Jump to content
Kim

Comparing 403bs

Recommended Posts

Guest Sierra

From the "Shark Attack"

 

"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".

++++++++++++++++++++++++++++++++++++++++++++++

 

Dear French Teacher:

 

and remember he is not talking about TIAA-CREF annuities with its 0.03 percent charge for M & E. That's right he's talking about those 2 percent annuities with half of the expense ratio dedicated to M & E. Thats right 1 percent going for M & E. Did you not confirm that your Opportunity Plus/ING annuity charges you 1 percent for M & E?

 

Could you please help me close this umbrella?

Share this post


Link to post
Share on other sites

Joe McDonald -

 

>Hi,

Joel, I have all of my funds at Vanguard except for the one at TIAA-CREF where my new 403b funds go now. I pay an average of .25% for all of those funds. If I paid the average of 2.11% for annuities and 1.38% for mutual funds, I would be paying $5000 to $8000 more a year than I am now paying. That is year in and year out. That is serious money! I hope that Kim (if she is still reading this) takes notice that cost matter. Best Wishes.

 

Joe

 

Yoour absolutely correct and that's not the argument. How long did it take you to accumulate the $350,000 to generate those kinds of fees? How did you start contributing to your 403b? How did you know where to put your money? What led you to Vanguard and the issue of costs? How long did this "Dawning" of knowledge take?

 

The issue is that the new teacher who walks into my building today and immediately signs up for a "bad" 403b for 6% of their salary will pay the "shark" $21 for his first year's accumulation which we know is worth much more than 13k put in by a 40 y.o. teacher. Is that teacher going to do it? Should the handholding option be open to those who desire it? How many years will it take for this teacher to generate the $400 to visit with an independent planner? How long will it take for them to accumulate the assets where an independent planner will deign to look at them?

 

We certainly need changes to our current system. But the changes need to accomodate a variety of investing styles. To mandate one vision of investing as the end all and be all is as wrong as our current morass.

Share this post


Link to post
Share on other sites

Hi,

The amount is more like $440,000. I don't remember the exact amount of time I have been contributing to a 403b, but it is around 20 years. My story is profiled here on 403bwise. Read it if you care to.

 

The answer for Kim is a fee only financial planner. Since she is smart enough to find this website and ask questions, she will figure it out that paying high fees is not the way to go. I guess all of the other teachers will just get taken by the "sharks." Best Wishes.

 

Joe

Share this post


Link to post
Share on other sites
Guest Sierra

Hi Notmath,

 

Using a "shark" for hand holding early on in one's career is very dangerous to one's financial health. In my view it becomes intoxicating. You wind up really believing that the "shark" is looking out for you. The result is that the 22 year old employee with two college degrees is using the same shark, or another, or another, at age 32 and 42 and has about the same lack of basic financial education at age 42 as he/she had at 22. I know of situations where a teacher was contributing to 3 sharks at the same time "because they all visit the school and are very nice people".

 

It seems to me that this will all change with the new Regs because meaningful er involvement is a legal requirement. Additionally, it wouldn't take much to organize a joint mgt/labor committe on this topic. Is this not what unions are for? How many unions in this wonderful nation of ours went to the trouble of delivering a personal copy of the "Shark Attack" article to the mailboxes of teachers? But you cannot continue to allow the fox to guard the hen house.

 

Peace and Hope,

Joel

 

Share this post


Link to post
Share on other sites

<!--QuoteBegin--Sierra+Dec 17 2004, 10:59 PM-->

QUOTE (Sierra @ Dec 17 2004, 10:59 PM)
<!--QuoteEBegin--> "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."

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

The article has 2443 words and 40 of them refer to NYSUT/MINN/NYC. It says that these THREE organizations, not just your NYSUT "have also used their significant clout to force positive changes in the 403(b) options offered to their members and to reduce administrative expenses"

 

But the author doesn't give the specifics of these positive changes like he does about Chicago. Additionally, it makes no sense for him to include NYC in the statement because NYC always had only no-loads. In my view these 40 words are simply a screwup!!

 

In Chicago he asserts that they use to have 2-3 percent plans and now they have no-loads. So he is saying 2-3 percent plans are bad and thus "sharks" and having no-loads is ideal. Now, this makes logical sense.

 

Your Opportunity Plus is a 2 percent plan so I leave it up to you as to what the author would advise you to do especially in light of the fact that your district offers no-loads. <!--QuoteEnd-->

<!--QuoteEEnd-->

"Now Chicago school workers can buy no-load funds AND REDUCED-FEE ANNUITIES through three companies."

 

Immediately followed by the 40 words that you (apparently genuinely) believe to be a typo, praising NYSUT and two other unions.

 

Firstly, are you genuinely unaware that Opportunity Plus IS, in fact, a reduced-fee annuity? If you'd care to dispute this, please provide me with the names of ANY annuity available from a full-service company in New York State with lower fees.

 

The author couldn't be clearer in intending his/her praise for NYSUT.

 

Secondly, if this sentence is a typo, or a "screw-up," as you put it, care to explain why the AFT task force on which Steve Schullo sat endorsed ING *AFTER* this article came out?

 

Another typo?

Share this post


Link to post
Share on other sites
Guest Sierra

I will respond in CAPS:

 

 

 

Firstly, are you genuinely unaware that Opportunity Plus IS, in fact, a reduced-fee annuity? If you'd care to dispute this, please provide me with the names of ANY annuity available from a full-service company in New York State with lower fees.

 

YES BEFORE THE UNION GOT INTO THE 403B BUSINESS BY ENDORSING ING FOR A $4,000,000 FEE THE SHARKS OF NY CHARGE ABOUT 3 PERCENT COMPARED TO THE 2 PERCENT CHARGED BY OPPORTUNITY PLUS/ING. BUT ONCE AGAIN AS JOE HAS STATED JUNK IS JUNK. IF YOU WANT TO FEEL BETTER BY SAYING YOU INVEST IN A REDUCED-FEE ANNUITY YOU DO SO AT YOUR OWN PERIL.

 

Secondly, if this sentence is a typo, or a "screw-up," as you put it, care to explain why the AFT task force on which Steve Schullo sat endorsed ING *AFTER* this article came out?

 

THE ENDORSEMENT OF A LOADED CARRIER BEING MADE AFTER THE "SHARK ATTACK" ARTICLE WAS PUBLISHED PROVES THAT THE AUTHOR SCREWED UP BECAUSE IN THE SAME BREATH HE IS GIVING CREDIT FOR ATTAINING POSITIVE CHANGES TO BOTH LOAD (NYSUT) AND NO-LOAD (NYC/MINN.) ADVOCATES. THE SCREWED UP QUOTE FOLLOWS:

 

"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."

Share this post


Link to post
Share on other sites
Secondly, if this sentence is a typo, or a "screw-up," as you put it, care to explain why the AFT task force on which Steve Schullo sat endorsed ING *AFTER* this article came out?

 

THE ENDORSEMENT OF A LOADED CARRIER BEING MADE AFTER THE "SHARK ATTACK" ARTICLE WAS PUBLISHED PROVES THAT THE AUTHOR SCREWED UP BECAUSE IN THE SAME BREATH HE IS GIVING CREDIT FOR ATTAINING POSITIVE CHANGES TO BOTH LOAD (NYSUT) AND NO-LOAD (NYC/MINN.) ADVOCATES. THE SCREWED UP QUOTE FOLLOWS:

 

"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."

So it's a screwed-up quote, despite the fact that NYSUT both a.) did in fact, force positive changes in the 403(b) options offered to their members, and b.) did, in fact, use their clout to reduce administrative expenses. Which is, of course, all the article says they did.

 

Whatever, Joel. We're at the end of the line in this conversation, and your inability (or unwillingness) to comprehend simple english has gotten us there.

Share this post


Link to post
Share on other sites
Guest Sierra

So it's a screwed-up quote, despite the fact that NYSUT both a.) did in fact, force positive changes in the 403(b) options offered to their members, and b.) did, in fact, use their clout to reduce administrative expenses. Which is, of course, all the article says they did.

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

Thanks for finally admitting that it is a screwed up quote.

 

I have to say one thing about your NYSUT, they sure know how to make a great deal for themselves by getting one of the sharks to give them $4,000,000 annually in return for reducing their expense ratio from 3 percent to 2 percent, knowing all along that the $4,000,000 is paid by teachers via the 2 percent expense ratio they pay ING.

 

Your Opportunity Plus/ING shark is just 2/3 as deadly as it would otherwise be without your NYSUT endorsement. I recognize that there are people like you that feel the waters are calm because 1/3 of the sharks are no longer present.

Share this post


Link to post
Share on other sites
Guest Sierra

Here's another one that you have wrong: the city teacher's union never rejected ING out of hand, as you wrongly assert. Indeed, it was never put to a membership vote!

++++++++++++++++++++++++++++++++++++++++++++++

IT IS YOU THAT HAVE IT ALL WRONG BIGTIME! You are correct, the UFT (City teachers' union) membership never voted as individuals. ING was rejected out-of-hand by the UFT governing body. In a like fashion individual NYSUT members never voted for the NYSUT endorsement of ING. The NYSUT governing body made the endorsement out-of-hand.

Share this post


Link to post
Share on other sites
Guest Sierra

When was the last time anyone out there came across a financial journalist endorsement of 2 percent plans? It seems that only the sharks defend (in quite a feeble way) such products. Yes, once in a while one or two of their clients will give them a plug.

Share this post


Link to post
Share on other sites
IT IS YOU THAT HAVE IT ALL WRONG BIGTIME! You are correct, the UFT (City teachers' union) membership never voted as individuals. ING was rejected out-of-hand by the UFT governing body. In a like fashion individual NYSUT members never voted for the NYSUT endorsement of ING. The NYSUT governing body made the endorsement out-of-hand.

So the UFT never voted as individuals, but they got it right...because they agree with you, of course. NYSUT and the AFT never voted as individuals, but they got it wrong...indeed, they made the endorsement "out of hand," putting no thought into it whatsoever...since they disagreed with you. What an arrogant you are, denigrating the work of the AFT Task Force, and people like Steve Schullo who sat on it, simply because they came to a different conclusion than you did.

 

You can hold your breath til you turn blue, stomping your feet and insisting otherwise, but it doesn't change the basic facts here. 1.) The Shark Attack article that you are so fond of quoting singles out NYSUT for praise. 2.) AFTER that article came out, and at every given opportunity, the AFT has endorsed ING. You can call it screwed up. You can quote me out of context and claim that I agreed with you (obviously, I didn't, but don't let the facts stop you!). You can make stuff up out of thin air, as is your usual tactic. Doesn't change the facts one iota.

 

At the end of the day, there's only one difference between you and the misguided people who mandated annuities for 403(b) accounts in the late '50's. THEIR misguided good intentions led them to mandate annuities, believing that the only thing that mattered was that teachers would have money that they couldn't outlive. YOUR misguided good intentions lead you to believe that cost is the sole determining factor in choosing a 403(b) provider, and that everyone who costs more is a "shark." Sadly, it also leads you to denigrate the work of people who care. Shameful.

Share this post


Link to post
Share on other sites
Guest Sierra

Kim,

 

I trust you are still with us. Assume a 22 year old invests $4,000 annually for 45 years with an assumed investment return of 1.00 percent per year. The account balance is $226,000 at age 67.

 

The $226,000 represents the extra charges associated with electing a "full service" product provider like Opportunity Plus/ING rather than a no-load. This averages out to be $418.00 per month.

 

You can readily see that over a lifetime of accumulation we are talking about very serious money.

 

Peace and Hope,

Joel L. Frank

Share this post


Link to post
Share on other sites
Assume a 22 year old invests $4,000 annually for 45 years with an assumed investment return of 1.00 percent per year. The account balance is $226,000 at age 67.

 

The $226,000 represents the extra charges associated with electing a "full service" product provider like Opportunity Plus/ING rather than a no-load. This averages out to be $418.00 per month.

 

You can readily see that over a lifetime of accumulation we are talking about very serious money.

 

Kim, here's another little parable to illustrate the occasional usefulness of these terrible SALESPEOPLE.

 

Two teachers, aged 25, walk into a lunchroom. One of them sees a "shark," a 403(b) salesman affiliated with a full-service provider. "Uh oh, I've heard about these guys," he thinks to himself, and takes off. The other sits next to the "shark," buys his whole patter about 403(b) investing, and opens an account on the spot. He invests $50 out of each biweekly check (that's $1,300 a year) in a simple index account. The account earns him 10.5% a year, but...damn you, shark!...he pays 2.5% per year in expenses, netting him a mere 8% on his account.

 

Back to our first teacher. Too bright to be caught dead dealing with mere salesmen, he never gets around to opening an account. Five years later, though, he gets religion, and opens a no-load mutual fund account. Savvy guy that he is, he makes the same $50 biweekly contribution, his account earns 10.5%, and his expenses are a mere 0.5%, so his overall return is 10% annually.

 

25 years later, as they both look to retire at age 55...with Sharkbait having invested in his 403(b) for 30 years, and Savvyman invested for only 25, and Savvyman's returns outperforming Sharkbait's by 25%, and all other things being equal...who's ahead?

 

I'll save you the suspense. Sharkbait's balance: $147,268. Savvyman's total: $127,851.

 

But surely if they worked until age 60, Savvyman would catch up, right? Wrong. Sharkbait, $224,011...Savvyman, $213,842.

 

But all those low expenses! How could it have turned out this way? Take heart, Savvy Investor...by the age of 73, you'll catch your "foolish" shark-victim friend.

 

Moral of the story (from someone who actually lives and works with teachers, NOT from someone writing from an ivory tower about how it ought to be in a perfect world): teachers need prodding sometimes, and the "sharks" that are so bemoaned on this board and on this site nevertheless serve a valuable function. And that's even if they never provide financial advice, as is advertised as gospel truth by some members of this little community.

 

Share this post


Link to post
Share on other sites
Guest Sierra

Of course starting early has long term benefits and starting early on the no-load route has SUPERIOR benefits. The savvy guy WOULD NOT HAVE WALKED AWAY BECAUSE HE IS SAVVY. HE WOULD HAVE GONE THE NO-LOAD ROUTE IMMEDIATELY. SUCH TWISTING IS SALES PITCHING BY THE FRENCH TEACHER.

 

I KNOW DOZENS AND DOZENS OF TEACHERS THAT DID NOT CONTRIBUTE UNTIL THEY WERE IN THEIR LATE FORTIES. THAT'S RIGHT, THEY INVESTED WITH THE SHARK BECAUSE THE SHARK OFFERED THEM A BAGEL AND COFFEE AND THE SHARK IS ENDORSED BY THE NYSUT.

Share this post


Link to post
Share on other sites
Of course starting early has long term benefits and starting early on the no-load route has SUPERIOR benefits. The savvy guy WOULD NOT HAVE WALKED AWAY BECAUSE HE IS SAVVY. HE WOULD HAVE GONE THE NO-LOAD ROUTE IMMEDIATELY. SUCH TWISTING IS SALES PITCHING BY THE FRENCH TEACHER.

 

I KNOW DOZENS AND DOZENS OF TEACHERS THAT DID NOT CONTRIBUTE UNTIL THEY WERE IN THEIR LATE FORTIES. THAT'S RIGHT, THEY INVESTED WITH THE SHARK BECAUSE THE SHARK OFFERED THEM A BAGEL AND COFFEE AND THE SHARK IS ENDORSED BY THE NYSUT.

And if the shark hadn't offered them a bagel and coffee, when would the teachers in their late 40's have begun investing?

 

Their late 50's? Early 60's?

 

You prove my point for me.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...