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pab

Ideal Number Of Vendors?

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My school district has approximately 5000+ employees. We have begun talks of choosing a 403b vendor(s). What is the ideal number of vendors to have? We currently have over 30 vendors and access to a 457 plan. The district provides a match when employees contribute to either plan.

All advice, concerns and comments appreciated. Thanks for your help.

PAB

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Hi Pab,

 

If you pick the right vendor (i.e. one quality low-cost company) one is the ideal number. The reason? If the employer has done its due diligence and selected the proper vendor the employee only has to concern his or herself with choosing investments from this vendor. In this situation, the one vendor can focus on educating employees instead of selling to employees.

 

In a multi-vendor world the employee must first wade through the task of selecting a vendor. Chances are to get noticed many vendors will employ agents. So now a sales environment has been created instead of an education environment. Surveys tell us that more vendor choice leads to less participation. See: Can There Be Too Much Choice in a Retirement Savings Plan? http://www.403bwise.com/pdf/vcrr_choice.pdf

 

Now if the employer selects one high fee company then obviously everyone loses. Except that company of course. Check out our Model 403(b) Plan section. You will see one School District which has gone with one quality low-cost provider (TIAA-CREF) and another School District which offers four vendors. While we don't support all products choosen by the latter school distirct we support that they offer a manageable number with low cost choices. http://www.403bwise.com/features/403breads.html

 

Don't buy the high-fee company argument that one or a handful of vendors limits choice. Vendors have every opportunity to pitch their products during the vendor selection process. In fact that is when the employer has the most power. They get to tell vendors: take your best s. Tell us what you can do for us. When an employer lets numerous vendors in they have lost control and employees suffer. Don't lose sight of the fact that the 403(b) and 457(b) are for employees, not vendors. Employers have an obligation to offer the best possible product for their employees.

 

Good luck and let us know how it goes. Perhaps we can add your 403(b) plan to our Model Plan section. Unfortunately with 30 vendors we wouldn't be able to include your 457(b) plan in its current form.

 

Dan Otter

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Guest Guest_Joel F

When you say you have 30 vendors, are you referring to 30 different mutual fund families and or insurance companies or 30 investment funds from one or more mutual fund families and or insurance companies? Please clarify.

 

Peace,

Joel

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Hi Joel,

I am referring to the 30+ number of 403b mutual fund/insurance vendors which our district provides. Each vendor provides choices of various funds to our employees. I hope this clarifies your question.

Thanks

PAB

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Guest Guest_Joel

Pab,

 

So if each of 30 vendors offers 10 funds you have 300 funds to choose from. THIS IS REDICULOUS TO SAY THE LEAST!

 

YOU MAY WANT TO POINT THE DECISION MAKERS TO THE "INVESTMENT PLAN" OF THE FLORIDA RETIREMENT SYSTEM FOR AN EXAMPLE ON HOW TO RUN A DEFINED CONTRIBUTION PLAN. WWW.MYFRS.COM. LET ME KNOW WHAT YOU THINK OF IT.

 

Peace and Hope,

Joel

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