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Good News For Vanguard 403B Account Holders

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Looking at the expense ratio of the admiral shares compare to the investor shares, it looks like I will be saving an average of 11 basis points. With the $60/year fee, I'll still be saving about $100 per year for now. But when my portfolio grows in the future, the cost saving will be way more.

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Well, if this new $60/year fee is correct, my situation is comical.

 

Years ago I had a 403b at Vanguard, but with changing laws/district policies, Vanguard became unavailable for new contributions. The money remained invested, and once I hit 59 1/2, I rolled the Vanguard 403b into my Vanguard IRA. Fidelity and Calstrs Pension2 were still options with my district, so I've been contributing to both of those--Pension 2 for the stable value fund, Fidelity for the lowest costs. (Spartan fund er's plus $5/quarter). A few weeks ago, I was looking at my plan's 403b options and to my surprise, Vanguard was back on the list. I was excited that I could get rid of that $5/quarter charge while adding to my Vanguard holdings, where I eventually plan to merge all of my accounts. I directed part ($500) of last month's contribution to Vanguard, just to confirm that the old account was available again. I'm expecting that will show up in the Vanguard account this week. So, if this news is correct, Vanguard will charge me a fee of $60/year on a balance of $500. Even with continued contributions, that balance would have to grow considerably to make the difference between my LifeStrategy fund (.14% er) and the component Admiral funds (.10%, maybe?) into a net savings.

 

I'm old enough that I should be able to roll the Vanguard money into my IRA, close out that 403b, and continue to put new money into Fidelity. But it is troubling that Vanguard is adding new fees from third-party operators. I don't recall any such fees in prior years. Technically, I believe they did state a $15 or $20 annual fee, but that was waived if you had some minimum balance in your combined Vanguard accounts, so I never paid any such.

 

I understand why those Bogleheads are upset; given Vanguard's historical commitment to reducing costs, this new fee feels like a small betrayal, and undermines confidence in Vanguard's future direction.

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Whyme

 

You have options to avoid that fee. Take it.

 

403bs are not meant to be holding tanks for small amounts of money. They are designed to be grown slowly into larger amounts for retirement. It costs a company a great deal of money to maintain customer accounts.If I remember correctly Vanguard and Fidelity both charged a low balance fee on these type of accounts and maybe still do. If remember it correctly it was like 5 dollars a month per fund for 403b funds under certain balances at Vanguard. . But its been a long while for me and I have never been in that situation so maybe those charges don't exist anymore.

 

Normally I hate fees especially from companies that are only interested in their own bottom line. But I don't see this at all with Vanguard. I still see them lowering their costs at every turn for the customer. Did you notice that while they added a fee they simultaneously lowered fund expenses? They didn't have to do that .The new 403b services makes Vanguard more competitive in this arena. Also I would bet the 403b market isn't all that large for Vanguard . Its not common to find Vanguard on k-12 provider lists. The fee may be necessary because of the economies of scale. Vanguard may be finding that 403b's aren't producing enough money for them to continue offering it without some adjustments.

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As a new-ish retirement saver, I only have $2100 in my 403b and this new fee really stings. Our third party administrator charges a $4/month "administrative fee" to contribute to a Vanguard 403b (this is in addition to Vanguard's current $15/year fee) so I've stopped actively contributing to it in favor of other no/low-fee options available to me. Thus, my $2100 won't grow considerably in the future and the new fees will nearly negate any gains :(

 

When I started with my current employer, the 403b was my only option for retirement savings. I was excited to see Vanguard as an option but didn't realize I would be paying $63 in fees each year. At that time, I didn't make enough to put away an amount that would justify the fees, so I stopped contributing to that particular account. About two years ago I became eligible to contribute to a 457 with Vanguard Wellington as a fund option, with no administrative fees or account management fees, so that's where I've been directing the bulk of my contributions. I also max out my IRA each year.

 

I'm glad people with large amounts in their Vanguard 403b accounts will save money with this change but it's terrible for people like me. I'm still with the same employer so I can't roll the money into an IRA or other investment. My only options are to find a new 403b to move the money to or to pay the $60 annual fee, effectively erasing anything I earn.

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I sympathize/empathize with the fact that a disproportionate burden of flat fees fall on those who can least afford it. Paying $48 (TPA fee) + $60 (Vanguard/Newport) per year represents a roughly 5% fee if your balance is only $2,100. You're right, at that rate your wealth will probably shrink. Still, this Vanguard plan is clearly in the Top 3 plans I've seen in Florida.

 

Aside from the IRA, I assume your "no/low-fee" option is the 457(b). Who offers this plan? What investments are available in the plan? What are the fees for the plan and the funds (0.16% or 0.25%)? Is it possible to roll a 403(b) into a 457(b)? Maybe that is a wise choice?

 

Sadly, the harsh reality is that so many people don't make enough to save for retirement. Generally when I talk to people with "low" balances, I make the case that their savings rate is going to hurt their retirement far more than fees. Sometimes they're already doing everything they can to save and sometimes they can tighten their belts. It is a tough situation.

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I sympathize/empathize with the fact that a disproportionate burden of flat fees fall on those who can least afford it. Paying $48 (TPA fee) + $60 (Vanguard/Newport) per year represents a roughly 5% fee if your balance is only $2,100. You're right, at that rate your wealth will probably shrink. Still, this Vanguard plan is clearly in the Top 3 plans I've seen in Florida.

 

Aside from the IRA, I assume your "no/low-fee" option is the 457(b). Who offers this plan? What investments are available in the plan? What are the fees for the plan and the funds (0.16% or 0.25%)? Is it possible to roll a 403(b) into a 457(b)? Maybe that is a wise choice?

 

Sadly, the harsh reality is that so many people don't make enough to save for retirement. Generally when I talk to people with "low" balances, I make the case that their savings rate is going to hurt their retirement far more than fees. Sometimes they're already doing everything they can to save and sometimes they can tighten their belts. It is a tough situation.

 

My 457b is offered through Prudential and the list of investment options is available here. ER for the plan is .16% (they are Admiral shares). Is there a better fund on that list than Vanguard Wellington? Unfortunately, I cannot roll the 403(b) into any other type of investment unless I quit my job which definitely would not be a wise choice ;)

 

I currently contribute 8% pretax to a retirement account offered through my employer (this is mandatory), 5% pretax to my 457b, 5% pretax to my general savings account for emergency expenses (will stop once I have $10k in my account but I just had to buy a new car so that's going to be a few years from now), and $5500 (close to 9% of my pretax income) to my IRA. I could probably squeeze another 5% of pretax income toward retirement but I don't think I can do much more than that as I still have to cover a car payment, student loan payment, and rent in Hawaii!

 

I do wish I had known when I opened the Vanguard 403(b)(7) that the fees would skyrocket as I would have selected a different provider or opted out entirely. It feels a bit like my money is being held hostage now since I don't have the option to roll it into another type of investment. I'll create a new post to get some advice re: my other 403b options.

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I think Vanguard Wellington is a fine fund if you want 53% US stocks, 12% international stocks, and 35% fixed income. A quick look at the last 6 years suggests Wellington may have outperformed an equivalent Vanguard 3 Fund portfolio. Personally, I'm philosophically opposed to active management but this is probably the best actively managed fund in existence. I'd never talk somebody out of owning it. If you wanted something different, I also like:


1. BlackRock US Bond Index F Cl (0.07% expense ratio)

2. BlackRock US Large Cap Index (0.04% expense ratio)

3. BlackRock US Small/Mid Cap Index (0.07% expense ratio)

4. BlackRock Non-US Equity Index (0.11% expense ratio)


FYI, it looks like you've also got an additional 0.125% fee associated with the 457(b). In terms of funds available, this is a great plan. Congrats! This is just me thinking out loud, but suppose the following is true...


1. You're stuck with this 403(b)...no better options for rollovers and you're not quitting your job any time soon.

2. You're not super committed to Vanguard Wellington or the BlackRock funds in the 457(b).


IF those things were true then redirecting your 457(b) contributions to the 403(b) would lower the fees you're paying. The 403(b) flat fees are a sunk cost, that is gone regardless. But you could build a portfolio in the 403(b) that costs roughly 0.07% as opposed to the 0.285% you're paying in the 457(b).

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I sympathize/empathize with the fact that a disproportionate burden of flat fees fall on those who can least afford it. Paying $48 (TPA fee) + $60 (Vanguard/Newport) per year represents a roughly 5% fee if your balance is only $2,100. You're right, at that rate your wealth will probably shrink. Still, this Vanguard plan is clearly in the Top 3 plans I've seen in Florida.

 

Aside from the IRA, I assume your "no/low-fee" option is the 457(b). Who offers this plan? What investments are available in the plan? What are the fees for the plan and the funds (0.16% or 0.25%)? Is it possible to roll a 403(b) into a 457(b)? Maybe that is a wise choice?

 

Sadly, the harsh reality is that so many people don't make enough to save for retirement. Generally when I talk to people with "low" balances, I make the case that their savings rate is going to hurt their retirement far more than fees. Sometimes they're already doing everything they can to save and sometimes they can tighten their belts. It is a tough situation.

 

My 457b is offered through Prudential and the list of investment options is available here.

 

Aloha!

 

Another Island Savings Plan user! I just recently started contributing. From what I've read, it looks like you meight be able to roll 403b to the 457? "Other qualified retirement accounts may be consolidated into the Plan by a Direct Rollover."

 

This is what I know about the 457b fees:

 

"There are general Plan administrative and recordkeeping fees that the employee pays. This fee amount is 12.5 basis points, which is .125% of your account balance, and is paid to Prudential Retirement. This annualized fee is deducted from your account on a quarterly basis.

 

For example:

If the quarter-end account balance is $35,000, the fee deduction is calculated as follows:

.00125 divided by 4 = .0003125

.0003125 multiplied by $35,000 = $10.94 in fees

Each investment option charges an investment management fee, which is deducted from the investment option’s return."

 

Since you're with Vanguard, I'm wondering if your 403b is with UH? If so,... options here. I do notice that UH's 403b has Security Benefits, which has been discussed elsewhere on the board as a good option, assuming you can use Security Benefits' NEA DirectInvest option. I don't know what Vanguard's surrender fees are though.

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SecurityBenefit has an excellent plan called NEA DirectInvest. You can build a fantastic 3 Fund Portfolio with Vanguard Admiral funds. They add on a 0.01% 12b-1 fee. They also have a $35/year fee that they drop when you get to $50k.

 

I'm enrolled in the plan and I love it. I'd be happy to answer questions about the plan and how to enroll in it if you decide that is what is best.

 

I wrote about the plan here.

 

I wrote about how to enroll here. It is a bit specific to OCPS (Fl) but is still useful.

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I think Vanguard Wellington is a fine fund if you want 53% US stocks, 12% international stocks, and 35% fixed income. A quick look at the last 6 years suggests Wellington may have outperformed an equivalent Vanguard 3 Fund portfolio. Personally, I'm philosophically opposed to active management but this is probably the best actively managed fund in existence. I'd never talk somebody out of owning it. If you wanted something different, I also like:
1. BlackRock US Bond Index F Cl (0.07% expense ratio)
2. BlackRock US Large Cap Index (0.04% expense ratio)
3. BlackRock US Small/Mid Cap Index (0.07% expense ratio)
4. BlackRock Non-US Equity Index (0.11% expense ratio)
FYI, it looks like you've also got an additional 0.125% fee associated with the 457(b). In terms of funds available, this is a great plan. Congrats! This is just me thinking out loud, but suppose the following is true...
1. You're stuck with this 403(b)...no better options for rollovers and you're not quitting your job any time soon.
2. You're not super committed to Vanguard Wellington or the BlackRock funds in the 457(b).
IF those things were true then redirecting your 457(b) contributions to the 403(b) would lower the fees you're paying. The 403(b) flat fees are a sunk cost, that is gone regardless. But you could build a portfolio in the 403(b) that costs roughly 0.07% as opposed to the 0.285% you're paying in the 457(b).

 

 

That's not a bad idea. How did you come up with the 0.07% figure? I have about $10k in my 457b and am adding roughly $3200 annually. If instead I contributed this $3200 to the 403b-- or even doubled that to $6400-- then in one year, I'd have about $18,500 in my 403b (and nothing in my 457b). However, I'd be paying $108 annually in fees (about .58%) on top of the ER... wouldn't I? The % cost would go down as the balance increased, but that still sounds awfully high for the first few years. Currently, I'm paying $15/year in fees (no admin fee because I'm not actively contributing).

 

My other available 403b options are here (click "Investment Providers" at the top). Of these, I believe the forum here likes TIAA-CREF, Security Benefits (if NEA DirectInvest is an option-- still waiting to hear back from my HR about this), Aspire, and PlanMember Direct, if I were to select something other than Vanguard. What are your thoughts on these? If I'm not actively contributing to the 403b, I think PlanMember Direct has the lowest fees-- would be about $8 annually with my current balance. However, if I'm actively contributing, that would only be a good deal until I hit $10k (if Security Benefits is available) or $20k (if it's not and I went with Aspire). If I stay with Vanguard, I wouldn't "break even" on fees until hitting that $60k+ mark that someone mentioned previously, right? I don't know anything about TIAA-CREF but our plan details are here.

 

Thanks very much for your input! Much appreciated.

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I sympathize/empathize with the fact that a disproportionate burden of flat fees fall on those who can least afford it. Paying $48 (TPA fee) + $60 (Vanguard/Newport) per year represents a roughly 5% fee if your balance is only $2,100. You're right, at that rate your wealth will probably shrink. Still, this Vanguard plan is clearly in the Top 3 plans I've seen in Florida.

 

Aside from the IRA, I assume your "no/low-fee" option is the 457(b). Who offers this plan? What investments are available in the plan? What are the fees for the plan and the funds (0.16% or 0.25%)? Is it possible to roll a 403(b) into a 457(b)? Maybe that is a wise choice?

 

Sadly, the harsh reality is that so many people don't make enough to save for retirement. Generally when I talk to people with "low" balances, I make the case that their savings rate is going to hurt their retirement far more than fees. Sometimes they're already doing everything they can to save and sometimes they can tighten their belts. It is a tough situation.

 

My 457b is offered through Prudential and the list of investment options is available here.

 

Aloha!

 

Another Island Savings Plan user! I just recently started contributing. From what I've read, it looks like you meight be able to roll 403b to the 457? "Other qualified retirement accounts may be consolidated into the Plan by a Direct Rollover."

 

This is what I know about the 457b fees:

 

"There are general Plan administrative and recordkeeping fees that the employee pays. This fee amount is 12.5 basis points, which is .125% of your account balance, and is paid to Prudential Retirement. This annualized fee is deducted from your account on a quarterly basis.

 

For example:

If the quarter-end account balance is $35,000, the fee deduction is calculated as follows:

.00125 divided by 4 = .0003125

.0003125 multiplied by $35,000 = $10.94 in fees

Each investment option charges an investment management fee, which is deducted from the investment option’s return."

 

Since you're with Vanguard, I'm wondering if your 403b is with UH? If so,... options here. I do notice that UH's 403b has Security Benefits, which has been discussed elsewhere on the board as a good option, assuming you can use Security Benefits' NEA DirectInvest option. I don't know what Vanguard's surrender fees are though.

 

 

Aloha!! So fun to see another HI person on here!

 

Unfortunately, I think "qualified accounts" exclude the 403b. I can check with my 457b rep but the folks at Vanguard told me I was ineligible to roll my 403b into anything other than another 403b because I haven't experienced a "triggering event".

 

I am indeed with UH and I think I've narrowed the list down to a handful of acceptable-or-better 403b choices (see the last paragraph of my post just above this one)-- I'm just waiting to hear back from HR re: the NEA DirectInvest option. SecurityBenefit is listed under the approved annuity providers, but not under the approved mutual fund providers, so I'm not sure if DirectInvest is "approved". I called both UH system and my campus HR offices, SecurityBenefit, AND National Benefit Service (our third party administrator) and no one seems to know. I sent another message to the UH system HR office this morning to try and clarify... someone must know!

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On 7/20/2017 at 6:50 PM, sg808 said:

How did you come up with the 0.07% figure?

Vanguard Total Stock Market Index = 0.04%

Vanguard Total International Stock Market Index = 0.11%

Vanguard Total Bond Market Index = 0.05%

 

So depending on your allocation, your entire portfolio will have an effective 0.07% expense ratio. Maybe less, maybe more.

 

On 7/20/2017 at 6:50 PM, sg808 said:

I have about $10k in my 457b and am adding roughly $3200 annually. If instead I contributed this $3200 to the 403b-- or even doubled that to $6400-- then in one year, I'd have about $18,500 in my 403b (and nothing in my 457b). However, I'd be paying $108 annually in fees (about .58%) on top of the ER... wouldn't I? The % cost would go down as the balance increased, but that still sounds awfully high for the first few years. Currently, I'm paying $15/year in fees (no admin fee because I'm not actively contributing).

Sorry I'm confused by this.

 

If a 457b isn't allowed to rollover into a 403b (I haven't googled to know if this is true but I suspect it is), then the 10k will remain in the 457b.

 

Yes, 108/18,500 is 0.58%. But, the comparison isn't 0.58% vs 0.285%. A big chunk of the 0.58% is the flat fees that you'll be paying regardless unless you move to another 403b vendor, so the actual comparison may be something like 0.07% vs 0.285%.

 

I do agree 0.58% isn't awesome but remember to think about things in absolute dollars too. Pump that account up to a few hundred thousand over time and you'll be feeling a lot better about the percentage.

 

I assume the $15/year fee you're referencing is the per-fund fee Vanguard 403(b) currently charges, which seems to imply you hold just one fund.

 

I don't understand the "admin fee" you're referencing and how it is tied to whether or not you're actively contributing.

 

On 7/20/2017 at 6:50 PM, sg808 said:

I believe the forum here likes TIAA-CREF, Security Benefits (if NEA DirectInvest is an option-- still waiting to hear back from my HR about this), Aspire, and PlanMember Direct, if I were to select something other than Vanguard.

You may want to read Imua808's thread, since you guys are in a similar situation.

 

I spent many hours over many days trying to get somebody at Security Benefit to tell me I was allowed to use NEA DirectInvest. They never were able to confirm it, but I enrolled anyways. Security Benefit is an exploìtative company that has no interest in enrolling people in NEA DirectInvest because it hurts their bottom line. This is one reason why I have a web page on my site that explains exactly how to enroll.

 

Out of the vendors on your list that I'm familiar with, you did a good job identifying my favorites. They all allow you to build a fully diversified portfolio with low expense ratios but each of them adds on varying fees in addition to the expense ratios. Of those you identified this would be my ranking:

 

1.) Vanguard- I wrote about them here. The $60 fee makes Vanguard slightly more expensive than Security Benefit's NEA DirectInvest. Although, once you hit $600k SecurityBenefit becomes more expensive because they add on a 0.01% 12b-1 fee. Either way these differences are small enough that I'd rather be involved with a reputable company like Vanguard who fights on behalf of investors.

2.) Security Benefit's NEA DirectInvest- I wrote about them here. They charge a small flat fee plus the 0.01% 12b-1 fee.

3.) Aspire- I wrote about them here. They charge an AUM percentage fee.

4.) PlanMember Direct- I wrote about them here. They charge a bigger AUM percentage fee.

5.) TIAA- I wrote about them here. They charge an even bigger AUM percentage fee. Steve and I have had spirited discussions about this, but I'm of the opinion that their fee crosses into exploìtative territory (although it may be different in Hawaii).

 

On 7/20/2017 at 6:50 PM, sg808 said:

If I'm not actively contributing to the 403b, I think PlanMember Direct has the lowest fees-- would be about $8 annually with my current balance. However, if I'm actively contributing, that would only be a good deal until I hit $10k (if Security Benefits is available) or $20k (if it's not and I went with Aspire). If I stay with Vanguard, I wouldn't "break even" on fees until hitting that $60k+ mark that someone mentioned previously, right? I don't know anything about TIAA-CREF but our plan details are here.

I don't understand the distinction you're making between actively contributing or not. As far as I'm aware that doesn't impact the fees you pay, but I can easily be ignorant on some of the technical details of plans.

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Check to see whether TIAA-CREF is offering a stable value fund. (It might be called a "traditional annuity.") That functions basically like a higher-paying money market fund, holds little risk, and would be a reasonable place to park a small chunk of your retirement assets. And, despite the word annuity, you can move money out of there anytime without penalty (at least that's the way TIAA used to do it).

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