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Meager If Not Hurtful Choices

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It goes without saying that there are substantially more 403(b) participants nationwide that are more displeased with their retirement savings arrangements than participants in 457(b) Plans. I believe all 50 state governments have a 457(b) for their state employees. Some allow their local governments to opt in. California and New York are two of them. NYC as the nation's largest school district has its own 457(b) Plan but the other local school districts in the state are free to opt into the State's 457(b) Plan. Only a small fraction have done so while another small fraction have one of their own. The same can be said for the State of California. I would like to know why?

 

I would like to determine just how much trouble 403(b) participants are having in getting their employer's to adopt 457(b) plans as an alternative? Is it as difficult as getting the employer to offer no-loads for 403(b)?

 

Peace,

Joel

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It goes without saying that there are substantially more 403(b) participants nationwide that are more displeased with their retirement savings arrangements than participants in 457(b) Plans.

Why does it go without saying? What do you base this on?

 

Jim

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I'm no expert in this field, but I would imagine people have a much harder time getting an employer to adopt a 457 plan, insofar as the 457 is a single-provider plan. This means the district needs to go through an RFP process and accept fiduciary responsibility, no? With a 403(b), there are no such burdens placed on the administrations, hence their greater willingness (in my experience, anyway...I understand that nationwide, everyone's mileage varies on this) to offer multiple providers. It doesn't cost them anything, nor does it expose them to any greater liability.

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Many union contracts require a 403(b) plan. To my knowledge, they have not added 457 plans to the contracts. For those union reps out there, I would suggest that you do so in your next contract negotiations. Remeber pre-EGTTRA, it did not make sense to offer both.

 

Mark Fischer, CFA

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FrenchTeacher Posted on May 10 2004, 08:34 AM

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I'm no expert in this field, but I would imagine people have a much harder time getting an employer to adopt a 457 plan, insofar as the 457 is a single-provider plan. This means the district needs to go through an RFP process and accept fiduciary responsibility, no? With a 403(b), there are no such burdens placed on the administrations, hence their greater willingness (in my experience, anyway...I understand that nationwide, everyone's mileage varies on this) to offer multiple providers. It doesn't cost them anything, nor does it expose them to any greater liability.

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You are quite right in your analysis and therein lies the problem: The employer allows dozens of carriers to come on board offering a duplication of investment options. This is ridiculous!These salespeople crowd each other out in the ee lunchrooms hoping to beat each other to the punch, I mean sale. Each salesperson is bad mouthing the product being hawked by his competor. It is like a zoo. This is not freedom of choice...this is freedom to be abused and shows an er contempt for the employees.

 

The RFP is part and parcel of being in the public education business. The ers use it for textbooks, toilet paper etc. But because the law does not require them to use it for a 403(b) Plan they have the mess created by their own laziness and lack of due dilligence. What a damn shame.

 

Additionally, the local public employers ie SD can use their State's 457(b) and not worry about the legalities of setting up their own plan. It has already been done by the State.

 

Peace,

Joel

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You are quite right in your analysis and therein lies the problem: The employer allows dozens of carriers to come on board offering a duplication of investment options. This is ridiculous!These salespeople crowd each other out in the ee lunchrooms hoping to beat each other to the punch, I mean sale. Each salesperson is bad mouthing the product being hawked by his competor. It is like a zoo. This is not freedom of choice...this is freedom to be abused and shows an er contempt for the employees.

 

 

To the extent that the faculty lounges are turning into zoos, some districts have responded by simply banning all financial representatives from any workplace without a specific appointment with a teacher. This is somewhat effective, but with the premise of a single appointment, the rep can then linger all day.

 

I agree that there is a level of choice that represents too much choice, but given the choice between too many and too few, most districts choose to err on the side of caution. Of course, given the viewpoint usually expressed here, I expect that that would meet with everyone's tacit approval, no? Certainly if a district were asked to provide, say, TIAA-CREF, and gave the response that there was already a no-load provider available and one is enough, there would (justifiably) be quite the hue and cry.

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FT:

 

Do you subscribe to notion that the 403b setup should be adopted by all DC Plans, ie; participants should have the option of paying a commission rep for the distribution of the investment product?

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FT:

 

Do you subscribe to notion that the 403b setup should be adopted by all DC Plans, ie; participants should have the option of paying a commission rep for the distribution of the investment product?

 

Not sure about the specifics of your question, but in general, I'd be more in favor of the investor's ability to choose vs. having one provider force-fed to you.

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All of the salary reduction types have a single provider and the investment is distributed directly by the Plan ie 457(b), 401(k), 401(a) (see the Investment Plan of the Florida Retiremen System). They do no use commission agents to sell/distribute the investment.

 

The 403(b) is the only one of the DC types that use the agent approach for distribution. Up until about 10 years ago you would be very hard pressed to find a 403(b) with a no-load menu.

 

Q.: Do you feel all the other DC types should adopt the agent approach?

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All of the salary reduction types have a single provider and the investment is distributed directly by the Plan ie 457(b), 401(k), 401(a) (see the Investment Plan of the Florida Retiremen System). They do no use commission agents to sell/distribute the investment.

 

The 403(b) is the only one of the DC types that use the agent approach for distribution. Up until about 10 years ago you would be very hard pressed to find a 403(b) with a no-load menu.

 

Q.: Do you feel all the other DC types should adopt the agent approach?

 

As I said, in general, I feel more choice is a better thing, so I guess my answer is yes. The last time I worked in a place with a 401(k) plan, I would have liked to have had alternatives to the One Chosen Provider that was handed down to me from on high (or rather, from human resources). I don't mind if HR indicates their preference for one vs. another, but I'd rather have the opportunity to make the selection myself.

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