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bruceinwayne

Why Get A Tpa

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At a 403(b) meeting I was recently at, a TPA extolled the virtues of using his services.

 

Yes, his platform offers many different fund choices, but being that I am a hard core index investor, his choices mean nothing to me. I know for a fact that I can't pick winning stocks, thus I am convinced that I can't pick mutual funds or mutual fund managers any better than if I were to guess. I am however a believer in diversification and low costs, so Vanguard, which is one of our current providers, gives me all I need.

 

This TPA announced at the meeting that his company, "serves as a record keeper." So I asked him, "doesn't that mean that instead of the district assuming the responsibility of managing the 403(b) plan as the new regs require them to do, they hire a TPA to do the work for them and pass on the costs to the participants?" His answer was that I would get tremendous value out of the 1% I would pay and my investments would certainly perform better. I know that is a salesman load of *$#&, he can't guarantee beating the market by 1% over the next 30 years which begs the questions...

 

What does a TPA really do other than the districts paperwork?

 

Won't the net effect of a TPA be higher costs for my investments?

 

Is it really that hard to manage a 403(b) plan if you limit the district to one or two providers?

 

It seems to me that a TPA is just one more way to erode my nest egg over time with fees and costs that I should not have to pay.

 

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Let's look at that salesman's response to you, what value are you gaining? The real answer is most likely none, the reason is you are not the customer here.

 

The customer for a TPA is the plan sponsor. The reason is that the plan sponsor is the party held responsibile to the IRS, DOL, et al. The number of vendors is mostly of no matter, if having one vendor was easy private industry wouldn't turn to recordkeepers/tpa's like they do. The reality is monitoring a plan for an employer of 3000 employees and 800 participants for example is it is not easy. The reason involves knowledge, resources and risk assignment.

 

This market has been allowed by in part the IRS to go unchecked for a long time, and the result is the people that "ran" the plan were the employees, aplan that was never theres to run. In many districts you ask them how they reached the vendors they have currently and it was because over the years the employee's and unions pushed them not the district. Now the district must take an active role, including the vendors, because the IRS is not going to knock on the employee door for an audit or payment of plan fines, but they will and have been knocking on the districts door.

 

What exactly should the realistic expectations be on payroll departments, business officials and employers as a whole?

 

If I wanted to be educated in speaking French, do I go to an Spanish teacher because they teach a foriegn language, do I expect that person to assist me in passing my French final, does the Spanish teacher have time to learn French themselves so they can teach me Spanish, is that the best use of their time and mine and at the end will I pass?

 

The sponsors have to ask themselves a similar question of confidence. The question being how confindent are they that they would go pass an IRS audit timely, efficiently and without penalty? In most sponors cases the answer is not very confident, they do not have the resources, time, or knowledge base to do such. The solution is a qualified TPA's to supply the resources, time and knowledge base.

 

Am I fair in saying you do not care about that? Am i fair in saying your main concern in your investments? Which you should, the environment you are in is changing and will be for a while. The investment side will be an evolution for a number of years to come. Hopefully with good hard work, discussion and compromise over time not only will the employer get what they need, but so will the employee in some fashion.

 

But one fact that will be the toughest to accept I believe is the reality that this is not and never was the employees plan, it is the employers. It is a benefit, not a mandated right and it's a benefit that the employers are held responsible for proper and reasonable handling.

 

 

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Good follow up points made. The TPA side should be seperate from the asset side. The district should both clearly define what they want done and expect the tpa to clearly define how that will be charged.

 

Part of the challenge is reluctance to pay for the service from the district level. Which for those that are aware is the grand scheme of the millions that districts spends, fees for tpa service pale. And i do not recall many tax cuts from my school district as of late.

 

The point on simplifying a plan is valid. As an employee do you "need" to have the ability for hardships, loans, etc? If as an employee base the answers were no, then it could be done in house. But most bargaining groups are not real big on giving away features, real or perceived. Have good weekend all....

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Bruce,

 

I'm with you. I think a school district could go with a singe provider. I think its the way to go. I say dehorn the beast. Keep it simple. limit options, and educate your teachers to understand those options. It can be done in house and simply. Based on the knowledge level of most of my comrades the only investment they will ever need to consider is a target retirement fund. Giving them a host of company and fund choices just adds to the confusion.

 

Unfortunately, my school system probably won't go that route. They don't want to mess with it, so a TPA

does it salesjob on the employer who is excited to have someone else manage the complexities. AS a result,of course, we the employees end up paying for it in additional fees .

 

I'm hoping that Vanguard will stay in the 403b business. I've asked my district money person to see if there would be a way to have a TPA for the other options but when writing the plan document leave Vanguard seperate from the TPA's jurisdiction.I don't even know if that makes sense or not to even have suggested it.

 

 

We know too much. Most teachers won't care or even check to see the expenses and fees involved. Most are signing up with annuity salespeople. So for them, a TPA working for the school system might actually offer them better choices than the current annuity filled vendor list even if it ends up not being the best choice that we know and understand.

 

By the way, I enjoyed your website information. You fellow teachers are lucky to have you but good luck trying to change their current mindset without a struggle. Teachers are their own worst enemies when it comes to getting a 403B program in place that actually is in their best interest .

 

 

I

 

 

 

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At a 403(b) meeting I was recently at, a TPA extolled the virtues of using his services.

 

Yes, his platform offers many different fund choices, but being that I am a hard core index investor, his choices mean nothing to me. I know for a fact that I can't pick winning stocks, thus I am convinced that I can't pick mutual funds or mutual fund managers any better than if I were to guess. I am however a believer in diversification and low costs, so Vanguard, which is one of our current providers, gives me all I need.

 

This TPA announced at the meeting that his company, "serves as a record keeper." So I asked him, "doesn't that mean that instead of the district assuming the responsibility of managing the 403(b) plan as the new regs require them to do, they hire a TPA to do the work for them and pass on the costs to the participants?" His answer was that I would get tremendous value out of the 1% I would pay and my investments would certainly perform better. I know that is a salesman load of *$#&, he can't guarantee beating the market by 1% over the next 30 years which begs the questions...

 

What does a TPA really do other than the districts paperwork?

 

Won't the net effect of a TPA be higher costs for my investments?

 

Is it really that hard to manage a 403(b) plan if you limit the district to one or two providers?

 

It seems to me that a TPA is just one more way to erode my nest egg over time with fees and costs that I should not have to pay.

 

The final regs no longer permit SD and other public entities to avoid the complexities of plan administration that private employers have been contending with since 1975. The regs make the plan sponsor responsible for designating a plan administrator who will be responsible for insuring compliance with all of the tax rules governing 403b plans. The failure to comply could result in in tax penalites or taxation of all of the partaicpants accounts. Offering two or more vendors requires that the someone be responsible for keeping the records for all participants accounts and transferring funds between accounts at the different vendors as well as compling with all of the document requirements attendent to such chores. SDs do not have the technical expertise or software to do recording keeping/ plan administration in house and therefore will need to hire TPAs and pass the cost on to plan participants since most SD will not pay for a non budgeted expense. The additional costs for plan administration will put 403b plans at a disadvantage to low fee retirement plans such as IRAs where a $5,000 contribution will be the maximum amount that most employees can save for retirement.

 

Eliminating optional features such as plan loans deprives employees of one of the few reasons to contribute to a 403b plan over an IRA.

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But Intruder, I just invest in a 403b and don't even tap into the features. An IRA only lets you stash $6,ooo a year per person away at the most while a 403B allows a much bigger amount. One can't really

save enough at only a six thousand dollar clip for retirement.

 

 

Why can't a school district limit the options on a 403b if its in the best interest of the majority of participants. I'd be interested in seeing how many folks in my district need all those extras or even utilize them. I am totally against the hardship withdrawal. There are other ways to get money. Withdrawing money should not be allowed until service seperation or retirement. Its in the best interest of the employee

to limit options that may be detrimental to their future.

 

 

Also, How difficult would it be for an entity like a school district to track contributions really? In my school system of maybe 500 employees at most only 35% even utilize a 403B. I can see the issue being imposing in a large district but in my district I think it wouldn't be all that difficult-and if you have only one good provider that makes all the easier.

 

 

 

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But Intruder, I just invest in a 403b and don't even tap into the features. An IRA only lets you stash $6,ooo a year per person away at the most while a 403B allows a much bigger amount. One can't really

save enough at only a six thousand dollar clip for retirement.

 

 

Why can't a school district limit the options on a 403b if its in the best interest of the majority of participants. I'd be interested in seeing how many folks in my district need all those extras or even utilize them. I am totally against the hardship withdrawal. There are other ways to get money. Withdrawing money should not be allowed until service seperation or retirement. Its in the best interest of the employee

to limit options that may be detrimental to their future.

 

 

Also, How difficult would it be for an entity like a school district to track contributions really? In my school system of maybe 500 employees at most only 35% even utilize a 403B. I can see the issue being imposing in a large district but in my district I think it wouldn't be all that difficult-and if you have only one good provider that makes all the easier.

 

Most SD employees dont make enough to contribute more than $5,000, which is 10% of a 50,000 salary which is why participation in SD 403b plans is no more than 20-30%. The lower paid workers, including new teachers dont have discretionary funds or are paying off debts such as car loans and student loans which eliminates the little discretionary income they have. (Student loans are amortized over 15 years). In 401k plans participation by all employees is generaly 70% or more because employers offer automatic enrollment, matching contributions or in some cases contribute for some employees who make less than $100,000 in order to meet the non discrimination tests that apply. (403b plans are exempt from these tests).

 

Until you have been invovled in recordkeeping/administration you will not understand how complex it is especially in the context of the tax rules. Its not just a question of difficulty but doing it right the first time. One small mistake can have disasterous consequences if repeated many times before it is corrected. In many cases there are financial consequences that must be absorbed by the administrator. If you can find a provider that is willing to provide plan administration for a 403b plan free to a small SD then it should be considered but see whether the provider will agree to all of the terms that will protect the SD from the risks inherent in sponsoring a 403b plan under the final regs.

 

In tems of what options should be permitted why shouldn't hardship withdrawals be allowed if necessary to prevent forclosure, pay medical expenses or other reasons permitted under the IRS regs?

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OK, maybe I'm being a little greedy wanting my SD to offer a 403(b) and then also pick up the tab on managing it to meet the new regs, but the thought of having a TPA charge even 1% is revolting. I would hope that my employer out of the goodness of it's heart would pay someone in the business administrators office to manage the plan. It would be a very nice perk if they were to do so, but I have no great answer to the question, "It's your benefit, why should they pay for it."

 

Are there really only 2 choices? Either my SD covers the cost or they hire a TPA that runs the plan at a minimum of 1% of assets. I currently have $150,000 in my 403(b) and in my 2035 Target Date fund at Vanguard this year I will pay about $285 in expenses. If my SD brings in a TPA I will pay an additional $1500 with no added benefit what so ever.

 

When I found out what my fees and expenses were at Valic I almost threw up, then I got my SD to add Vanguard and I felt better, I think I'm starting to feel queasy again.

 

I will try to go with Tony's idea, if my SD wants to hire a TPA that's fine, but leave us and Vanguard out of it.

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currently have $150,000 in my 403(b) and in my 2035 Target Date fund at Vanguard this year I will pay about $285 in expenses. If my SD brings in a TPA I will pay an additional $1500 with no added benefit what so ever.

 

 

 

Over many years that $1, 500.00 can really add up. Better in the teacher's pocket. The fact that you pay $285.00 a year on $150,000.00 (have you run that on morningstar to see if thats right-it seems amazingly low to me-sign up for a free trial to its ######-Ray feature)should be all the convincing anyone would need to fight for Vanguard!!

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currently have $150,000 in my 403(b) and in my 2035 Target Date fund at Vanguard this year I will pay about $285 in expenses. If my SD brings in a TPA I will pay an additional $1500 with no added benefit what so ever.

 

 

 

Over many years that $1, 500.00 can really add up. Better in the teacher's pocket. The fact that you pay $285.00 a year on $150,000.00 (have you run that on morningstar to see if thats right-it seems amazingly low to me-sign up for a free trial to its ######-Ray feature)should be all the convincing anyone would need to fight for Vanguard!!

 

 

I don't need to run it on Morningstar. The average weighted expense ratio as reported on the Vanguard website for the 2035 Target Date Retirement Fund at Vanguard is .19% (I actually thought it was .18%, I think they may have raised it) $150,000 ###### .18% = 285 plus a $15 yearly fee is $300. Pretty good deal if you ask me. "Better in my pocket" by the way is just my way of thinking.

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In terms of what options should be permitted why shouldn't hardship withdrawals be allowed if necessary to prevent forclosure, pay medical expenses or other reasons permitted under the IRS regs?

 

 

 

Of course this statement opens another bag of worms. Forclosures I guess are unavoidable if due to job loss(doesn't happen that often to teachers) and not overextending oneself but why not buy mortgage insurance? Medical care could be taken care of by carrying medical insurance and believe it or not their are folks who won't pay for the insurance offered by the school system and carry none. Of course, catasthropic illness in our society can wipe someone out even with a co-pay but I'm seeing folks taking the allowed withdrawal for all the wrong reasons.

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Bruce

 

Yep,

 

 

That certainly is hard to beat. So why can't school systems give employees the value they deserve since salaries are lower than they should be and matching doesn't occur? Its a no brainer. I just think they don't understand how expenses operate in the 403B arena or special interests know how to get their foot in the door-its been happening for years with annuities. Horror stories abound-principals selling the annuities to employees, brother sales advisor of the superindendent getting preferential treatment at faculty meetings

and teacher access. School board members who sell annuities sitting on the school board .Its up to us to stand up for ourselves.

 

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