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Is anyone aware of any law, cases or disputes re surrender rights on variable annuities?

 

Is anyone aware of Lincoln Financial waiving surrender rights?

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Hi,

 

The text of that article follows. Can someone translate this for me? If a District chooses a new 403b vendor, can the old plan charge a surrender fee to the people who want to transfer to the new one?

 

Thanks,

Gadlfy

 

 

Surrender Charges: The Problem and the Solution

 

By Fred Reish

Some 401(k) and 403(b) investment products have surrender charges—which are imposed when the plan sponsor ends the relationship with the investment provider. These charges are also known as termination fees, back-end charges, contingent deferred sales charges, and CDSCs.

 

We were recently hired by a plan sponsor to advise them on the demand by an insurance company that they pay a six-figure surrender charge.

 

The sponsor had become concerned about the expenses and performance of the investments in their plan. As a result, the sponsor obtained proposals from several providers and, based on the information received and reviewed, decided to switch providers. When the sponsor contacted its old provider to discuss the procedures for transferring the money, the provider pointed to contract provisions which allowed the imposition of substantial surrender charges.

 

Without going into detail, we are looking at these issues:

 

ERISA prohibits a provider from imposing a penalty on a plan. While a provider may recoup reasonable start-up expenses, it may not impose unreasonable charges, penalties or conditions on a plan. To do so is a prohibited transaction.

The unfettered power of an investment provider to amend the contract—and specifically to amend the provision regarding the surrender charge—is tantamount to discretionary authority under ERISA. Because of its ability to exercise discretionary authority over a plan asset (that is, the contract is a plan asset), the provider is a fiduciary. As a result, it must use its power in the best interests of participants and for the purpose of providing retirement benefits (among other things).

The provider has unilaterally removed and replaced mutual funds as investment options within the plan (without complying with the conditions in the DOL’s Aetna Advisory Opinion). As a result, it is an ERISA fiduciary for purposes of selecting those investments. In that capacity, it must act for the best interests of the participants and it cannot, under ERISA section 406(b), use its authority to cause itself to be paid additional fees. For example, it cannot use its power to advantage itself through revenue sharing with mutual funds.

By and large, these are well-established legal principles. It is surprising that an investment provider would not have structured its contract to take these rules into account. Legal issues aside, though, this case illustrates the reaction of most employers to back-end charges. With the advantage of hindsight, the provider would have been well-advised to waive most or all of those charges.

--------------------------------------------------------------------------------

 

Reish Luftman Reicher & Cohen. All rights reserved. The ERISA Report for Plan Sponsors is published as a general informational source. Articles are general in nature and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish Luftman Reicher & Cohen does not warrant and is not responsible for errors or omissions in the content of this report.

 

 

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Hey Gadfly,

 

While not familiar with the details of the situation you are describing a solution comes to mind. Would it be possible for all the participants in the old plan to simply leave their money with the old provider and then direct all new contributions to the new provider? Once old money in the old plan passes the surrender penalty threshold, participants could then 90-24 transfer this old money into the new plan.

 

Dan Otter

 

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Hi,

 

Yes, we know about that type of transfer. The problem is the

The high M & E charges each year on the old money. A colleague of mine is stuck in their Money Market with total fees of 2%. You know what Money Market yields were last year. He loses his money every year in a money market.

 

How much can one lose in a money market?

 

Expenses in annuity: 2% (included M & E)

Inflation: 1%

MM Yield: 1 %

 

Loss: 2% a year

 

I called the company and they told me that they do charge a surrender fee in their Money Market.

 

Thanks,

 

Gadfly

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Hey Gadfly,

 

Can the person you mention 90-24 transfer money that has already passed the penalty threshold? What is the penalty period? Is there even a penalty on transferring money market money? If there is a case could be made that due to the high M&E charge, it might make more sense to bite the surrender hit now and transfer the money? Good luck. These situations are so troubling and more proof that employers need to take control of their plans and adopt New School thinking.

 

Dan Otter

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Hi,

 

Yes, we know about that type of transfer. The problem is the

The high M & E charges each year on the old money. A colleague of mine is stuck in their Money Market with total fees of 2%. You know what Money Market yields were last year. He loses his money every year in a money market.

 

 

Why is he stuck in a money market? Doesn't the provider offer any other options in the account that he can transfer to? Isn't there some sort of IRS rule that says they have to allow you to transfer the funds over 5 years with no surrender charges?

 

Jim

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This case is quite relevant to those who detest the terrible confiscatory surrender charges inflicted by 403(b) sharks. Please note that the term "sharks" was proudly used by the American Federation of Teachers (AFT) a couple of years ago in an article they published on this very topic. I encourage all to read the article.

 

The following case applies to a qualifed Defined Contribution plan as opposed to a salary reduction 403(b). The point being is, the "Plan" had deep pockets so it had the financial capability to sue the variable annuity company and won. THIS IS JUST GREAT NEWS!

 

The question is: Would the court come to the same decision in a case involving a salary reduction only 403(b) arrangement? Because an attorney would want to be paid, win or lose----most individuals just cannot afford to go to court. SO THE NEARLY HALF CENTURY OLD NIGHTMARE CONTINUES UNABATED. Solution: GET A GROUP OF AFFECTED EMPLOYEES TO SHARE THE ATTORNEY'S FEE AND USE THIS CASE AS PRECEDENT. Let's put these sharks out of business!

 

Peace and Hope,

Joel L. Frank

---------------------------------------------------------------------------------------

PENSION AND BENEFITS — 03/11/04

Restorative payments by employers to plans holding annuity contracts, intended to offset surrender charges, treated as contributions unless charges improperly imposed.

 

In two private letter rulings involving pension plan assets invested in annuity contracts, the IRS addressed the effect of restorative employer payments intended to compensate the plans for surrender charges deducted from plan assets by the annuity issuer. Taken together, the rulings indicated that such employer payments to plans were not treated as plan contributions when made to offset surrender charges imposed improperly by the annuity issuer, but were so treated when surrender charges were properly required by the annuity contract and no reasonable risk of breach of fiduciary duty existed.

 

In IRS Letter Ruling 200337017, a plan had held its assets entirely in a group annuity contract. Subsequently, the plan sought to transfer the assets into another investment medium. The company holding the annuity claimed they were entitled to a surrender fee of 4.6% of the assets, based upon an amendment to the contract between the plan and the company. The plan responded that they had not agreed to the amendment imposing the surrender fee and were not bound by it. Nevertheless, they proceeded to transfer the plan assets,

minus the surrender fee, and then filed a lawsuit against the company over its imposition.

The plan's lawsuit was successful, and they were awarded a sum equal to the amount of the surrender fee plus interest. The plan sought to apply the lawsuit proceeds to the plan in the form of a replacement payment to the plan. The IRS ruled that the replacement payment under these circumstances would not be treated as a plan contribution for purposes of Code Sec. 404(regarding deductibility of employer contributions),Code Sec. 415(regarding contribution limits) or Code Sec. 4972(regarding nondeductibility of excess contributions.)

 

In IRS Letter Ruling 200317048, a profit-sharing plan had invested all of its assets in annuity contracts that imposed surrender charges on the liquidation of more than a certain percentage of the assets prior to a certain date. Once the plan sponsor was sold and the plan terminated, some participants requested distributions of their total plan account balances. Since the resultant surrender charges would reduce each participant's assets, the plan sponsor sought guidance on making a restorative payment to the plan to offset the surrender charges.

 

The IRS noted that, pursuant to Rev. Rul. 2002-45 (¶19,947C), payments to defined contribution plans will not be treated as plan contributions for purposes of the Code if made to restore plan losses resulting from actions by a fiduciary for which there is a reasonable risk of liability for breach of fiduciary duty. However, the IRS ruled, the mere presence of surrender charges in an annuity contract was insufficient to show that such a risk existed.

 

 IRS Letter Rulings 200337017 and 200317048 appear in the CCH Pension Plan Guide at ¶17,416E

and ¶17,415A, respectively.

---------------------------------------------------------------------------------------

I have taken the liberty to post the "403b shark" article as published by the AFT. Joel

 

--------------------------------------------------------------------------------------

 

 

AFT Home > Publications > American Teacher

 

May/June 2000

Index Page

Current Issue

Previous Issues

 

American Teacher

May/June 2000--Your Money

by Don Kuehn

Shark attack!

 

Teachers, college professors and other education workers are being threatened by sharks--but not the kind that swim in the sea! These equally dangerous predators are "land sharks" who prey on unsuspecting or uneducated investors and devour their hard-earned retirement money. It's time we put a stop to them.

 

Under Internal Revenue Service Code section 403(b), employees of educational and charitable organizations are eligible to participate in pre-tax investment arrangements usually called tax-sheltered (or tax-deferred) annuities (TSAs or TDAs). These popular but little understood investments are used by an estimated three-fifths of public school employees and many college and university staffs to augment state or local defined-benefit retirement plans.

 

In many ways, TSAs resemble 401(k) plans that have become widespread during the past 10 to 15 years. The TSAs allow the participant to put money aside in a variety of investment vehicles before Uncle Sam gets his hands on any of it. The invested money grows tax free--until it is withdrawn through regular (annuitized) payments after retirement--although the amounts are subject to Social Security withholdings.

 

Sounds good. So, what's the problem?

 

The returns that participants realize on their investments are all too often way below returns on comparable investments in the marketplace. The reason is that many companies and salespeople in the business of selling financial instruments can think of countless ways to separate investors from their money. These include high front-end costs, massive surrender charges, redemption fees, inappropriate investment choices, sub-account fees, two-tier plans, big commissions and hidden charges for unneeded life insurance.

 

Unlike a standard employer-managed pension plan, in 403(b) plans the employer keeps an arm's-length relationship with the vendor. Because the employer typically does not contribute to the plan, schools and colleges neither recommend nor make judgments about which companies have access to the pre-tax payroll deductions that make TSAs work. There is no "plan document" to govern the employer's service arrangement with vendors. That means no federal paperwork, no fiduciary relationship and low administrative costs.

 

It also means no investor education.

 

For workers, it means that just about any insurance agent who can round up a minimum number of subscribers can hawk annuities or mutual funds. So, in Los Angeles, for example, more than 100 vendors create a bewildering array of investments and options to sift through. Financial products are pitched with dizzying variety in school lounges, cafeterias and inhome visits by the sharks. Because there are so many different products to choose from, it is nearly impossible to become an educated consumer.

 

More than $422 billion is invested through 403(b) arrangements and, sadly, most of it sits in low-performing fixed-annuity contracts, reports Spectrem Group/Access Research, a San Francisco-based consulting and research firm. Some 2 million public school teachers have more than $116 billion invested in 403(b) programs.

 

Only 15 percent of total TSA assets are invested in mutual funds. The big fund companies that fight tooth and nail for 401(k) investors generally cede the 403(b) market to insurance companies and their annuity products.

 

In spite of a roaring stock market that has run nearly unabated for more than five years, these TSA contracts may be netting less than the return on certificates of deposit. Over the work life of a typical participant, underperforming assets could cost hundreds of thousands of dollars in unrealized growth.

 

Agents whose companies have a computer slot for payroll deduction for TSAs in a school district or college are expert at promoting, explaining and selling their products. And certainly there is an allure to the idea that--in addition to a state retirement system and Social Security--for those who participate and qualify, a relatively painless investment each payday (unseen and before taxes) can grow to eye-popping numbers.

 

Once the hook is set, few participants monitor their statements or check the relative performance of their TSA against a benchmark such as the S&P 500 stock index or a corporate bond index.

 

 

What the law allows

 

Under the law, education employees can shelter up to $10,500 this year in a 403(b) plan with some limitations (you cannot exceed 25 percent of salary). Three broad categories of investments are allowed: annuity contracts, mutual fund custodial accounts, and life insurance contracts.

 

An annuity contract is an insurance company's written promise that, after retirement, it will pay a monthly amount to the participant no matter how long the person lives. These can be either "fixed" or "variable."

 

The problem with buying an annuity inside a tax-preferred investment vehicle like a 403(b) is that earnings on the annuity are already tax sheltered. It's like buying an umbrella exclusively for indoor use.

 

In a "fixed" annuity, the contract has a guaranteed interest rate of usually no more than 3 percent or 4 percent. A $100 investment in a fixed annuity might be guaranteed to earn $3 or $4 over the year, but could earn $5 or $6 if market interest rates go up and the issuer elects to pass those rates on to the customer.

 

A "variable" annuity contract's cash value rises or falls depending on the performance of separate accounts that are invested in mutual funds. There is no guarantee that these "subaccounts" will meet their investment objective.

 

Mutual fund custodial accounts allow a participant to buy into a fund held by a bank or by (some) registered securities broker/dealers. Mutual funds are pools of assets (company stocks or corporate bonds, for example) managed with specific objectives in mind. Most readers are familiar with names such as Vanguard, Fidelity and T. Rowe Price, purveyors of a broad array of funds in the commercial marketplace.

 

A life insurance contract obligates the vendor to pay a specific sum of money when the insured person dies. There is no mystery here; life insurance is a common ingredient in nearly everyone's financial planning. Premiums are determined by the age and health of the insured. In a 403(b) plan, however, the life insurance component is called "incidental" and must meet complex rules and limits set by the IRS Code and by state insurance laws.

 

In many cases, the vendor can offer "multiple-choice" annuities. You can have a percentage of your deduction invested in a fixed contract and the rest in a variable product. This gives the participant a chance to practice what is known as "asset allocation," a way of tempering risk by investing both in conservative (fixed) and more aggressive (variable) components.

 

 

The costs

 

A teacher who invested in variable annuities during this decade--even if it was through high-priced mutual funds or annuity contracts--might not have noticed the exorbitant fees charged. The roaring bull market masked the high costs. But if we have another period like 1973 to 1983, fees could easily overwhelm any growth in the value of a TSA.

 

How costly can fees become? Here is an example borrowed from Steve Butler and cited in an article in the New York Times. A couple contributes $10,000 a year to a retirement program through equal deductions twice a month. If they earn 10 percent a year, after fees, they will have $641,000 after two decades. After three decades (through the magic of compounded interest) their portfolio will have grown to $1.9 million.

 

But if their annual fees are just 1 percent higher, so they earn 9 percent on their investments, they will have $75,000 less after 20 years and $355,000 less after 30.

 

Annuities, the most common vehicle for 403(b) plans, come wrapped with a layer of insurance and extra fees.

 

Surrender fees, assessed if the annuity is sold within seven to 10 years after purchase, can be as high as 8 percent. Life insurance, covering only the amount invested (not growth on the investment) runs about 1.25 percent. Some insurers will guarantee a minimum amount of investment growth but little more than can be realized in the most conservative investments.

 

The average 403(b) annuity charges administrative costs of 2.11 percent of assets a year, according to Morningstar Inc., a financial research firm. By comparison, the average mutual fund has expenses of 1.36 percent. Many large mutual funds, such as those offered by the Vanguard Group, have expenses as low as 0.18 percent of assets each year. Compounded over the span of one's career, the difference in fees means serious money.

 

 

Get out the shark repellent

 

The marketing of 403(b) products to school employees typically depends more on the one-on-one relationship between the sales agent and the prospective customer than it does on the investment's cost, expected returns or its features.

 

Many educators will acknowledge that they are novices at investing (never having had much money to invest) and that they need any help they can get. Vanguard and Fidelity won't send someone to sit across the kitchen table and hold hands like insurance companies do.

 

That makes public school and college employees easy prey for the sharks who feed on these plans. Historically, it has been difficult for participants to get out of these low-performing annuities and into better mutual funds. Surrender fees are one part of the story, roadblocks put up by vendors are another.

 

Some school systems are revamping their 403(b) offerings. In Chicago, for instance, a new program is expected to save employees more than $6 million a year in fees. Before the change, according to a school official, teachers paid 2 percent to 3 percent in fees and more than two-thirds of their money was tied up in fixed investments. Now Chicago school workers can buy no-load funds and reduced-fee annuities through three companies.

 

The New York State United Teachers, Education Minnesota and the United Federation of Teachers (New York City) have also used their significant clout to force positive changes in the 403(b) options offered to their members and to reduce administrative expenses.

 

 

Stop the bleeding

 

So, you do your homework and find that you have a two-tier fixed annuity that charges a surrender fee. Although it declines over the first seven years, it's renewed each time you make an investment (kind of a Catch-22 since you make investments every month). The rate of return is guaranteed at only 4 percent, and the cost of the life insurance component is eating up more than 40 percent of the guaranteed gain.

 

There are steps you can take to remedy a bad situation (also see sidebar, "What you should know"). Employees need to act if their 403(b) options are turning them into shark bait. Because most public employers do not screen vendors, a relatively small group of workers can petition for new and better choices in their TSA accounts. These may include some of the bigger mutual fund companies mentioned in this article or others interested in doing business with your system.

 

The union can make this an issue in future negotiations. Contact your local, volunteer to be on a committee, investigate your options, make a presentation to the school board, write a column for the union's newsletter...raise hell. This is your money.

 

That's not to say that it will be easy. Stephen Schullo, a Los Angeles teacher, is becoming something of a celebrity on this issue. He was horrified to discover the confusing, underachieving choices he and his colleagues faced in their 403(b) program. His tale has been reported in the Los Angeles Times, the New York Times and other publications.

 

Some insurance vendors and other providers are lowering fees or broadening investment options in the face of competition and employee complaints.

 

If you hold an annuity contract executed more than five years ago, it is likely you are paying too much. Seek out the agent who sold you the contract to see about converting it to another, better-performing, lower-priced option offered by the same company. If conversion isn't possible, find out about surrender charges. It may be better to pay a penalty than to continue suffering with an underperforming annuity. Consider getting out before you leave any more blood in the water.

 

Don Kuehn, a senior national representative and a trustee in the AFT employees' retirement plan, is the author of "Your Money," a regular column in this newspaper. John Abraham, AFT senior associate director of research, contributed to this article. This article is intended to increase knowledge and awareness of issues of interest to members and retirees. For specific advice relative to your personal situation, you should consult competent legal, tax or financial counsel.

 

Related Sidebar:

What you should know

 

 

 

 

 

American Federation of Teachers, AFL•CIO - 555 New Jersey Avenue, NW - Washington, DC 20001

 

Copyright by the American Federation of Teachers, AFL•CIO. All rights reserved. Pographs

and illustrations, as well as text, cannot be used without permission from the AFT.

 

 

 

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HOW INSULTING CAN THEY GET? WHEN THE INDUSTRY IS COUGHT WITH ITS PANTS DOWN THEY VOLUNTEER TO CLEAN-UP THEIR ACT AND PENALIZE THOSE CLIENTS WHO TRADE MUCH TOO OFTEN----SO NOW THESE TYPES OF INVESTORS WILL BE ADDING ON TO THE 2 PERCENT FEES THAT THE MUTUAL FUNDS AND VARIABLE ANNUITY COMPANIES HAVE BEEN COLLECTING FROM 403(b) PARTICIPANTS FOR 45 YEARS. THE 2 PERCENT EXCESS TRADING FEE MAY BE QUITE APPROPRIATE BECAUSE ITS APPLICATION IS TRIGGERED BY THE CLIENTS UNILATERAL DECISION TO TRADE---BUT TO CHARGE 2 PERCENT EVERY TWO WEEKS PLUS 2 PERCENT ON THE ACCUMULATING 403(b) BALANCE IS SIMPLY PREDATORY AND A 403(b) SHARK ATTACK!

 

Peace and hope,

Joel Lee Frank

--------------------------------------------------------------------------------------

 

 

.

“STANDARDS” BEARING? In what it described as “new standards for the mutual fund industry,” MFS Investment Management yesterday threw down a new gauntlet. The mutual fund firm, which along with a number of others has been embroiled in the mutual fund trading controversy, has announced a series of actions it is taking to tighten its fund governance and business practices. MFS said it will expand the current 2% redemption fee on exchanges and redemptions made within 30 days of purchase to include MFS small and mid-cap funds, and would expand the use of redemption fees to ALL other MFS equity and bond funds (except money market funds), by imposing a redemption fee on all exchanges and redemptions made within five days of purchase.

 

 

 

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This case is quite relevant to those who detest the terrible confiscatory surrender charges inflicted by 403(b) sharks. Please note that the term "sharks" was proudly used by the American Federation of Teachers (AFT) a couple of years ago in an article they published on this very topic. I encourage all to read the article.

 

[Later, from the AFT article you cite:]

 

The New York State United Teachers, Education Minnesota and the United Federation of Teachers (New York City) have also used their significant clout to force positive changes in the 403(b) options offered to their members and to reduce administrative expenses.

 

Joel, this article stands in stark contrast to your earlier diatribes against New York State United Teachers, in which you pilloried them for their supposedly profit-motivated endorsement of ING/Aetna. This article singles them out for praise for having used their clout to "force positive changes" and "reduce administrative expenses." That's REDUCE administrative expenses...exactly the opposite of what you were accusing them of in your previous pieces. I wonder if you could comment on the contradiction here?

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Joel, this article stands in stark contrast to your earlier diatribes against New York State United Teachers, in which you pilloried them for their supposedly profit-motivated endorsement of ING/Aetna. This article singles them out for praise for having used their clout to "force positive changes" and "reduce administrative expenses." That's REDUCE administrative expenses...exactly the opposite of what you were accusing them of in your previous pieces. I wonder if you could comment on the contradiction here?

 

The New York State United Teachers, Education Minnesota and the United Federation of Teachers (New York City) have also used their significant clout to force positive changes in the 403(b) options offered to their members and to reduce administrative expenses.

-----------------------------------------------------------------------------------

Dear Frenchman:

 

The "contradiction" I assure you is not mine but totally the AFTs.

 

I do not have any first hand knowledge about the involvement of Eduacation Minnesota in forcing positive changes in 403(b) options in Minnesota. I guess a quick check at their website will tell us if in fact they are fighting for changes. Maybe you can check it out and get back to us.

 

As far as New York (state and city) are concerned I can tell you first hand, without any reservation, there has been absolutely no change in getting rid of the inferior low cost or high cost 403(b) programs. SO THIS PORTION OF THE SHARK ATTACK ARTICLE IS TOTALLY INACCURATE.

 

To understand the NY situation one must separate the City from the rest of the state.

 

I. CITY OF NEW YORK: Since 1970 only one 403(b) investment provider has had the opportunity to sell 403b products to the city's teachers. It is very low cost and is offered by the public retirement system known as the Teachers' Retirement System of the City of New York. They offer 3 investment options managed by the Board of Trustees of the TRS: A common stock fund, a stable value fund and a fixed income fund. You may not move your accumulations among the three options more rapidly than 1/12 of the account balance per month. So it takes a full year to move from one option to another. You can check out there website at www.trs.nyc.ny.us. The UFT has never allowed any other 403b carrier to solicit city teachers and this includes the NYSUT/ING high cost products. Apparently the City union can recognize a shark attack as well as you and I.

 

II. The rest of the State: I refer you to the NYSUT/ING article. Are you not shocked that a union would raise revenue in this fashion?

 

I trust I have clarified for you what seemed to be MY contradiction when it was clearly INACCURATE AND FALSE REPORTING ON THE PART OF THE AFT. Now that I have replied to you may I suggest you write to the AFT and ask them how could it be possible that they could be so terribly misinformed about what is going on in their NY State affiliate. Let us know what they say.

 

Trusting you don't take offense when I say:

 

Peace and Hope

Joel L. Frank

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Frenchman,

 

"Education Minnesota" is the labor movement for teachers in Minnesota. The organiztion is an "association" and "union" because it is a state affiliate of both national organizations---the NEA and AFT. They like their brothers and sisters in NY have endorsed another high cost 403(b) and 403(b)7 program. In fact, they have done one better, they have endorsed a high cost 457 Plan as well. Would you say that their financial arrangement with the Security Benefit Group is along the same lines as the NYSUT/ING arrangement?

 

Do you have any idea as to the number of statewide teacher organizations that have "endorsed" the "shark attack" variety of salary reduction programs? Do you know of any statewide teacher organization that has endorsed a low cost program, i.e.; Vanguard, Tiaa-Cref? If you have, let me know the website and I will post it up underneath the following three high cost programs "endorsed" by Education Minnesota.

 

Reminder: don't forget to add to the mortality and expense charge the fees charged for investment management ---the investment option fees.

 

Peace,

Joel

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If you are purchasing an annuity as an investment vehicle for a retirement plan that receives preferential tax treatment under the Internal Revenue Code, you should consider that an annuity does not provide any additional tax advantages to that already available through your retirement plan. However, an annuity does offer features and benefits in addition to providing tax deferral that other investments may not offer, including death benefit protection for your beneficiaries and annuity options that guarantee income for life. You should consult with your financial professional as to whether the overall benefits and costs of an annuity are appropriate considering your circumstances.

 

IRS WITHDRAWAL RESTRICTIONS

 

The Internal Revenue Code will let you withdraw elective contributions only when you have reached age 591/2; separated from service; died; become disabled; or incurred a hardship. (Withdrawals of income earned on such contributions cannot be made because of hardship.) These restrictions do not apply to certain loans and should not be confused with exceptions to the IRS premature penalty tax on early withdrawals. The IRS penalty does not apply to withdrawals:

• After age 59 1/2

• Upon death or disability

• After separation from service after age 55

• Under a “qualified domestic relations order”

• To correct an excess contribution

• To pay certain medical expenses

• Of annuity payments for life selected after termination from service

===============================================

Mutual Fund TSA

 

Leave Your Mark of Success

You set high standards—for yourself, your students and your colleagues. As you leave your mark of success on others, we’d like to do the same for you.

 

With the NEA Valuebuilder Mutual Fund TSA (Tax Sheltered Account), we can help you plan today for a financially secure tomorrow. The NEA Valuebuilder Mutual Fund TSA is a Custodial Account under section 403(b)(7) of the Internal Revenue Code that makes various mutual funds available for investment.

 

 

Retirement isn't the end of something.

It's the beginning.

 

Mutual Funds - A Simple Definition

 

A mutual fund is an investment company that allows you to pool your money with other shareholders so you can invest in a portfolio of securities. It’s an economical way to take advantage of the same benefits, like professional money management and diversification, available to large institutions and wealthy investors.

 

Simplify Your Investing

 

Mutual funds can provide an ideal way to help you meet your financial goals. However, most investors don’t have the time or resources necessary to monitor and adjust their mutual funds portfolio as financial needs and market conditions change. By working with your NEA Valuebuilder representative, you’ll be able to develop a balanced plan that can offer the:

• Potential of inflation-beating returns

• Benefits of proven investment strategies

• Advantages of world-class money managers

• Convenience of unsurpassed customer service

 

The Exclusive Provider

 

The NEA Valuebuilder Mutual Fund TSA is the only mutual fund tax sheltered account available through the NEA Valuebuilder Program. The NEA actively monitors the fund performance of the investment options and provides quarterly updates to participants. The NEA selected Security Benefit as the exclusive provider of the NEA Valuebuilder Program because of its unsurpassed service coupled with innovative financial products and world-class money managers.

 

Develop Your Personal Investment Strategy

 

The NEA Valuebuilder Mutual Fund TSA gives you the opportunity to take advantage of proven investment strategies.

• Diversification

By placing money in several different investments you can reduce risk by offsetting losses from some securities with gains in others.

• Asset Allocation

Allows you to choose how much of your portfolio is invested in different asset classes in a way to match your risk tolerance, time horizon and investment goals.

• Dollar Cost Averaging* (DCA)

DCA can help you buy more shares when prices are low and fewer shares when prices are high.

 

*Because DCA involves continuous investing regardless of fluctuating price levels, you should consider your financial ability to continue purchasing through periods of low price levels. DCA does not assure a profit and does not protect against loss in a declining market. However, it has proven its value when faithfully followed.

 

Professional Money Management

 

Create your personal portfolio from some of the country’s oldest and best-known money managers, including:

 

 

AIM Advisors, Inc.

American Century Investment Management, Inc.

Ariel Mutual Funds

Calamos Asset Management, Inc.

The Dreyfus Corporation

Fidelity Management and Research Co.

INVESCO Funds Group, Inc.

PIMCO Funds

Security Management Company, LLC

Strong Capital Management, Inc.

Van Kampen Investments Inc.

Secure Your Financial Future

 

The NEA Valuebuilder Mutual Fund TSA offers you something special—the ability to make a mark on your own future financial security. Talk to your NEA Valuebuilder representative about the NEA Valuebuilder Mutual Fund TSA and begin your plan today for a financially secure tomorrow.

 

Tell us where you want to go and we'll point the way.

 

To secure your financial future, call a Security Benefit representative

toll-free 1-800-NEA-VALU (1-800-632-8258).

---------------------------------------------------------------------------------------

MONITOR REPORTS -Original -Future -Select -Evaluation Criteria

NEA Valuebuilder Quarterly Performance

NEA Valuebuilder Account Access

Foresight

 

 

457 Programs

 

Questions and Answers

 

 

Q. What is a 457 Program?

A. 457 Programs (also called deferred compensation programs) are retirement plans available to state and local governments and political sub-divisions. A 457 Program allows participants to save for retirement by deferring a portion of their income now and paying taxes on it at withdrawal. There are no early distribution penalties that apply to 457 withdrawals.

Q. What is the advantage of participating in a 457 Program?

A. A 457 deferred compensation program offers you the opportunity to save on taxes two ways. By making your contribution on a pre-tax basis, you lower the amount of taxes withheld from your check each pay period. Your contribution then grows in a tax-deferred account. Your contributions - plus earnings - continue to compound tax-deferred untill you withdraw them as retirement income.

Q. Are there any limits to how much I can defer?

A.

457 Deferred Compensation Programs

Limits Contributions Over 50 Catch-up

2003 $12,000 $2,000

2004 $13,000 $3,000

2005 $14,000 $4,000

2006 $15,000 $5,000

Thereafter Indexed In $500 increments Indexed In $500 increments

 

Q. What is a "catch-up provision"?

A. Participants age 50 and older are eligible to defer an additional amount as outlined on the above table. A special catch-up provision for the final three years before retirement may also allow for deferrals higher than the regular deferral rate. Check with your representative for details and eligibility.

 

Q. If I stop deferring to my 457 Program, can I restart deferrals at a future time?

A. Yes. If circumstances lead you to stop deferring, you may restart at any time as long as you still meet eligibility requirements.

Q. How is my money invested in a 457 Program?

A. A 457 Program allows your deferrals to be invested in a variety of mutual funds managed by nationally recognized money managers. Ask your representative for details regarding investment options.

Q. Once I determine how much I wish to defer, may I change the amount in the future?

A. In most cases there is no problem with making changes to your deferrals. A 457 Program is flexible and participants may start, stop, increase or decrease contributions at any time as long as they stay within limits. Ask your representative for details and limitations.

Q. How can I withdraw the money I have in the 457 Program?

A. Withdrawals can be made in the event of separation from service, retirement, total disability, reaching age 70 1/2, death, or an unforeseen emergency. The NEA Valuebuilder Mutual Fund 457 also allows loans. Ask your representative for details.

Q. What happens if I leave my current employer?

A. You have several choices. 1) You can leave your money in the plan. 2) You may transfer your 457 account to another retirement plan. 3) You can transfer it into an IRA. 4) You can withdraw your money.

Q. How does deferring to a 457 Program affect my Social Security benefits?

A. Deferrals to a 457 Plan do not affect your benefits under Social Security.

Q. Who do I contact if I have more questions?

A. If you have additional questions, contact your NEA Valuebuilder representative. If you would like to speak with a Plan Specialist over the phone, please call toll-free,

1-800-NEA-VALU (1-800-632-8258).

The NEA Valuebuilder Program is made available by Security Distributors, Inc.

 

The NEA Valuebuilder Mutual Fund 457 Program is a Trust Account under §457(g) of the Internal Revenue Code. For more information about NEA Valuebuilder Program, including charges and expenses, or for prospectus which contains more information about mutual funds available through the Program, contact your NEA Valuebuilder representative or call Security Distributors, Inc. toll-free: 1-800-NEA-VALU (1-800-632-8258). Please read the prospectuses carefully before investing.

 

IRS Withdrawal Restrictions

The Internal Revenue Code permits plan participants to make withdrawals from their 457 account upon attaining age 70 1/2, upon severance from employment, death or in the situation where there is an unforeseeable financial emergency. The 10% early withdrawal penalty does not apply to 457 programs.

 

 

 

 

 

 

 

 

 

 

 

 

| Home | NEA | About NEA MB | Member Services | Privacy Policy | Search | OWL.org |

 

www.neamb.com | e-mail: Ask-Us@neamb.com | 1-800-637-4636

Copyright © 2004 NEA Member Benefits. All rights reserved.

 

 

 

 

 

 

 

 

 

 

 

 

| Home | NEA | About NEA MB | Member Services | Privacy Policy | Search | OWL.org |

 

www.neamb.com | e-mail: Ask-Us@neamb.com | 1-800-637-4636

Copyright © 2004 NEA Member Benefits. All rights reserved.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

| Home | NEA | About NEA MB | Member Services | Privacy Policy | Search | OWL.org |

 

www.neamb.com | e-mail: Ask-Us@neamb.com | 1-800-637-4636

Copyright © 2004 NEA Member Benefits. All rights reserved.

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The Education Minnesota Union represents 70,000 teachers in Minnesota. They are the merged Minnesota Education Assn and Minnesota Federation of Teachers. The sell their annuties through a subsidiary called ESI. All of them are high cost and carry the endorsement of the union.

 

Here is the link to their annuity list:

 

http://www.mninvest.com/prod_info/prods.html#403

 

 

Gadfly

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High French Teacher,

 

The AFT has just followed what their New York State and other state affiliates have done some time ago. They have recently endorsed the high cost 403b programs provided by ING. So now the various state affiliates do not have to do any due dilligence. They can simply tell their local affiliates and their respective school boards that if the AFT says ING is the way to go then that is the way to go!! These local unions don't have to worry about the school boards doing their own due dilligence because they have been out to lunch on these matters for decades. So who gets screwed----the rank and file dues paying member. How does the saying go...power corrupts and absolute power corrupts absolutely---well... you know what I mean.

 

Frech Teacher, insofar as you think of my NYSUT/ING story, as published on this website, as a "diatribe" how do you describe the AFT's article "Shark Attack"? In your letter to the AFT (I trust you are working on it) you may want to ask them to justify their national endorsement of ING in light of their denunciation of such 403(b) providers as reported in their Shark Attack article.

 

Once you finish your letter why don't you email it to me and I will sign it too.

 

Peace and Hope,

Joel

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<!--QuoteBegin--Redwoods+Mar 22 2004, 09:37 PM-->

QUOTE (Redwoods @ Mar 22 2004, 09:37 PM)
<!--QuoteEBegin--> High French Teacher,

 

The AFT has just followed what their New York State and other state affiliates have done some time ago. They have recently endorsed the high cost 403b programs provided by ING. So now the various state affiliates do not have to do any due dilligence. They can simply tell their local affiliates and their respective school boards that if the AFT says ING is the way to go then that is the way to go!! These local unions don't have to worry about the school boards doing their own due dilligence because they have been out to lunch on these matters for decades. So who gets screwed----the rank and file dues paying member. How does the saying go...power corrupts and absolute power corrupts absolutely---well... you know what I mean.

 

Frech Teacher, insofar as you think of my NYSUT/ING story, as published on this website, as a "diatribe" how do you describe the AFT's article "Shark Attack"? In your letter to the AFT (I trust you are working on it) you may want to ask them to justify their national endorsement of ING in light of their denunciation of such 403(b) providers as reported in their Shark Attack article.

 

Once you finish your letter why don't you email it to me and I will sign it too.

 

Peace and Hope,

Joel <!--QuoteEnd-->

<!--QuoteEEnd-->

 

Just so I'm clear, Joel...are you now asking me to write to AFT to question their "Shark Attack" article, a mere few days after telling everyone on this site on March 17th that you highly recommended the article? (I'm surprised you don't want me to include an unsubstantiated allegation that the AFT is merely endorsing ING for the extra ten grand or so in advertising revenue.)

 

I think I'll pass on including you as a signatory on my letter to the AFT and/or NYSUT, largely because I doubt you'd agree with my conclusions. Should I decide to write to them, it'll be to thank them for working with ING to create Opportunity Plus, a 403(b) program wherein I pay no annual account fee, no front-end sales charges, no back-end sales charges (declining or otherwise), and no surrender fees of any kind; and which features a fixed account that contractually cannot go lower than 4%, a pretty outstanding rate in today's interest rate environment. (Funny, when TIAA-CREF or Vanguard offer funds that have no sales charges, they're the model providers; when ING does it, they're sharks.) Yes, their expense ratios are certainly higher than the no-loads; I'm happy to pay more to receive the services of a certified financial planner as part of the deal. Why that should be anathema to you, when it would be perfectly acceptable to pay much much more for a fee-only financial planner to guide me to no-load funds, remains a mystery to me.

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