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Distributable Event And Valic Problems

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A friend of mine left education a few years ago. She has a 403b in a Valic TSA and has done nothing with it. She now works for a private company that has a 401K. She simply wants to rollover her Valic TSA into a Vanguard Traditional IRA. She is about 52. Shouldn't this be a simple rollover since she had a distributable event (termination?) Here is what Valic told her:

 

I just called Valic to assist me with the Rollover paperwork. The gal told me there would be a 10% penalty fee (5% each on two accounts. One 403b and one IRA) as I have not had my accounts with Valic for 15 years and I am not 59 ½.

 

The penalty would be $4100…ouch!

 

I did ask about the expense ratio and what she said the only fee that I was being charged is the quarterly maintenance fee of $3.75 ($15 yearly).

 

I told her they were outright lying about the expense ratio...but I'm having trouble finding information for her about any possible Valic surrender charges. I thought that if you terminate employment, you can just do a direct rollover to Vanguard to an IRA. Am I wrong?

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Unfortunately, for your friend, she is facing a Surrender Charge. VALIC (which stands for Variable Annuity Life Insurance Co) uses a Variable Annuity--an insurance product that offers mutual funds wrapped inside an annuity. These accounts have Surrender Charges (5% per account) which expires over time (in her case 15 years) It seems that the charges are waived if she Separates from Service after age 59 and half. The Surrender Fee is in addition to the other fees associated with the account. Your friend can ask VALIC where they state the Surrender Charges. My guess is that it is in the Annuity Contract they gave her when she opened the account.

 

If she is unhappy with the VALIC investment options, she may ask VALIC if they would permit a in-house transfer, in where her account is moved to another VALIC account with different, (better?) investment options. If they do not permit this, she is stuck with the Surrender Charges until they expire.

 

 

Best wishes,

 

Herb

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This is why this site exists. Buyer beware!!!

 

 

The insurance industry is self serving and this is just another good example. Contrast this with companies like Vanguard and you can see why we here talk about all the virtues of Vanguard. The lady answering the phone wasn't lying to you about expense ratio. She probably doesn't have a clue what the expense ratio your friend is paying . I don't either but I bet its pretty outrageous.

 

Your friend can do two things: Bite the bullet and move the money or just start investing in the new 401k and leave the money alone in the 403b until the surrendar charge expires.

 

If it were me I would bite the bullet pay the surrendar charge and kiss Valic goodbye. Actually I would tell them to Kiss my ######.

 

You will be better off in the long run.

 

 

Can you imagine being legally able to tie someone's money up for 15 years? There is simply no excuse for this and I am sure your friend was not told at the time of signing that she would get glued to Valic for half of her working life.

 

 

Tony

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This is why this site exists. Buyer beware!!!

 

 

The insurance industry is self serving and this is just another good example. Contrast this with companies like Vanguard and you can see why we here talk about all the virtues of Vanguard. The lady answering the phone wasn't lying to you about expense ratio. She probably doesn't have a clue what the expense ratio your friend is paying . I don't either but I bet its pretty outrageous.

 

Your friend can do two things: Bite the bullet and move the money or just start investing in the new 401k and leave the money alone in the 403b until the surrendar charge expires.

 

If it were me I would bite the bullet pay the surrendar charge and kiss Valic goodbye. Actually I would tell them to Kiss my ######.

 

You will be better off in the long run.

 

 

Can you imagine being legally able to tie someone's money up for 15 years? There is simply no excuse for this and I am sure your friend was not told at the time of signing that she would get glued to Valic for half of her working life.

 

 

Tony

 

 

 

Amen. Tony. Amen.

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This is why this site exists. Buyer beware!!!

 

 

The insurance industry is self serving and this is just another good example. Contrast this with companies like Vanguard and you can see why we here talk about all the virtues of Vanguard. The lady answering the phone wasn't lying to you about expense ratio. She probably doesn't have a clue what the expense ratio your friend is paying . I don't either but I bet its pretty outrageous.

 

Your friend can do two things: Bite the bullet and move the money or just start investing in the new 401k and leave the money alone in the 403b until the surrendar charge expires.

 

If it were me I would bite the bullet pay the surrendar charge and kiss Valic goodbye. Actually I would tell them to Kiss my ######.

 

You will be better off in the long run.

 

 

Can you imagine being legally able to tie someone's money up for 15 years? There is simply no excuse for this and I am sure your friend was not told at the time of signing that she would get glued to Valic for half of her working life.

 

 

Tony

 

 

 

Amen. Tony. Amen.

 

 

Hey Tony,

What ever you are taking, keep it up!

Steve

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Steve

 

I don't have much positive to say about the Insurance Industry, Wall Street, or the Pharmaceutical Industry. The more I read the more I worry about what they are doing to us. Physically, mentally, and financially. I'm on a dose of reality.

 

Tony

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As a past VALIC advisor for 2 decades, I can provide more detailed information. VALIC, as do most carriers that specialize in retirement plans, has several variations to their product offerings. In this case you might be in their Portfolio Director account. I suggest you read your contract for the various ways to escape paying a surrender/withdrawal charge. One that is typically overlooked is if there are no deposits for 5 years, one may withdraw their funds without a charge. Your statement should state whether you have a surrender charge too. Another method to determine if you should pay the surrender charge is if you would be earning more interest (not appreciation..so I am comparing fixed accounts here, not variable or mutual fund appreciation)than if you left your money in your VALIC account. Then calculate how long it would take you to make up the surrender charge and be ahead. Short paybacks (3 years or less) are usually a good indicator to transfer the account. I hope this helps.

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Evan,

 

Thanks for the details. I think thats how it worked for me years ago when I was with American Express.

 

 

When you worked for Valic did you explain the expense ratios of the underlying funds, plus the total expense ratio plus the surrendar charges to your potential client before having them

sign? Did you explain the dynamics of the Tax sheltered Annuity ? How did Valic train you. Did they ever tell you to do what was best for the customer? Or did they push a sell as much as you can to anyone you can approach ? Since you no longer work for them maybe you would like to share the behind the scenes mentality you were exposed too.

 

I don't mean to dwell in the past but from what I am seeing things haven't changed all that much.

 

 

Tony

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I don't mean to dwell in the past but from what I am seeing things haven't changed all that much.

 

 

Tony

 

 

Read the first paragraph of the 2006 LA Times Article about the featured teacher, Crystal Mendez, she got sold a fixed annuity at 22 years old! Thats five years ago.http://articles.latimes.com/2006/apr/25/business/fi-retire25click here In 1985 when I was 37, same thing. Nothing has changed and nothing will until the K-12 culture and K12 policy makers in the unions and districts change.

 

Steve

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Thanks Steve. I wish more people would frequent this site. They would be better off. The union as a partner in crime is disturbing.

 

Evan, I hope you will answer my questions.

 

 

Tony

 

 

P.S. I have a friend who uses Valic and constantly complains that after 20 years he's only making 1-2% a year but he makes no effort to make a change and tunes me out. We truly are the captains of our ships and some folks just drift. As a result teachers remain an easy target.

 

It seems there are two main areas Ameicans seem to lack understanding in -Nutrition and Personal Finance.

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Evan,

Thanks so much for your response on the Valic question. I just copied your post to my friend, and yes, her last contribution was in 2005, well over five years ago. She is keeping her fingers crossed that this will do the trick.

I'll keep you all posted.

 

My own Valic transfer about a year ago took more than six months to complete, and I was simply transfering it into another approved 403b plan. I did pay a pro-rated surrender charge that was based on the amount of time I had the account. It was pretty low...around $200. Valic kept "losing" the paperwork and the receiving plan had to get heavily involved.

 

My friend is no longer in education, and rightfully she wants OUT!

 

Just a caveat...I work in an established charter school that is 15 years old. When we first started to have a 403b plan, our founder heavily favored Valic and the sales rep. At staff meetings he personally attested to the success he had had with the program. At the time, in the late '90's, I didn't know anything about expense ratios and surrender charges, like most people in education, and believe me, the rep was not forthcoming! I've had quite an education since then, thanks to a chance meeting with Dan Otter and his original book. But I'm sad to say, that most of the people I work with (including HR) are totally clueless...in fact, they don't really want to hear it.

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My own Valic transfer about a year ago took more than six months to complete, and I was simply transfering it into another approved 403b plan. I did pay a pro-rated surrender charge that was based on the amount of time I had the account. It was pretty low...around $200. Valic kept "losing" the paperwork and the receiving plan had to get heavily involved.

 

 

 

 

Kat,

 

I can't tell you how many people including myself have had this problem with insurance companies. Makes you wonder. Keep up the good work helping your friend through this. You will learn much going through this process.

 

 

Tony

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Evan,

Thanks so much for your response on the Valic question. I just copied your post to my friend, and yes, her last contribution was in 2005, well over five years ago. She is keeping her fingers crossed that this will do the trick.

I'll keep you all posted.

 

My own Valic transfer about a year ago took more than six months to complete, and I was simply transfering it into another approved 403b plan. I did pay a pro-rated surrender charge that was based on the amount of time I had the account. It was pretty low...around $200. Valic kept "losing" the paperwork and the receiving plan had to get heavily involved.

 

My friend is no longer in education, and rightfully she wants OUT!

 

Just a caveat...I work in an established charter school that is 15 years old. When we first started to have a 403b plan, our founder heavily favored Valic and the sales rep. At staff meetings he personally attested to the success he had had with the program. At the time, in the late '90's, I didn't know anything about expense ratios and surrender charges, like most people in education, and believe me, the rep was not forthcoming! I've had quite an education since then, thanks to a chance meeting with Dan Otter and his original book. But I'm sad to say, that most of the people I work with (including HR) are totally clueless...in fact, they don't really want to hear it.

 

Kat,

If more educators like yourself just keep asking HR when will Vanguard, Fidelity or TIAA CREF be approved, the situation will change. Keep at it, its a numbers game just as in politics. I have been advocating for 20 years and had some success, but you have to keep at it.

2 cents,

Steve

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Steve,

I've done my part on that front...believe me! Under the new regs, our small school now "tags" onto all of the approved plans offerd through the San Diego County Office of Education, and they do offer CALSTRS/TIAA-Cref. (I'm relieved that it's our of our hands, because it was a mess.) I just finished transferring all of my 403bs to them. I would prefer a direct Vanguard option, and will keep lobbying for that.

 

Yes, it is political, and it shouldn't be! Why can't educators simply get the best bang for their buck because it's the right thing to do? Heck...I'm just preachin' to the choir, but it is almost the 4th of July...freedom and all that stuff :)

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Steve,

I've done my part on that front...believe me! Under the new regs, our small school now "tags" onto all of the approved plans offerd through the San Diego County Office of Education, and they do offer CALSTRS/TIAA-Cref. (I'm relieved that it's our of our hands, because it was a mess.) I just finished transferring all of my 403bs to them. I would prefer a direct Vanguard option, and will keep lobbying for that.

 

Yes, it is political, and it shouldn't be! Why can't educators simply get the best bang for their buck because it's the right thing to do? Heck...I'm just preachin' to the choir, but it is almost the 4th of July...freedom and all that stuff :)

 

 

Kat,

I believe you! I know you have done your part, I was talking about our colleagues. There are hundreds of brilliant teacher investors in my district for example. I see the reports from my district who specifically sign up for Vanguard and the Schwab account. You have to know something about investing to do that. There are many out there BUT they don't say a thing to their colleagues who attend the expensive and illiquid annuity sales presentation and buy those turkey products by the boatload, right there under their noses. I don't get that. I was tipped off by a colleague years ago and got out of those products immediately.

 

The kind of conversation you and I have as educators is extremely rare. Its an interest but educators seem to be overly secretive about money. Perhaps they do not want to be seen as some type of capitalist.

 

Just speculating, but it seems to me that in other professions, they talk to each other, nurses, college professors, state and local governments employees would not put up with the kind of crap that k-12 employees have, especially here in California. These other employers ignore our state's insurance code, that lunatic regulation that is totally flawed. Cal-state, UC system started their own 403b. Cal STATE and UC system for example have Fidelity. 401k plans almost all of the expenses are paid by the company, nowhere is that found in K12 districts.

 

IF there is going to be change, it might happen with LAUSD. The leadership and the mission to look out for the hard working educators are there. The vision and the determination to break from this 50 year 403b darkness are coming. We just don’t know when.

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