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oldgaloot

403(B)(7) And 90-24 Confusion

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I'm a newbie at this. I have worked for a nonprofit for 7 years and have contributed to the 403(b) plan that was set up. I had thought that it was simply some vehicle that allowed a match by the employer and I was given a menu of mutual funds to invest in.

 

I find out upon actually reading the prospectus that it's a variable annuity (the Multi-Plan Select offered by Lincoln Financial Group). I think I would rather invest in mutual funds straight up w/o the annuity and life insurance end of the deal. I was reading The Only Investment Guide You'll Ever Need (2010 updated edition) and the author, Andrew Tobias, implies that I can get someone else to be the custodian for the account (if my plan allows transfers, and Tobias says that almost all do) and make my contributions to the new custodian and I get out from under the maintenance fees, etc (although I will certainly get socked by surrender fees).

 

I called Vanguard to talk with one of their retirement reps and she says that I'm stuck with the plan my employer offers and that I only have such an option if I leave that employer or retire (then I can go with whomever to be the new custodian, after paying all the hefty surrender fees etc.).

 

If that's so I am going to talk to my employer about getting some changes to the plan that are more friendly to the employee, but making management changes at this organization has been difficult in the past -- it would be so much easier if I could get out by myself.

 

Tobias gives a big shout out to this website, which is how I found it in the first place. So am I reading Tobias incorrectly, was the Vanguard rep wrong, or was the law changed at some point (I saw somewhere else on this site about someone talking about 90-24 horrors after the law was changed in 2007 (or 09))?

 

I'd love to get out of my current variable annuity. Can I?

 

Thanks

 

Mark

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I called Vanguard to talk with one of their retirement reps and she says that I'm stuck with the plan my employer offers and that I only have such an option if I leave that employer or retire (then I can go with whomever to be the new custodian, after paying all the hefty surrender fees etc.).

 

 

I think Vanguard told you correctly. We are all confined by the choices in our plan document. The 90-24 transfer was the escape hatch I used to get money transferred years ago but its dead now.

 

If you are that unhappy with Lincoln see what else your plan offers. If you will list them here it will be easy for us to spot your best choice.

 

Then, you could stop your contributions to Lincoln and start up with a better choice. The surrender charge goes down to nothing over time and then you could transfer it over.

 

Your situation I think is manageable unless of course the only thing your plan offers is other insurance companies.

 

 

Tony

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I called Vanguard to talk with one of their retirement reps and she says that I'm stuck with the plan my employer offers and that I only have such an option if I leave that employer or retire (then I can go with whomever to be the new custodian, after paying all the hefty surrender fees etc.).

 

 

I think Vanguard told you correctly. We are all confined by the choices in our plan document. The 90-24 transfer was the escape hatch I used to get money transferred years ago but its dead now.

 

If you are that unhappy with Lincoln see what else your plan offers. If you will list them here it will be easy for us to spot your best choice.

 

Then, you could stop your contributions to Lincoln and start up with a better choice. The surrender charge goes down to nothing over time and then you could transfer it over.

 

Your situation I think is manageable unless of course the only thing your plan offers is other insurance companies.

 

 

Tony

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Also, your employer's contribution will offset some of the costs. If your employer was like most school districts that don't provide a match, I would avoid their plan as well and try and get my money out. But then you would miss out on your employer's match.

What is the percentage match?

What is the cost of the Multi-Plan Select? And what is their historical performance? Give us a ticker symbol and we can all see.

 

If you find out that they are all expensive annuities, ask them to add on a low cost fund such as Fidelity, Vanguard, TIAA CREF or TR Price, even if you asked them before. But this time put it in writing and send the letter to the big boss and give the HR department a copy. Detail a comparison of the variable annuity with a low cost index fund in the letter as the rationale for getting a low cost option. You are just asking for ONE low cost option! A letter is always much more powerful than talking. And keep at it and get your colleagues to cosign with you. The squeaky wheel gets the oil and we have all done this with our employers and unions for years. In the education profession, it's been a lifetime of reform. We have been at this for years and years because some powerful entities want to keep us in expensive retirement plans as you have.

 

Steve

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Steve

 

Why is TRowe Price cited here so much? I looked at their funds and most are under 1.% but not by much. They seem a little on the expensive side actually. Even Fidelity, outside of the Spartan Funds tend to stray on the high side.

 

 

Tony

 

 

P.S. Here is the multi select link. Unlike Vanguard they do not clearly show expenses but I am sure they are high.

 

https://www.lfg.com/LincolnPageServer?KPage_PageID=LFG_Page&LFGPage=%2Flfg%2Flfgclient%2Ffprod%2Fretplan%2Fmsuite%2Findex.html&KURL=http%3A%2F%2Fafpquery%2FAFPQuery%2FAFPQueryRequestServlet%3FappName%3DAFP%26appEvent%3Dquerysa%26appState%3Dquery%26transformRequest%3Dperformance%26sacode%3DCS0000%26source%3D

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Steve

 

Why is TRowe Price cited here so much? I looked at their funds and most are under 1.% but not by much. They seem a little on the expensive side actually. Even Fidelity, outside of the Spartan Funds tend to stray on the high side.

 

 

VG and TIAA CREF are so rare in tax deferred retirement plans, I include Fidelity and TR PRice because they are more frequent. Years ago, I invested in Invesco, knowing that they charged 12b1 fees. I would never chose Invesco now, nor would I choose TR Price or Fidelity, but at the time Invesco and Fidelity were great choices considering where I used to have my money.

If anybody has Fidelity as a choice in their plan, I would certainly suggest the Spartan funds, hands down.

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Thanks for the replies, Tony and Steve. It's odd in that there are no "ticker symbols" for the funds in which I can invest. My thinking is that they are regular old funds, but Lincoln adds "VIP" to the name in order to hide the fact that they won't credit my investment the same as if I was in the "real" fund.

 

For example, I have some of my money in the "Fidelity VIP Contrafund". The link you provided indicates that the performance of that plan was

 

One year -1.18, 3 year, 19.13, 5 year 0.28, 10 year 5.57 since inception 8.99

 

Here's what I find for Fidelity Contrafund FCNTX

 

1 Year* 4.27%

3 Year* 18.87%

5 Year* 3.15%

10 Year* 7.54%

Life* 12.16%

 

So there's a pretty big drag on how much my money can grow. Not sure why the 3 year was higher for Lincoln's edition, but the rest are lagging.

 

I'll look into the other fees and report back. Thanks again for your insight.

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I was with lincoln once and I would check their prospectus that they send out once a year. Its a big thick thing. Check the total expense ratio for each fund in your plan. I think you will be surprised. Most insurance companies use units instead of shares and their tickers don't exist. I think its a way to confuse us and keep your real performance hidden. Buying Contrafund as a retail mutual fund is not the same as buying it through an insurance intermediary. I wouldnt trust their performance figures either. Performance Numbers can be manipulated in numerous ways as can star ratings but I do believe they are now required by the SEC to figure their returns by a specific formula and method but I am not sure.

 

 

 

Please let us known your expense ratios and other investment choices. If you do get a match, like Steve mentioned it may be o.k to pay a higher fee.Without a match-no way

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I was with lincoln once and I would check their prospectus that they send out once a year. Its a big thick thing. Check the total expense ratio for each fund in your plan. I think you will be surprised. Most insurance companies use units instead of shares and their tickers don't exist. I think its a way to confuse us and keep your real performance hidden. Buying Contrafund as a retail mutual fund is not the same as buying it through an insurance intermediary. I wouldnt trust their performance figures either. Performance Numbers can be manipulated in numerous ways as can star ratings but I do believe they are now required by the SEC to figure their returns by a specific formula and method but I am not sure.

 

 

 

Please let us known your expense ratios and other investment choices. If you do get a match, like Steve mentioned it may be o.k to pay a higher fee.Without a match-no way

 

I will check out the total expenses in the prospectus and report back. I need to do that if I'm going to make a case to the boss. I think my investment choices are the ones that were in the link you had -- similar to well-known funds but have been "Lincolnized". I do get a match, but that only takes a bit of the sting out of the high expenses. But it shouldn't make any difference to the employer once they have thrown in the match. Then it's my money... and I'd rather have a lower cost option.

 

Thanks again for your interest!

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Thanks for the replies, Tony and Steve. It's odd in that there are no "ticker symbols" for the funds in which I can invest. My thinking is that they are regular old funds, but Lincoln adds "VIP" to the name in order to hide the fact that they won't credit my investment the same as if I was in the "real" fund.

 

For example, I have some of my money in the "Fidelity VIP Contrafund". The link you provided indicates that the performance of that plan was

 

One year -1.18, 3 year, 19.13, 5 year 0.28, 10 year 5.57 since inception 8.99

 

Here's what I find for Fidelity Contrafund FCNTX

 

1 Year* 4.27%

3 Year* 18.87%

5 Year* 3.15%

10 Year* 7.54%

Life* 12.16%

 

So there's a pretty big drag on how much my money can grow. Not sure why the 3 year was higher for Lincoln's edition, but the rest are lagging.

 

I'll look into the other fees and report back. Thanks again for your insight.

 

No ticker symbols denote insurance products. They is a long political history about that; insurance companies don't have to be regulated by the SEC nor agents have to be fiduciaries.

 

You don't want to look at past performance to construct a portfolio. I believe you know what a diversified portfolio looks like: large, mid, small, international and a bond fund to rebalance. All indexes, or close to indexes as possible (low turnover).

 

What is the percentage match? And, have you asked your employer to add Fidelity, Vanguard, TIAA CREF? If so, what did they say?

 

Steve

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Thanks for the replies, Tony and Steve. It's odd in that there are no "ticker symbols" for the funds in which I can invest. My thinking is that they are regular old funds, but Lincoln adds "VIP" to the name in order to hide the fact that they won't credit my investment the same as if I was in the "real" fund.

 

For example, I have some of my money in the "Fidelity VIP Contrafund". The link you provided indicates that the performance of that plan was

 

One year -1.18, 3 year, 19.13, 5 year 0.28, 10 year 5.57 since inception 8.99

 

Here's what I find for Fidelity Contrafund FCNTX

 

1 Year* 4.27%

3 Year* 18.87%

5 Year* 3.15%

10 Year* 7.54%

Life* 12.16%

 

So there's a pretty big drag on how much my money can grow. Not sure why the 3 year was higher for Lincoln's edition, but the rest are lagging.

 

I'll look into the other fees and report back. Thanks again for your insight.

 

No ticker symbols denote insurance products. They is a long political history about that; insurance companies don't have to be regulated by the SEC nor agents have to be fiduciaries.

 

You don't want to look at past performance to construct a portfolio. I believe you know what a diversified portfolio looks like: large, mid, small, international and a bond fund to rebalance. All indexes, or close to indexes as possible (low turnover).

 

What is the percentage match? And, have you asked your employer to add Fidelity, Vanguard, TIAA CREF? If so, what did they say?

 

Steve

 

 

I haven't asked yet because I'd like to get some comparable data between what's offered and what else is out there. But Vanguard and Fidelity are burying their information on their websites (if it is available at all).

 

For example, in the prospectus for the MultiPlan Select (the Lincoln plan that is our umbrella, with a number of different "funds" to choose from" it has this:

This Example is intended to help you compare the cost of investing in the contract with the cost of investing in other variable

annuity contracts. These costs include contractowner transaction expenses, contract fees, separate account annual expenses,

and fund fees and expenses.

 

The Example assumes that you invest $10,000 in the contract for the time periods indicated. The Example also assumes that your

investment has a 5% return each year and assumes the maximum fees and expenses of the contract and any of the funds.

Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

 

1) If you surrender your contract at the end of the applicable time period:

1 year 3 years 5 years 10 years

$1,086 $2,059 $2,834 $4,880

 

2) If you annuitize or do not surrender your contract at the end of the applicable time period:

1 year 3 years 5 years 10 years

$485 $1,456 $2,431 $4,880

 

There is more information on exactly what the charges are (e.g., each fund has some charge associated with it, but those vary as to the fund). And there is the whole

 

Deductions from the VAA

 

We apply to the average daily net asset value of the subaccounts, a mortality and expense risk and administrative charge which is

equal to an annual rate of 1.002%.

 

which I am guessing is what makes the thing an annuity (insurance).

 

I can't seem to find any info at Vanguard or Fidelity on costs except a phone number to call for a consult. Haven't looked at TIAA-CREF too closely.

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What is the percentage match? And, have you asked your employer to add Fidelity, Vanguard, TIAA CREF? If so, what did they say?

 

Steve

 

3% after the first year. The employee handbook does not identify a plan administrator or someone in the org that is supposed to administer the plan or know what is going on with it.

 

Before I start poking around here at the org, however, I would like to have some low-cost option to compare to Lincoln's Multi-Plan Select variable annuity.

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OK, I finally talked to the plan administrator here at the org, and she admitted she knows little about it (I had trouble convincing her that it was an annuity until showing her the front page of the prospectus which says "variable annuity"). They went with Lincoln about 14 years ago on a recommendation from someone that had a Lincoln 403(b) via a school district.

 

She said she was going to talk to the Lincoln guy and learn more about it. I'm sure he's going to give her glowing stuff about it, but I've learned how hard I can push around here. I was all smiles and head-nodding. I may just give Vanguard a call tomorrow myself and see what I can learn. Maybe someone there can give me comparable cost numbers.

 

Anyway, it's a start. Thanks to all who participate on making this site what it is -- I wouldn't have gotten this far without you.

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