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Kim

Comparing 403bs

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Guest Sierra

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):

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The world does not have to be perfect for your NYSUT to have gone the no-load route, as a true endorsement (no $4,000,000 fee) and then conduct workshops, newsletters, websites, 800 # etc at its own expense ie the NYC teachers union which has the highest 403(b) participation rate of any school district in the nation. This is proof that one does not need to hold the hand of a shark in order to be encouraged to start investing early in one's career. Your NYSUT decided to use a shark for this encouragement for one reason and one reason only ===$4,000,000 ANNUAL ENDORSEMENT FEE.

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Guest Sierra

Your right this discussion has not taken into consideration those "hidden fees". How much do you think we should add onto the 2 percent which is not hidden?

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Even stranger...when you click on the "financial education" link, you come to this page:

 

http://www.coursesetter.com/education/inv_basics.jsp

 

A quick summary: there are three main factors to consider in your investments: goals, time frame, and risk tolerance. (Risk tolerance then leads, naturally, to a brief discussion of asset allocation.)

 

Surprisingly, fees are not mentioned anywhere in this "financial education"!

 

(Hey, wait a sec...wasn't Education Minnesota mentioned alongside NYSUT as having done excellent work for their members in that "Shark Attack" article? Maybe that was just a typo, too?)

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Guest Sierra

A quick summary: there are three main factors to consider in your investments: goals, time frame, and risk tolerance. (Risk tolerance then leads, naturally, to a brief discussion of asset allocation.)

 

Surprisingly, fees are not mentioned anywhere in this "financial education"!

 

(Hey, wait a sec...wasn't Education Minnesota mentioned alongside NYSUT as having done excellent work for Surprisingly, fees are not mentioned anywhere in this "financial education"!

 

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Good Morning: FT:

 

Just like you, Education Minnesota makes no mention of the import of fees on investment return. They apparently favor loaded products---just look at their lineup. So recognizing that NYC teachers may only invest in no-loads it is indeed an AFT screwup to include NYSUT/ING and Education Minnesota (in the Shark Attack article) along with NYC, as examples of teacher unions that recognize the import of excessive fees on investment growth and because of that key recognition do not allow their members to invest in loaded products. This joint decision of the NYC school district and the teachers union was and is based on sound fiduciary principles.

 

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Guest Sierra

Tomorrow Wall Street Week will be interviewing Ted Siedle a federal securities attorney. He will disclose the shark like fees associated with 403(b) investing. I wonder if he will be mentioning any sharks by name.

 

Peace and Hope,

Joel

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Guest Sierra

The following article comes from Plansponsor.

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2004 » December

Game Plan: Separate Ways

NYC's 457 forgoes mutual funds

 

 

 

» Big Changes

 

Ask any one of the 115,000 plan participants in the New York City Deferred Compensation Plan, "What plan are you in?" and they are most likely to answer, "New York City's," rather than name an insurance company or mutual fund family. How did this come about?

 

A strong sense of fiduciary duty led Georgette Gestely to go where few plan sponsors had gone before when, as director of the Pre-Tax Benefits and Citywide Programs in the City of New York Mayor’s Office of Labor Relations, the Board began a major overhaul of the 457 plan in 1994. Ten years of seeking to make the plan “smooth, cheap, and controlled” has resulted in a host of innovative cost-cutting solutions and investment management choices. “They were ahead of their time,” agrees Wendy Young, a consultant with Mercer Investment Consulting in Richmond, Virginia. Today, the Office of Labor Relations is charged with overseeing $5.7 billion in both 457 and 401(k) plan assets, run almost entirely in separate accounts.

 

Gestely was working in research and development on the health benefits side of the New York City Office of Labor Relations in 1987 when the one-year-old deferred compensation director position opened up. Gestely was tapped for the job. “Lucky me,” says Gestely, with a big smile. Soon after she took over the defined contribution reins, Gestely joined the Washington-based National Association of Government Defined Contribution Administrators. Her ensuing association with NAGDCA led Gestely to explore the length and breadth of defined contribution plan structures in the US.

 

In 1993, Gestely became president of NAGDCA. “It was an incredible opportunity to know every plan across the country,” she recalls. “If anyone was doing anything good, we put it in here,” she explains. So, it should come as no surprise to learn that, in 1994, the board began the first major step in rationalizing the 457 plan: converting the investment options of the plan from primarily mutual funds to separately managed accounts. All of the plan’s investment options are now separate accounts except for the index portion of the small-cap equity fund.

 

To make such a change, it helps to start with an unbundled program, advises Gestely. What are the benefits of a totally unbundled plan using separate accounts? First, says Gestely, expenses are minimized. The total weighted average cost of being in the plan is 34 basis points.

 

The plan now is comprised of seven core options. Only the index portion of the small-cap equity fund is run by a mutual fund company, the Vanguard Group. Three of the plan’s core equity options—international, small-cap, and mid-cap—are blended and style-neutral. There is also a stable income fund, a socially responsible fund, and a bond fund.

 

“[separate accounts also can] keep it simple for the participant,” says Gestely. “For us, any additional choice is a confusing choice.” Participants only need to determine if they want to be in an asset class. The board, investment staff, and investment consultants are able to evaluate each manager and its underlying holdings separately. Fund managers can be changed without any disruption to the participants, ensuring that funds keep the same values and that there is no blackout period.

 

In light of the recent trouble at mutual fund shops, the ability of the New York City plan to reduce the likelihood of trading abuses seems prescient. However, even internal fund participants can engage in so-called market timing. Even before Eliot Spitzer blew the whistle on rapid trading in mutual funds, it became apparent to the New York City plan’s custodian, in June 2003, that $10 million was coming in and out of the international fund in very short time periods. Because the fund is a separate account, Gestely was able to bring the matter before the board and initiate trading restrictions in short order. The quick fix: Whereas, previously, asset transfers back into the international fund were allowed daily, as of July 2003, transfers back into the international fund were restricted to a seven calendar days’ wait and, when that proved inadequate, were further restricted to 32 days. The plan now is poised to introduce a 2% redemption fee on all international fund transfers held for 32 days or less.

 

The board understood that participants needed help with asset allocation and discussed using what are often termed “lifestyle funds,” or a set of portfolios with a pre-mixed assortment of asset classes aimed at the different financial life cycles of participants. “[Looking at the product available in the marketplace,] we’d have no idea what we were buying,” explains Gestely. The board reached the decision to use the plan’s own core options to structure the pre-arranged portfolios, with the result that there was no extra cost to participants. These became available in 2002.

 

According to Gestely, “[These] portfolios are fundamentally different from traditional fund choices since they are on the efficient frontier and, thus, have risk/return characteristics superior to those of any single purpose fund.” This is because they represent a diversified mix of the plan’s core investment options where the managers have been selected individually by the board through a competitive bidding process. “They’re put together the same way as defined benefit plans,” explains Gestely. “Each participant is getting the benefit of a Mercer consultant monitoring his portfolio,” she points out.

 

The year 2002 was a year of major changes at the New York City fund. In addition to offering the pre-arranged portfolios, a 401(k) plan was introduced that would use the same portfolios and underlying separate accounts as the 457 plan. All participants in the 457 plan, 70% of whom are uniformed employees who retire in their 40s—New York City police, fire, corrections, clerical, and sanitation workers, and others from various city agencies—were eligible to participate in the new plan. In addition, city hospital and school personnel who participate in a 403(b) plan also were eligible to sign on to the new 401(k). Participants contributing to both the 457 plan and the 401(k) do not have to aggregate assets and are permitted to contribute the maximum to each plan.

 

While a plan Web site was launched back in 1997, 2002 saw the introduction of electronic enrollment and a video communication tool. The video described the pre-arranged portfolios, emphasizing strategy over individual investment funds. It positions the portfolios as a more logical choice for participants than selecting from among the core options themselves. Everyone enrolling in the 401(k) received the video along with new enrollments in the 457 plan. With 64% of eligible employees participating in the plans, as of December 31, 2003, 6% of assets in the 457 plan had migrated to the portfolios versus 29% of assets in the new 401(k).

 

In 2003, to keep costs down further, the plan initiated both commission recapture and securities lending programs. Both of these programs would not be possible without the plan’s conversion to separate accounts. Transition to a global master custodian, The Bank of New York, was completed, a task necessitated by the switch to separate accounts. This year, the plan will be adding a self-directed brokerage window in order to broaden the investment choices available to plan participants, and there are still plenty of other challenges ahead. A tall order for some but, for the New York City Deferred Compensation team, it is all part of the job.

 

 

 

 

 

 

 

 

 

 

 

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Thank you for all of your responses! I guess that Fidelity and ING are the two that you guys have recommended. I, unfortunately, do not have a good grasp on exactly how to research these and other different companies. I guess I have to look for any commissions and fees that will be paid by me, however I am having a very difficult time. The Fidelity looks good. . but I don't know if I am confident to do it on my own! How would I go about finding a financial advisor? Is that someone who is not associated with one of these companies that sells 403B plans, and would not be biased? That is what I think I need! Thanks again for your input, and I would greatly appreciate any more. I am devoting this winter break to finding a company to go with and starting to invest (I have procrastinated, but I just haven't felt comfortable comitting yet). Happy New Year.

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Kim, it sounds to me like you can go one of three ways:

 

1.) Sign on with Fidelity, spend enough time on their website that you can gain confidence to tell your investment options apart, and proceed accordingly. Fidelity's website is pretty solid with educational material, so it depends what kind of time you want to put into it.

 

2.) Sign on with Fidelity, and hire a financial planner to advise you. Be aware of what you are paying for this advice, and whether it represents too large a financial commitment, given that you sound like you're just starting out. This may represent a better plan for the future, when you've amassed a certain level of savings.

 

3.) Sign on with ING, and take advantage of the assistance that is offered you. Before making that commitment, I'd advise finding out who the agent is that's assigned to your district, and meeting with him/her. Get a good sense of whether this person is properly credentialed (CFP, for example?) and how straightforward they are with you in terms of overall cost.

 

Please feel free to use the "PM" function to send a private message if you want to kick around more of the details...I'd be happy to speak about this further with you that way.

 

Good luck!

 

 

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Guest Sierra

Is that someone who is not associated with one of these companies that sells 403B plans, and would not be biased? That is what I think I need!

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I agree! If you follow this bedrock principle you can never go wrong. If you use a commissioned salesperson with or without personal credentials you would be paying someone who is in fact biased. There is no getting away from the fact that the bias is built-in.

 

Peace and Hope,

Joel L. Frank

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Is that someone who is not associated with one of these companies that sells 403B plans, and would not be biased? That is what I think I need!

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I agree! If you follow this bedrock principle you can never go wrong. If you use a commissioned salesperson with or without personal credentials you would be paying someone who is in fact biased. There is no getting away from the fact that the bias is built-in.

I don't disagree with the value that a good financial planner can add...I merely question the wisdom of hiring one when you are starting out with an account balance of $0, especially when you're planning on consulting the planner on even a semi-regular basis. Better to work with a "biased" but skilled advisor than to throw away 10% of the initial investment or more on unbiased advice.

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Guest Sierra
Is that someone who is not associated with one of these companies that sells 403B plans, and would not be biased? That is what I think I need!

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

I agree!  If you follow this bedrock principle you can never go wrong.  If you use a commissioned salesperson with or without personal credentials you would be paying someone who is in fact biased.  There is no getting away from the fact that the bias is built-in.

I don't disagree with the value that a good financial planner can add...I merely question the wisdom of hiring one when you are starting out with an account balance of $0, especially when you're planning on consulting the planner on even a semi-regular basis. Better to work with a "biased" but skilled advisor than to throw away 10% of the initial investment or more on unbiased advice.

Kim,

 

By definition a biased advisor is not skilled in your best interests. He is skilled in generating sales for his broker/dealer along with the commission income they generate. He/she makes a living by selling not advising!

 

I would advise you to sign up with Fidelity asap! Invest your money in a stable value fund and then take some time to learn about the basics of investing. The Fidelity website is an ideal place to become a smart consumer/investor. You can also use their 800#. But you owe it to yourself to get started NOW!!!!

 

You may also want to ask Fidelity about their pre-arranged or "targeted funds" that take into consideration your age and tolerance for risk.

 

Peace,

Joel

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