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How Have New Regs Affected Your 403(b) Plan?

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Hey Folks,

 

Just curious if anyone would like to share information on how new 403(b) regs have affected their 403(b) plan. Is your plan better, worse, same? Feel free to post here or email me directly at dan(at)403bwise.com (note: please be sure to substitute "@" for "at" when emailing).

 

Dan Otter

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Dan

 

You probably are aware of my thoughts already but just in case you missed them.

 

We went from having Vanguard to losing it, to now having Security Benefit as our TPA. Even a bond fund now can cost almost 2%. Everything else is either insurance products or way too expense mutual fund products.

 

I dropped out and won't go back to the 403b. It was an adjustment because I wasn't saving as much outside of the 403b at first. I now got it right investing in index funds and tax managed funds as well as the Roth.

 

I don't miss the 403b. We should all boycott it until it is changed to benefit the investor.

 

Tony

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Had a 403b at Vanguard. That was dropped as an option when we got the new TPA (in response, I presume, to the new regulations). Fidelity was available from them, so I switched there. Fidelity quickly was declared unavailable, so I switched to the only remaining good option, Calstrs. If Calstrs were to drop off the map, the remaining options are quite grim. The 457 plan does not have a Calstrs option and pretty much everything there carries an effective 1 to 2% expense ratio.

 

Prior to the reg change, Vanguard, Fidelity, TIAA-CREF and a couple of other attractive providers were available.

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If Calstrs were to drop off the map, the remaining options are quite grim. The 457 plan does not have a Calstrs option and pretty much everything there carries an effective 1 to 2% expense ratio.

 

 

H whyme,

Quick question. Have you every heard of either California federation of teachers or the California Teachers Association talk about CalSTRS Pension2 403b option in any meeting or newsletter? I am retired and a little out of the loop about union communication. I have not and there is no link from CTA's excellant financial website to Pension2. I am currently writing an open letter that will be mailed to the CTA president and board of directors about this and will present it here in a few days.

 

Also, our 457b plan does not have calstrs either, but we have 2 Vanguard funds and Fidelity's s&p 500 spartan fund. About half the funds are under 1% total fees to participants including the expense ratio and the TPA fee combined. As you already know, the "1% to 2% expense ratio" for your 457b is excessive.

 

Thanks,

Steve

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Prior to the new regs we had 40+ choices almost all of them insurance companies selling expensive annuity products. We did have a few really good options like TIAA-CREF, Vanguard, American Century, T. Rowe Price, Janus, and Fidelity primarily because a few teachers asked and these were added over the years. Most teachers I knew were invested with one of the insurance company annuities being in the dark about the costs and mostly led by the breakroom salespeople. I invested, first with American Century for about 5 years. I had read one article about how no-load companies were the way to go and that American Century was one of the better ones. Thank goodness I went in that direction. As I read and became more educated about personal finance and talking with my parents convinced me to transfer my money to Vanguard (They had been with Vanguard for maybe 2-3 years already and raved about it). I've had my money in a Vanguard 403b for the the last 15 years and it has done really well. When I tell some of my teacher friends how much my account is worth today, even after the last 2 years, most are in disbelief. I just tell them that it's all about regular saving, the power of compound interest, AND low costs.

 

Since the new regs we have been limited to 3 companies: Security Benefit, ING, and Metlife, all of which IMHO are better than most of the options that people were in before but pathetic in comparison to Vanguard and the other low cost, no-load companies. ING has a self directed option but it's still about 5 times as expensive as what my Vanguard 403b charges. Since the new regs came out I stopped putting money into a 403b and have since shifted over to a Roth IRA with Vanguard. My view is that the IRS really shafted a LOT of people with the new regs. We still have ING and other sales reps camped out in our breakroom several times a month and most teachers are still going with the annuities.

 

Living in Arizona, I am hopeful that the newly announced 403b/457 plan that the AZ State Retirement System has announced with TIAA-CREF will be a good option but it is still probably a year off from now.

 

The new regs have been a bonanza for the large insurance companies who have scooped up most of the districts and can afford to absorb the admin costs with their high fee structure. I just had to shake my head in disgust when I saw that Bob Architect, the IRS official who wrote the the regs went to work for VALIC. Talk about a conflict of interest! The revolving door at it's worst.

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Dan,

 

Same story different state. In Illinois I used to have vanguard. Now I pay a fee to a tpa, small but still a fee, have no mutual fund companies direct, and have been forced to use 403basp which is not bad but it is still not vanguard (direct)!! I agree that the IRS shafted alot of people with the regs

 

Rich

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H whyme,

Quick question. Have you every heard of either California federation of teachers or the California Teachers Association talk about CalSTRS Pension2 403b option in any meeting or newsletter?

 

Hi, Steve. I don't follow the union utterances closely, but no, I haven't seen 403b offerings as much of a topic at all, CTA, CFT or otherwise. My community college district is now independent, union-wise, and they have never approached those matters as far as I know. (They waste a lot of time and faculty money using the union as a soapbox for the union officials' views on the war in Afghanistan, that sort of thing... it's embarrassing to be associated with them, even when I agree with their politics.) It is stunning how rarely competent retirement planning and good retirement benefits are addressed to and by teachers. I guess most folks just blindly think the calstrs pension will take care of them, union rep's included.

 

By the way, in the interests of accuracy, there are a few of our 457 offerings that come in at a shade less than 1% expense ratio. But just a shade: the TPA adds something like .69% to the ER of the underlying funds, including a special surcharge for their small list of available funds from Vanguard, Dodge and Cox, and a couple of others that have relatively low expense ratios.

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Prior to the new regs we had 40+ choices almost all of them insurance companies selling expensive annuity products. We did have a few really good options like TIAA-CREF, Vanguard, American Century, T. Rowe Price, Janus, and Fidelity primarily because a few teachers asked and these were added over the years. Most teachers I knew were invested with one of the insurance company annuities being in the dark about the costs and mostly led by the breakroom salespeople. I invested, first with American Century for about 5 years. I had read one article about how no-load companies were the way to go and that American Century was one of the better ones. Thank goodness I went in that direction. As I read and became more educated about personal finance and talking with my parents convinced me to transfer my money to Vanguard (They had been with Vanguard for maybe 2-3 years already and raved about it). I've had my money in a Vanguard 403b for the the last 15 years and it has done really well. When I tell some of my teacher friends how much my account is worth today, even after the last 2 years, most are in disbelief. I just tell them that it's all about regular saving, the power of compound interest, AND low costs.

 

Since the new regs we have been limited to 3 companies: Security Benefit, ING, and Metlife, all of which IMHO are better than most of the options that people were in before but pathetic in comparison to Vanguard and the other low cost, no-load companies. ING has a self directed option but it's still about 5 times as expensive as what my Vanguard 403b charges. Since the new regs came out I stopped putting money into a 403b and have since shifted over to a Roth IRA with Vanguard. My view is that the IRS really shafted a LOT of people with the new regs. We still have ING and other sales reps camped out in our breakroom several times a month and most teachers are still going with the annuities.

 

Living in Arizona, I am hopeful that the newly announced 403b/457 plan that the AZ State Retirement System has announced with TIAA-CREF will be a good option but it is still probably a year off from now.

 

The new regs have been a bonanza for the large insurance companies who have scooped up most of the districts and can afford to absorb the admin costs with their high fee structure. I just had to shake my head in disgust when I saw that Bob Architect, the IRS official who wrote the the regs went to work for VALIC. Talk about a conflict of interest! The revolving door at it's worst.

Good evening-i'm pretty much stunned and fascinated by this topic.The gentleman's situation above pretty much mirrors me-except i had no idea there were new regulations.I started a 403b i'm guessing about 10 years ago with Vanguard,20th Century and TRowe Price but eventually moved it all into Vanguard due to a divorce.Several years ago we were told by our union and administration that we had to meet with a financial representative regarding our 403 b's .We were not told it had anything to do with new regs-i and a few others refused to go[ i didn't think it was any of their business]We were told that we would be reprimanded and found insubordinate-i still refused to go thinking it was a sales pitch and the school was getting something out of it.Finally the school said i would not be able to contribute to the 403b because the financial reps would be handling all the 403b's[TPA?] I checked with Vanguard and they said i could keep contributing on my own.I changed school districts several years later and continued the 403b with Vanguard.However, my wife works in my old school district and she is now trying to set up a 403b- Vanguard is the only approved vendor that is a mutual fund company.I called Vanguard and she contacted the school and they want her to meet with the third party rep???????Please educate me, what the he## is going on ? Thanks

 

 

 

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Prior to the new regs we had 40+ choices almost all of them insurance companies selling expensive annuity products. We did have a few really good options like TIAA-CREF, Vanguard, American Century, T. Rowe Price, Janus, and Fidelity primarily because a few teachers asked and these were added over the years. Most teachers I knew were invested with one of the insurance company annuities being in the dark about the costs and mostly led by the breakroom salespeople. I invested, first with American Century for about 5 years. I had read one article about how no-load companies were the way to go and that American Century was one of the better ones. Thank goodness I went in that direction. As I read and became more educated about personal finance and talking with my parents convinced me to transfer my money to Vanguard (They had been with Vanguard for maybe 2-3 years already and raved about it). I've had my money in a Vanguard 403b for the the last 15 years and it has done really well. When I tell some of my teacher friends how much my account is worth today, even after the last 2 years, most are in disbelief. I just tell them that it's all about regular saving, the power of compound interest, AND low costs.

 

Since the new regs we have been limited to 3 companies: Security Benefit, ING, and Metlife, all of which IMHO are better than most of the options that people were in before but pathetic in comparison to Vanguard and the other low cost, no-load companies. ING has a self directed option but it's still about 5 times as expensive as what my Vanguard 403b charges. Since the new regs came out I stopped putting money into a 403b and have since shifted over to a Roth IRA with Vanguard. My view is that the IRS really shafted a LOT of people with the new regs. We still have ING and other sales reps camped out in our breakroom several times a month and most teachers are still going with the annuities.

 

Living in Arizona, I am hopeful that the newly announced 403b/457 plan that the AZ State Retirement System has announced with TIAA-CREF will be a good option but it is still probably a year off from now.

 

The new regs have been a bonanza for the large insurance companies who have scooped up most of the districts and can afford to absorb the admin costs with their high fee structure. I just had to shake my head in disgust when I saw that Bob Architect, the IRS official who wrote the the regs went to work for VALIC. Talk about a conflict of interest! The revolving door at it's worst.

Good evening-i'm pretty much stunned and fascinated by this topic.The gentleman's situation above pretty much mirrors me-except i had no idea there were new regulations.I started a 403b i'm guessing about 10 years ago with Vanguard,20th Century and TRowe Price but eventually moved it all into Vanguard due to a divorce.Several years ago we were told by our union and administration that we had to meet with a financial representative regarding our 403 b's .We were not told it had anything to do with new regs-i and a few others refused to go[ i didn't think it was any of their business]We were told that we would be reprimanded and found insubordinate-i still refused to go thinking it was a sales pitch and the school was getting something out of it.Finally the school said i would not be able to contribute to the 403b because the financial reps would be handling all the 403b's[TPA?] I checked with Vanguard and they said i could keep contributing on my own.I changed school districts several years later and continued the 403b with Vanguard.However, my wife works in my old school district and she is now trying to set up a 403b- Vanguard is the only approved vendor that is a mutual fund company.I called Vanguard and she contacted the school and they want her to meet with the third party rep???????Please educate me, what the he## is going on ? Thanks

 

Hi gingy,

Welcome. What a story! I have heard many stories but never were teachers threatened with insubordination for refusing to attend a 403b meeting and they never told you that the 403b regs were changed. The TPA probably figured that you couldn't handle that complex stuff. What an insult!

Sounds like you are fine with contributing to Vanguard but you have a question about your wife's 403b. I am guessing that your wife is going to see the TPA to see the list of 403b companies available. BTW, a TPA is a third party administrator who was hired by the district to handle the 403bs. Because of the new regs, the IRS is requiring school districts to be more responsible for administration, like the 401ks. Districts can't or won't handle the administration so they responded by hiring a TPA to handle the administration, the paperwork, the records, contributions, etc. Vanguard may be on the list of available companies and they will probably tell you wife which companies are on the list.

Have your wife bring the list home and tell us the companies that are available.

If Vanguard is on the list, you are fine. Sounds like you know what you are doing, unless I am missing something.

hope this helps,

Steve

 

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Prior to the new regs we had 40+ choices almost all of them insurance companies selling expensive annuity products. We did have a few really good options like TIAA-CREF, Vanguard, American Century, T. Rowe Price, Janus, and Fidelity primarily because a few teachers asked and these were added over the years. Most teachers I knew were invested with one of the insurance company annuities being in the dark about the costs and mostly led by the breakroom salespeople. I invested, first with American Century for about 5 years. I had read one article about how no-load companies were the way to go and that American Century was one of the better ones. Thank goodness I went in that direction. As I read and became more educated about personal finance and talking with my parents convinced me to transfer my money to Vanguard (They had been with Vanguard for maybe 2-3 years already and raved about it). I've had my money in a Vanguard 403b for the the last 15 years and it has done really well. When I tell some of my teacher friends how much my account is worth today, even after the last 2 years, most are in disbelief. I just tell them that it's all about regular saving, the power of compound interest, AND low costs.

 

Since the new regs we have been limited to 3 companies: Security Benefit, ING, and Metlife, all of which IMHO are better than most of the options that people were in before but pathetic in comparison to Vanguard and the other low cost, no-load companies. ING has a self directed option but it's still about 5 times as expensive as what my Vanguard 403b charges. Since the new regs came out I stopped putting money into a 403b and have since shifted over to a Roth IRA with Vanguard. My view is that the IRS really shafted a LOT of people with the new regs. We still have ING and other sales reps camped out in our breakroom several times a month and most teachers are still going with the annuities.

 

Living in Arizona, I am hopeful that the newly announced 403b/457 plan that the AZ State Retirement System has announced with TIAA-CREF will be a good option but it is still probably a year off from now.

 

The new regs have been a bonanza for the large insurance companies who have scooped up most of the districts and can afford to absorb the admin costs with their high fee structure. I just had to shake my head in disgust when I saw that Bob Architect, the IRS official who wrote the the regs went to work for VALIC. Talk about a conflict of interest! The revolving door at it's worst.

Good evening-i'm pretty much stunned and fascinated by this topic.The gentleman's situation above pretty much mirrors me-except i had no idea there were new regulations.I started a 403b i'm guessing about 10 years ago with Vanguard,20th Century and TRowe Price but eventually moved it all into Vanguard due to a divorce.Several years ago we were told by our union and administration that we had to meet with a financial representative regarding our 403 b's .We were not told it had anything to do with new regs-i and a few others refused to go[ i didn't think it was any of their business]We were told that we would be reprimanded and found insubordinate-i still refused to go thinking it was a sales pitch and the school was getting something out of it.Finally the school said i would not be able to contribute to the 403b because the financial reps would be handling all the 403b's[TPA?] I checked with Vanguard and they said i could keep contributing on my own.I changed school districts several years later and continued the 403b with Vanguard.However, my wife works in my old school district and she is now trying to set up a 403b- Vanguard is the only approved vendor that is a mutual fund company.I called Vanguard and she contacted the school and they want her to meet with the third party rep???????Please educate me, what the he## is going on ? Thanks

 

Hi gingy,

Welcome. What a story! I have heard many stories but never were teachers threatened with insubordination for refusing to attend a 403b meeting and they never told you that the 403b regs were changed. The TPA probably figured that you couldn't handle that complex stuff. What an insult!

Sounds like you are fine with contributing to Vanguard but you have a question about your wife's 403b. I am guessing that your wife is going to see the TPA to see the list of 403b companies available. BTW, a TPA is a third party administrator who was hired by the district to handle the 403bs. Because of the new regs, the IRS is requiring school districts to be more responsible for administration, like the 401ks. Districts can't or won't handle the administration so they responded by hiring a TPA to handle the administration, the paperwork, the records, contributions, etc. Vanguard may be on the list of available companies and they will probably tell you wife which companies are on the list.

Have your wife bring the list home and tell us the companies that are available.

If Vanguard is on the list, you are fine. Sounds like you know what you are doing, unless I am missing something.

hope this helps,

Steve

 

Steve,

Thanks the list is online,Vanguard is the only mutual fund company that is approved.My wife does not have to see the TPA ,she can deal with Vanguard direct but the paperwork will be forwarded to the TPA.My wife emailed the District person in charge of this and asked her if the TPA will be charging a fee.Why were these regs put in place?I was under the impression that a schoolteacher in New York fought for us to have these mutual fund options and now it seems that they have been greatly eroded.Do you have any idea what the NEA's position was on these regs?

thanks-Rick

 

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Just curious if anyone would like to share information on how new 403(b) regs have affected their 403(b) plan. Is your plan better, worse, same?

 

Dan Otter

 

Definitely worse as far as I'm concerned. We've lost access to Vanguard and Fidelity and have no options other than insurance companies now. And the extra level of involvement of the school administration and tpa is showing signs of leading to problems in timeliness of deferrals and getting approvals/signatures when needed.

 

I've decided to no longer participate in our 403b plan. We have access to the state 457 and that's the route I've gone - much, much better (but not better than what I previously had with Vanguard).

 

Overall, I think the new regs are frustrating for those of us who were happy with a self-directed system.

 

Barney

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Dan

 

You probably are aware of my thoughts already but just in case you missed them.

 

We went from having Vanguard to losing it, to now having Security Benefit as our TPA. Even a bond fund now can cost almost 2%. Everything else is either insurance products or way too expense mutual fund products.

 

I dropped out and won't go back to the 403b. It was an adjustment because I wasn't saving as much outside of the 403b at first. I now got it right investing in index funds and tax managed funds as well as the Roth.

 

I don't miss the 403b. We should all boycott it until it is changed to benefit the investor.

 

Tony

 

 

Tony,

 

Has Security Benefit ever explained why they won't make Vanguard available? It's shame because it is a very popular choice for teachers. In Michigan we offer Vanguard to our 403 b participants on our platform. In fact we offer over them 481 fund families.

 

Sean

 

 

Prior to the new regs we had 40+ choices almost all of them insurance companies selling expensive annuity products. We did have a few really good options like TIAA-CREF, Vanguard, American Century, T. Rowe Price, Janus, and Fidelity primarily because a few teachers asked and these were added over the years. Most teachers I knew were invested with one of the insurance company annuities being in the dark about the costs and mostly led by the breakroom salespeople. I invested, first with American Century for about 5 years. I had read one article about how no-load companies were the way to go and that American Century was one of the better ones. Thank goodness I went in that direction. As I read and became more educated about personal finance and talking with my parents convinced me to transfer my money to Vanguard (They had been with Vanguard for maybe 2-3 years already and raved about it). I've had my money in a Vanguard 403b for the the last 15 years and it has done really well. When I tell some of my teacher friends how much my account is worth today, even after the last 2 years, most are in disbelief. I just tell them that it's all about regular saving, the power of compound interest, AND low costs.

 

Since the new regs we have been limited to 3 companies: Security Benefit, ING, and Metlife, all of which IMHO are better than most of the options that people were in before but pathetic in comparison to Vanguard and the other low cost, no-load companies. ING has a self directed option but it's still about 5 times as expensive as what my Vanguard 403b charges. Since the new regs came out I stopped putting money into a 403b and have since shifted over to a Roth IRA with Vanguard. My view is that the IRS really shafted a LOT of people with the new regs. We still have ING and other sales reps camped out in our breakroom several times a month and most teachers are still going with the annuities.

 

Living in Arizona, I am hopeful that the newly announced 403b/457 plan that the AZ State Retirement System has announced with TIAA-CREF will be a good option but it is still probably a year off from now.

 

The new regs have been a bonanza for the large insurance companies who have scooped up most of the districts and can afford to absorb the admin costs with their high fee structure. I just had to shake my head in disgust when I saw that Bob Architect, the IRS official who wrote the the regs went to work for VALIC. Talk about a conflict of interest! The revolving door at it's worst.

 

 

 

Hi mmcwenie,

 

We are Midwest Capital, an RIA in Grand Rapids, Michigan. Through the Michigan Investment Retirement Consortium (MRIC) we provide a 403 b platform to over 260+ schools districts in the state. I am curious and want to learn more about the new option in Arizona. Can you reply or message me directly?

 

Thanks,

 

Sean

 

 

 

 

 

 

Just curious if anyone would like to share information on how new 403(b) regs have affected their 403(b) plan. Is your plan better, worse, same?

 

Dan Otter

 

 

Definitely worse as far as I'm concerned. We've lost access to Vanguard and Fidelity and have no options other than insurance companies now. And the extra level of involvement of the school administration and tpa is showing signs of leading to problems in timeliness of deferrals and getting approvals/signatures when needed.

 

I've decided to no longer participate in our 403b plan. We have access to the state 457 and that's the route I've gone - much, much better (but not better than what I previously had with Vanguard).

 

Overall, I think the new regs are frustrating for those of us who were happy with a self-directed system.

 

Barney

 

 

Hi Barney,

 

I am shocked at how many people had Vanguard taken away directly or indirectly. I know in Michigan when it came time to look for providers with the new regs Vanguard and Fidelity did not want to be an option. That left an opening for a company like us who provides access to Vanguard and Fidelity along with 480+ other fund families. The more I read these stories the more I begin to see how unique the option is for our teachers.

 

Sean (Midwest Capital)

 

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Sean,

 

I guess my question for you is how much are you charging teachers to have access to Vanguard? Vanguard's claim to fame for me besides their ethical corporate culture is their ability to keep their costs rock bottom.

 

I'm not sure if you guys tacked on 1% management fees to their funds that I would be interested anymore in Vanguard.

 

 

Tony

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Sean,

 

I guess my question for you is how much are you charging teachers to have access to Vanguard? Vanguard's claim to fame for me besides their ethical corporate culture is their ability to keep their costs rock bottom.

 

I'm not sure if you guys tacked on 1% management fees to their funds that I would be interested anymore in Vanguard.

 

 

Tony

 

 

Excerpt from their FAQ below. I couldn't find anything on costs outside of Michigan.

--

5.Question: How much does it cost to use the MCA Investment Options?

 

Answer: It will cost you very little. All participants pay a small amount that is based on the total amount of assets in the accounts of all participants who select one of the MCA Investment Options. The rate per dollar invested goes down as the balances in the accounts go up. This means that the more dollars that are invested by all 403(b) participants, the lower the costs will be for everyone. If you are an employee of a Michigan public education employer that has joined the Michigan Retirement Investment Consortium, the maximum amount you will pay on an annual basis is 0.38% and this drops to 0.18% as assets increase. Fee Schedule.

--

 

When I tried to open the Fee Schedule link, it returned a page not found error.

 

Barney

 

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