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tony

Good News For Vanguard 403B Account Holders

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FYI

 

 

Vanguard has expanded its 403b services according to a letter my wife received today.

 

 

  • You will now be able to get Admiral Shares in your 403B (This will lower your expenses significantly more as only investor shares are currently available.
  • You will be able to make Roth 403b contributions
  • Loan services will be available through your 403b
  • A 403b enhanced Vanguard website will become available
  • They are partnering with Newport Trust Company to serve as their custodian and to expand 403b services

 

This won't happen until later this year but it looks like Vanguard felt their 403b plans needed some upgrades and greater support for its investors. Perhaps this overall move will eventually open the door to more schools being able to add Vanguard directly ???

 

 

Tony

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That is fantastic! I was on the phone with Vanguard's 403b/457b department a month or two ago. They told me they were working on something awesome but they couldn't tell me about it just yet. This must have been it. Great news!

 

...now we just need admiral share variants of the Target Date and LifeStrategy funds.

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Tony, nothing about a new fee attached to these changes? According to a Bogleheads thread (link below), Vanguard is instituting a $5 per month charge on 403b accounts. For those with small balances, that's quite a large cost.

 

By comparison, Fidelity charges $5/quarter as a recordkeeping fee to 403b holders, and offers ultra-low cost funds--what used to be called Spartan funds (though they also have high-cost managed funds available, too, so one has to be vigilant). If this is true about the fees, Vanguard is raising costs well above the level of their competition. Disappointing from Vanguard.

 

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=223355

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Whyme

 

Actually, I am not sure why they sent the letter to my wife as neither one of us has 403b accounts open. When we retired we transferred it over to a Vanguard IRA so we could get Admiral shares. We transferred hers more recently so maybe she was still active in the computer. I shredded the letter just minutes ago so I can't go back and look. I think there was something about fees in it but I didn't look closely at it. . It sounds like everyone regardless of assets will be paying $60.00 a year now in a 403b? .Thats what the Boglehead site posters seem to say. . I remember having to pay more in fees because there where no Admiral shares available in their 403b which I thought was unfair but still very low cost compared to others.

 

Vanguard is going through a growth spurt of unparalleled proportions . I am sure there are some growing pains associated with trying to keep up for the growing amount of investors. I don't know if they are partnering with Newport Trust because they want to get out of the 403b management business and the new fee originates from having Newport take over administrative management duties or because they need to outsource in order to keep up with the growth. It might be both reasons. Or, maybe ,simply its because they are expanding their services and it might come with additional cost. I don't think $60.00 dollars a year as that unreasonable. You are aware that anyone going through Aspire or 457B plans and others pay management fees too. Adding loan services and other services adds to costs. I would prefer a flat fee than one based on a percentage.

 

Lets try and keep things in perspective. I never sweat the management fees at Vanguard. I figure getting admiral shares overtime negates those fees in a 403b by a wide margin. If you are in a Vanguard fund that doesn't offer Admiral shares then you can move your money over to funds that do.I'm no math whiz but thats just what my brain tells me. Still, knowing Vanguard this fee will be better explained in the future and may very well go down in time.Sure you can move your money to someone else with less 403b fees like Fidelity but there is no guarantee they won't follow suit in the future.

 

Tony

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This development leads me to the following questions since I never had the privilege of investing directly with Vanguard with my 403b.

  1. Is the $60 annual fee in lieu of the fund expenses? Seems to be implied which is hard to believe! The Boglehead thread mentioned this but most of the posts were people angry about these charges, feeling that Vanguard increased their fees violating their overall philosophy.
  2. Are the total fees via Newport now more than Aspire?
  3. Will more public k12 districts put Newport on their 403b list?

IMO, Vanguard did this because they cannot deal with public k12 bureaucracy. They will never have a 403b contract with LAUSD for example, because my district is very difficult, and demanding. But perhaps Newport can meet more districts demands.

 

TIAA IMO and in the opinion of others, have withdrawn from the 403b market because they messed up politically never understanding the K12 culture. This might be Vanguard's strategy of entering the market, but they have to charge fees.

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Steve

 

I meant to add that and didn't but you are right. Maybe they are sick of dealing with the 403b bureaucracy !!!! and want someone else to do it.

 

 

And since they are offering Admiral Shares in a 403b now which lowers fees are they really raising fees?

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If anybody wants to get to the bottom of this, you need to contact James Rollar:

If my schedule allows I'll be calling him this week, posting relevant information on this thread, and updating my web site if appropriate. If anybody has specific questions, post them and if I remember I'll ask them for you.
Believe me, I want $0 in fees but we need to quantify the $60/year fee. Once your account hits $66,666.66, the admiral shares (0.09% cheaper) pay for the $60/year fee.

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I think folks over at Bogleheads are overreacting. I still remember getting some teacher folks transferred out of Valic , American Express ,and others where they where paying 2% or more in expense ratio plus loads!! and lowering their fees significantly by putting them in Vanguard . Then when I mentioned a small administrative fee they would go crazy and call Vanguard, Aspire or our 457b rip offs. I just think folks don't understand which fees matter more than others.

 

Vanguard 403b's are without question lacking some of the services others are providing like a Roth option and loan service (which I totally disagree with BTW) so it seems to be they are trying to upgrade services for Vanguard 403b investors which may make them more competitive in the 403b 12K market. Newport will probably being doing the dirty work in 403b land so Vanguard can focus on what they do best.

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Imua

 

I am not sure any of us really know all the details yet of this move. Don't let this sway you away from Vanguard. This really is a minor mostly positive change. We will know more soon. All I see is positives here if you are a Vanguard 403b participant. Vanguard always seems to do the right thing for its investors.

 

 

Tony

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So this would only affect folks who are dealing directly with Vanguard as a service provider? It doesn't affect Vanguard funds with 403bs managed by Aspire or Security Benefits, etc?

 

I peeked over at the bogleheads thread and saw ed's breakdown of fees, and I think I get it, but I guess any price raise without being very clear what the fee jump is paying for can be upsetting.

 

$60/yr as a flat fee does seem competitive when compared to other 403bs, who take annual administrative fees plus basis points on top of the fund ER.

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So this would only affect folks who are dealing directly with Vanguard as a service provider? It doesn't affect Vanguard funds with 403bs managed by Aspire or Security Benefits, etc?

 

 

I would imagine this would be correct but we will have to see the details. I think the Bogleheads are flipping out over nothing. You got a guy on there who has a 1.4 million dollar portfolio plus other money and he is worried about a $60.00 dollar a year fee?

 

We are not seeing the big picture here. Just my opinion of course.

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The guy with the $1,400,000 portfolio just saved approximately $1,260 per year by gaining access to Admiral shares.

 

Flat fees and lower AUM fees benefit larger portfolios. So the only valid criticism I can imagine is that the new fee structure benefits the wealthy, possibly at the expense of the the less wealthy. This complaint hasn't come up yet and I don't expect it to.

 

I'm not going to do the math but my intuition tells me that even somebody saving for a modest retirement will still come out ahead, just not as far ahead as those with large portfolios.

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The guy with the $1,400,000 portfolio just saved approximately $1,260 per year by gaining access to Admiral shares.

 

Thats the point I was trying to make minus the math. What is he freaking out about?

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