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MO districts join to form low cost 403b/457 plans

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bluejay1975 has posted about her/his school district’s 403b457 plan on the Boglehead forum. https://www.bogleheads.org/forum/viewtopic.php?f=1&t=234118 and PMs. This district is a member of a consortium of 39 districts and instead of each district having a number of vendors, now they all have only one—VALIC. The districts were able to reduce costs significantly and also increase participation. Each school in the district is assigned an advisor that is said to be salaried and not working on commission. The consortium is in Missouri and is called Cooperating School District Retirement Trust (CSD-RT). This website explains the new plan to employees: http://1hmfgi1zzk1c24sh788c5ct8.wpengine.netdna-cdn.com/wp-content/uploads/sites/5/2015/10/Frequently-Asked-Questions-CSD-Retirement-Trust.pdf

Funds: http://1hmfgi1zzk1c24sh788c5ct8.wpengine.netdna-cdn.com/wp-content/uploads/sites/5/2017/05/CSD-Retirement-Trust-Investment-Options-03.31.17.pdf
Vanguard Institutional Index Inst VINIX, ER 0.04% 
Vanguard Small Cap Index Admiral VSMAX, ER 0.08%
Vanguard Total Intl Stock Index Admiral VTIAX, ER 0.07%
Vanguard Total Bond Market Index Admiral VBTLX, ER 0.06% 
Vanguard Target Retirement funds, ER 0.13% to 0.16%
also 22 other index and managed funds

https://www.edplus.org/cms/lib/MO01928355/Centricity/Domain/101/Retirement Trust Employee Benefit That Benefits All.pdf
This website promotes the consortium plans to district administrators. The Investment Management Fee as of 5/31/17 is 0.13% and there’s a $20 Annual Fee. A 3 Fund Portfolio could be had for a total of about 0.20% and $20. Using a Target Retirement fund would total about 0.28% and $20. This plan is about 2 years old and the average costs have been reduced from 1.57% to 0.45% plus $20, while participation has increased by $105M.

I realize this can’t happen in states like CA and WA where the insurance lobby has bought laws that prohibit K-12 districts from having a single vendor. For the rest of the country, doesn’t this sort of organization look promising?  

Edited by krow36
Incorrect info. See next post.

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I’d like to suggest that Dan and Scott do a podcast on the Cooperating School District Retirement Trust (CSD-RT). I suspect that the folks who run it would be willing to help publicize it. 

Positives of this plan:
1. No annuity sales persons.
2. A single face-to-face salaried person, is available to each school. Teachers seem to think they need a face-to-fact contact.
3. Very low-cost index funds are available (either VG Admiral or Institutional class).
4. The AUM fee of 0.32% and the investment management fee of $20 per year are relatively low.
5. The total number of funds to choose from is relatively small—just 23 plus 12 VG TR funds.
6. Joining 39 school districts results in savings in administration costs.
7. Both 403b and 457 plans are available.
8. The districts’ CSD-RT committee hired an advisory firm that helped with RFPs to competing vendors. 
9. The funds have no fees that are due to revenue sharing or 12(b)1 fees. 

Questions I have:
A) Do the school districts cover some of the administration costs?
B) Is the CSD-RT continuing to add districts?
C) How much has the percentage of employee participation increased?
D) How many vendors did the districts have before this plan was adopted? 
E) Do the VALIC reps encourage use of the “managed” funds rather than the “index” funds?

F) Are these plans considered ERISA plans?  

G) Do the VALIC reps use their status to sell other products which do have commissions, such as annuities, insurance, IRAs, taxable brokerage accounts, etc.? If so, is this what is paying for the low cost of the CSD-RT plans? If so, would this cancel out the low-cost benefit of the 403b/457 plans? 

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EdPlus (CSD’s new name) has a CSD Retirement Trust History PDF that answers some of the questions I posted. https://www.edplus.org/cms/lib/MO01928355/Centricity/Domain/101/Narrative on the CSD RT 12.6.17.pdf
I made a mistake in stating that the asset based administrative fee was 0.13%. (The weighted average ER is 0.13%.) As of Jan 2017, the admin fee is 0.32%. 


 District Fees:
   Districts pay no fees to sponsor the CSD-RT. 
 Participant Fees:
   Participants currently pay the following fees, which are a “line item” on participant statements for the 
following service providers: 
    1. CSD-RT Marketing, Legal, Insurance, Administration & Governance - $20 fixed fee/annum. 

    2. Participants pay a 0.32% (32 bps) annual asset based administrative fee. 
        *  VALIC Recordkeeping, Administration, Education, Compliance & Advisors - 23bps/annum 

        *  CBIZ Consulting and Investment Advisory Services - 8.75bps/annum 

Investment Management Fees (ERs):
  Range from 0.04% to 0.94% depending on investments selected. The current weighted investment 
management fee average based on participant investing behavior is 0.13% (13 bps) which is netted from investment returns. 

Total Fees: Based on the weighted investment management fee above, a participant with a $10,000 account balance will pay $52/annum for administrative costs and $13 in investment management fees. When the Trust launched in January 2010, a participant with a $10,000 balance paid a total of $157/annum, today it’s 59% less.

The Retirement Trust is growing. As of Nov 30, 2017, there are 43 school districts that are trust members:
32  St. Louis Metro
10 Kansas City Metro
1  Menasha, WI
There are now 5200 participants and 126M in plan assets.
Power Point at https://www.edplus.org/Page/592

A three fund portfolio could have a total fee as low as ~0.06% + 0.38% = 0.44% + $20. Not as low cost as CalSTRS Pension2 or LAUSD’s 457 with very low ERs + 0.25% with no flat annual fee. But certainly a huge improvement over the usual multi-vendor situation where the average weighted ER and other fees are far higher than 0.44% + $20! Getting rid of the annuity salespersons has got to be worth something?

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Bluejay1975, welcome to the forum! You could do either.the target date or the 3 or 4 fund portfolio. I like the 3 or 4 fund portfolio because it’s a bit lower cost, and I’m not too keen on the international bond fund that’s part of the target date funds. Using the target date fund is more simple, which many find important. The Institutional Index fund is a S&P 500 Index fund, which includes over 80% of the US stock market. That fund, the Total International Stock Mkt Index and the Total Bond Index funds are really all you need. You could add the Total Small Cap Index fund for 20% to make the equivalent of the US Total Stock Mkt. The return of Institutional Index is very, very close to that of the Total Stock Mkt Index fund. 

Have you decided on a Stock to bond ratio? How about the percent of Stock that you want international? 20% to 40% is usually recommended, although some like John Bogle think that US stocks have enough international business so are happy with 0%.

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I use the 2035 fund for my roth ira and did the same for the 457.  I'll probably just max both this year using those two funds.  Next year, if everything goes well I will be able to max or come close to maxing my 403b as well.  I work on a farm during the summer and a few weekends a month and can live off of that income so I would be able to invest most or all of my teaching salary.  My only debt is a small mortgage of 85k but it is at 4% and would rather put my money in the market right now.  I can then afford to be a little more aggressive if the market goes through a correction.  

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Hi Bluejay,

Welcome. You get around, first MMM and Bogleheads and now here. Krow already gave you great feedback about the structure of your unique plan, how to find the costs and the three fund portfolio.  One boglehead suggested staying away from "advice" from your plan record keeper. Almost all of us who post here and on Bogleheads learned to manage our money without a costly adviser. Yeah, even the fiduciaries can be costly if you are not paying close attention. I always suggest to hire a genuine fiduciary and learn from him or her for a couple of years, and let them go. Make sure said person is not a friend. 

In case you missed it, bogleheads have a lot of information on the 3 fund portfolio here: https://www.bogleheads.org/wiki/Three-fund_portfolio 

Also, you are following in the footsteps of millionaire educators husband and wife team: http://www.millionaireeducator.com/ 

happy holidays and best of furtunes,





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Yes, I've been making the rounds lately.  I usually don't post on message boards but I'm trying to make sure I am doing things right.  Had some bad luck about 5 years ago but have worked very hard and positioned myself in a really nice spot at the moment.  Wish I could have enjoyed the incredible run the market has taken over the past few years more than I have but we can only do so much.  I wish I had learned all of this information 15 years ago.  Life would look a lot different now.  

I am well aware of the advice that has been given and I like to weigh my options from what I already know to what others give in different places.  That's why I'm a science geek.  But I also realize I'm making up for lost time a bit so I'm trying to make sure I'm making the best decision with the amount of risk I'm willing to take.  Learned a long time ago that I cannot predict the future but at least I can best prepare myself.  

When I get a bit more invested I will probably look more in depth at the 3 fund approach.  

I haven't read the millionaire educator blog so I'll bookmark that.  One of these days when I learn more about finances than I do now I want to be able to give back to the teacher community and pass on my knowledge to future generations of educators.  

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OK on using a target date fund— I forgot that you are using them in your other accounts. As you say, you can consider changing to a 3 or 4 fund portfolio in the future, no problem. You’re doing a great job of saving for retirement by maxing out as many accounts as possible. 

Can you give us some input on the VALIC advisors?
E) Do the VALIC advisors encourage use of the “managed” funds rather than the “index” funds?
G) Do the VALIC advisors use their status to sell other products which do have commissions, such as annuities, insurance, IRAs, taxable brokerage accounts, etc.? 

Is there a fee schedule for the “managed accounts”? 

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Honestly, the advisor did not really push me very hard, but of course I started the meeting off with my experience of a past roth IRA set up with Waddell and Reed and my extreme displeasure of the fees associated with the funds that I initially invested in (and the poor performance of those funds).  I have mentioned that the advisor suggested the American Fund balanced R6 rather than vanguard funds and to be honest based on upfront fees (0.29 vs 0.15) there isn't a ton of difference and the american fund does perform rather well but the turnover for that fund is 79%.  Other than that he has not suggested anything to me and the only reason he did so was because I asked his opinion.  While I don't know much above investing I do know enough to ask very direct questions so I'm not sure how he would have responded to someone who really needed more advice.  While these forums on MMM and Bogleheads and now here have provided me with quite the education (and a lot more to learn), there aren't many people who really want to dig into the finer details of personal finance.  

I only know of one or two teachers who actually invest with VALIC through the program so I'm not sure about the advisor using status to push other products.  I made it very clear up front that I would not be using them for other funds and that if I wished to invest more in other vehicles then I would be using Vanguard to do so. 

Most of the conversations that occur related to finances that I witness fall into two categories....A.  "I can't wait for payday because I have no money left in my checking account,"  followed by B.  "so happy I got paid today.  Now we can go (insert spending of money here) next week(end)."   These are followed with all of the plans for vacations during the summer (with no summer job), etc.  Pretty sad, really.  I just keep my mouth shut.  

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Hello, I’m the Managing Director of the CSD Retirement Trust (CSD-RT).  I became aware of this forum recently and wanted to provide some background.  Go to https://www.edplus.org/Page/592 for current information on investment options and expenses.  The webpage has a Top Ten list, entitled: What is the CSD Retirement Trust? and CSD Retirement Trust PowerPoint.

The CSD Retirement Trust (Trust) launched in Jan 2010 after an 18-month process involving K-12 teachers, business officials and other administrators.  It started because school districts asked CSD to help them with the new IRS requirements (January 2009) re: sponsoring 403(b) programs.  That’s why we say “the Trust was created by educators for educators.”  Although the Trust started because school districts needed help with compliance and cost issues, we realized early on how it could help participants have a better retirement.  
The Trust, as plan sponsor, conducted a competitive request for proposal process before initially selecting CBIZ as its Registered Investment Adviser (RIA) and VALIC to provide administration, compliance, participant education, financial advisors and record-keeping in 2009 as partners.  The Trust repeated a similar process twice since to ensure appropriate service and low cost.  The Trust has always been a single-provider consortium, although it looked at a multi-provider approach initially.  It focuses on participant education, not on selling products (the likely outcome when there are multiple providers).

What sets the Trust apart from traditional provider environments is:
•    Our members govern the Trust.  Each one has a representative on the Board of Advisers (BOA).  The BOA elects three Trustees to act on behalf of the Trust and selects the Investment Committee which reviews investment option performance with our RIA each quarter;
•    It is participant-centric.  Our goal is improve retirement outcomes for our participants through education, “best in class” investment options, low admin and investment management fees, transparency and by incorporating the most appropriate industry trends;
      o    In addition to one on one and small group education, the Trust provides a quarterly workshop on how to optimize purchased service credits in the state retirement system using rollover 403(b)/457(b) assets (no rollover fee) as well as optimizing Social Security.  We also offer a workshop on “catch-up” provisions three years prior to retirement;
      o    Since the Trust began 94% of our investment options have outperformed their category benchmark and 94% have decreased investment management fees because we have leveraged our buying power.  Investment management fees range from 4-94 bps.  Based on actual investments, the weighted average investment fee for the Trust is 13 bps;
      o    We have decreased admin fees 59% since the Trust began.  Annually, we charge 32 bps of participant plan assets and a $20 headcount fee.  School districts pay nothing. Quarterly participant account statements show all admin fees as do our presentations; and
       o    The Trust provides a 403(b) and 457(b) (same investment), both traditional and Roth plus the option of a Managed Account and for retirees who want to convert their mutual fund assets into guaranteed monthly income, a Qualified Longevity Annuity Contract (QLAC).
The Trust has 43 members, over 5,300 participants and more than $129M in assets.  We’re shooting for 50 members and $150M in assets by year end.  In addition to Missouri, we are working in Wisconsin (currently one member and one coming on board later this year), Illinois and Michigan.  Other states have also contacted us.

I’d be happy to provide my email and cell for those who would like to learn more.

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CSRTCEO, thank you for joining the forum to discuss the Retirement Trust! 403bwise.com welcomes input from organizations running 403b and 457 plans, and the CSD Retirement Trust jumps out as a possible model for other districts and states.

Many, if not most of the active posters on this forum have been taken advantage of early in our teaching careers by very expensive annuity salespersons. Or by very expensive 403b(7) salespersons. This results in some skepticism about any 403b plan, especially one where an insurance company, VALIC in this case, has not only record keeping, administration and compliance roles, but also education and advisor roles. 

However, we realize that teachers typically need a live person to educate them on the basics of investing in 403b or 457 plans. Presenting the basics on an internet website does not seem to get the job done, alas. Is it possible for the VALIC reps to give out basic information without manipulating the uninformed into signing up for a Managed Account? How do you address this possible conflict of interest? What percentage of participants use the advisor for a “Managed Account”? What is the fee schedule for a Managed Account? 

You mention ”investment management fees” of 0.04% to 0.94%, with an weighted average of 0.17%. Are these the expense ratios?  

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My question would be the will the VALIC rep make more money by placing them teacher's in managed accounts?  Are we leaving it to the VALIC rep to educate the 24-year old teacher whether to go active verses passive approach with 40 years till retirement?  I would like to know whether there is a potential monetary conflict of interest.

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krow36 and 403bannuitysalesman.  Thank you for your comments and questions.  Re: Managed Accounts.  First, very, very few of our participants utilize managed accounts (MA).  After the fixed income option, the next most utilized investment (plan asset wise) is target date funds and we think that's good.The Trust initially added MAs when a district joining the Trust wanted it, as a condition of joining, because a number of their employees already had MAs so we grandfathered them in.  Subsequently, after reviewing the due diligence process/checklist that VALIC FAs must go through with participants, the Trust decided to make it available to all districts. VALIC reports on quarterly basis the #s so next Wed at our Board meeting, they'll update that.  The fee thru VALIC for the MA is 45bps/annum, otherwise it would be 60bps/annum, and yes FAs make more if a participant is in a MA.  Ibbotson must use the Trust investment options only.  The Trust's relationship with VALIC is different than what you may have experienced.  First, if an FA is not working out at a district, I make a call and a new FA is assigned.  I've only had to do that once.  Second, FAs are compensated based on the amount of assets under management, not based on the mutual funds participants are in.  We did that when the Trust started because we did not want FAs advice to be based on the investment management fee.  Also, none of our mutual funds have revenue sharing so the investment management fee shown is all there is.

The investment management fees range from 4bps to 94bps with a weighted average of 13bps (based on what participants are actually invested in) which is the expense ratio.  E.g. if a participant had $10,000 invested in fund that had a 33bps investment management fee,  their total investment fee would be $33 annually.  Their admin fee would $51.75 (31.75bps and $20 headcount fee).  We don't have annuities for asset accumulation purposes but do offer a Qualified Longevity Annuity Contract (QLAC) so that if a retiree wants to convert assets into guaranteed monthly income, they can.  It also allows a person to put off the Required Minimum Distribution issue until age 85 vs. 70.5.

Hopefully, I've answered your questions.  Thank you.


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