

 

 

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Skeptical,

 

I am not a vendor.

 

I am a financial planner and i've spent the past 7 years fighting for better options for school teachers. most of my teachers clients have been invested in Vanguard's 403(b)7. Most of my teacher clients I work with on an hourly basis.

 

I've spent the past couple years also doing consulting work for the California State Teachers Retirement System where I helped revamp their 403(b) product and drop costs by about 70% while putting together an incredibly strong and innovative lineup of investments. I also helped them do an RFP for a TPA, a fee-for-service TPA. CalSTRS doesn't make money on either program and isn't allowed too, they can only break even. Their mission is to solely work in the interest of the participants.

 

I don't sell TPA services for a living. I do get paid to speak on behalf of CalSTRS every so often (the ###### included) and I do believe that CalSTRS TPA offers the best solutions for educators. I also spent a lot of time lobbying Vanguard to try to get them to offer their product....to no avail, yet.

 

You don't have all the facts and you haven't done your homework.

 

My main income comes DIRECTLY from my financial planning clients, not product vendors. Most of my teacher clients (in California at least) are now in the CalSTRS Pension2 product because I think it is superior Vanguard as I get access to DFA, TIAA Traditional and TIAA's Real Estate account. I am a Fiduciary and act as a Fiduciary and for you to suggest something else is wrong and ill-informed.

 

I see that you didn't actually address what I said. Why shouldn't Vanguard be expected to make a real committment to employers? Its funny, it doesn't appear that liability is the problem now, which is why they wouldn't sign many Hold Harmless agreements. Perhaps you haven't heard me I WANT VANGUARD TO STAY IN THE 403(b) INDUSTRY.

 

 

ScottyD

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Skeptical,

 

I think the fact Scott is willing to take Vanguard to task tells you all you need to know about his ethics. Five years from now when 403(b) plans have largely migrated to group contracts (as opposed to individual contracts which are the norm in K-12 plans. Group contracts help shift the control from the vendor to the employer making it easier to move plan assets and are an arrangement we recommend), public 403(b) plans will be very attractive to firms such as Vanguard.

 

We are entering a period where in many cases, 403(b) plans will actually get worse for the participant in the short term. Most employers are solely focused on compliance (note: I tried to demonstrate to you how MCPS is the exception and should be championed for their efforts — great low-cost choices and an objective educational portal — but you insisted in waging a quixotic battle. The posture Vanguard is taking, if true, is disappointing and deserves to be pointed out.

 

Dan Otter

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