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Rubbadubbss

Can i change the 403b/457 company that my job wants me to use?

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I recently started a new job.  The retirement accounts offered are a 403(b), a 401(a) with employer match after 1 year and 6-year graded vesting schedule and an 457(b).  I was very excited about the opportunity to put money pre-tax money in a 457 for this job. 

Today I found out my job uses Valic for retirement services.  I looked through the list of available funds, its only about 30 total.  Strangely there is no total market index fund, no S&P index fund, no REITs, and the only bond fund available is a total market bond fund.  There are a few vanguard funds, but most are target cycle retirement funds.  

I’m an investing newbie.  I am not sure how much I want to slice-and-dice my portfolio, but I do want more choices in available funds.  What options do I have to use a different company than Valic?  I’ve heard its possible to change companies, but also that companies will make it difficult to do so or you may end up losing money if you have an outside company do it because the match may not work correctly?

I’m interested in hearing the prospective from the group.  I’m 33 years old.  I currently have about 1.5 years pre-tax savings in a TIAA retirement account from my previous job,  money saved in a taxable brokerage account with Vanguard, a backdoor Roth at vanguard, and a small old fidelity retirement 403b.  Should I approach TIAA, vanguard, or fidelity investment companies to see if they can take over my 457 and 403b and make this easier?  I don’t want to lose any benefits from my current job, but Valic doesn’t seem to have the greatest options.  I've heard there is an IRS law that says you can change  to whatever company you want?

Thanks!  Would appreciate help from the group

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Is your employer a K-12 school district? I suspect that it is not, and that you work for an institution of higher learning? K-12 school districts have different 403b setup than that of colleges and universities.  It's very rare for a K-12 district to offer a match with a 401a. K-12 districts usually allow a number of vendors (often dozens!) to offer a 403b plan, most of which are annuity-selling insurance companies. Universities arrange with one vendor (sometimes several), and the bigger the institution, the more likely the lower the fees. 

I think you will have to use the VALIC plans on offer. VALIC is probably the record keeper and administer of the plans, but the funds and fees are decided by the employer. The employer can pay VALIC's fees, or the employees can pay them with higher expense ratios. Or they can share them. If you list the mutual funds and their expense ratios, we can help you decide which ones might be best. 

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Hi Rubba,

Welcome. Doesn't sound to me that you are "an investing newbie." : -)

We had Valic at my employer which was a public k-12 school district. It was only the record keeper but it was a 457b with a platform of mutual and index funds. I was on the committee and we kept a close lookout for fees. As krow indicated, if you are getting a match there isn't much you can do to change from Valic. Let us know if you are in higher education or K12 and what your choices are and the fees that Valic charges. And we can help you decide. 

Steve

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I contributed small amounts to a Valic 403B for more than a decade.  Starting 15 years ago my K-12 employer started offering a match of $25/pay period or $600/year, which also went into the Valic account.  I knew it was a bad option, but figured it was better then doing nothing, so I contributed to it while also doing a Roth IRA.  About 5 years ago my employer added Vanguard and Fidelity to our approved vendor list for 403Bs.  I immediately started a new 403B(7) at Vanguard, while stopping any new contributions to Valic.  The Valic account had a 15 year surrender penalty period, which was almost over, so I just waited it out before doing the exchange to my Vanguard account of about 90% of my 403B value.  I am in the process of now exchanging the last 10%, which was the employer match portion, and has just now also passed 15 year since started.

If you think your employer will have better options added in the future, it may be worth "holding your nose" while contributing to Valic, knowing that you can do a 403B to 403B(7) exchange in the future. Or if a job change is in your future, you should be able to make a transfer/exchange to the new employers plan.

 

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Thanks for the help everyone!  

I'm a physician working for a non-profit health organization, so from quickly looking through the website it looks like I have less "negotiating power" (?) to change 403 than if i was a K-12 institution.

I think the 457 is also non-governmental, which adds another layer of complexity and risk if the organization goes under.

Could I get your opinion on the funds?  they're listed below.  I guess I can always make up the difference with using TIAA or my Roth to get better bond options, international, or REITs if I want to diversify. 

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Screen Shot 2019-01-29 at 7.51.32 AM.png

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Vanguard total bond market index  (VBTLX) is an excellent bond fund choice, and if you can get it at .05 expense ratio, without a big load fee of some kind, is great.  Most of the Vanguard funds appear to be at their normal price offered when purchased directly from Vanguard.  The question is, what other wrap around fees may be involved?

 

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I think your choices were haphazardly chosen for sure and are missing some good key options that you mentioned like total stock market and S&P 500 index funds making it difficult to construct a simple low-cost three-four fund allocation. However, you have more than enough options to put together a good portfolio at a good low cost.  Here are your choices that would include a Total Stock Index In the mix. If anything you have too many choices, some which are repetitive. Still, these funds below have Total Stock market Index in them in hefty amounts and the 500 indexes would be part of the Total Stock Market Index. You also mentioned REITs, but did you know REITs are part of the total stock market index? BTW The Vanguard Institutional index fund is a 500 fund or somewhat alike.

1. Vanguard Balanced Index Fund-Includes a  steadfast  60-40   ( 60% Total Stock Market Index 40% Total Bond Fund.) mix. You could add a mid-cap index fund and small cap index fund and an international fund to this and get a very diversified mix. You will have to tinker with the allocations to get what you want.

2. Any Of The Target funds would include a hefty allocation to The Total Stock Market Index 

 Why not choose a target fund of your choice and be done with it? You can choose any of those funds you want. You don't have to pick one that corresponds to your retirement date. So you can pretty much get the allocation you want within one fund as all the Vanguard Target Retirement funds are made up in varying proportions of Vanguard Total Stock market index, Total international index, Total Bond market index. Total International Bond Index. 

I would not worry about Valic administering or record keeping your funds.  But to keep costs low I would only go Vanguard funds since they have the lowest expense ratios although the Fidelity international fund could be used too. Ignore the other choices.   I wouldn't sweat the administrative fees. They are hard to escape and are present to some degree in most retirement plans.  

 

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You have some excellent funds on the list.

Vanguard Institutional Index, VINIX, ER 0.04, is Vanguard’s S&P 500 fund for large institutions.

Combined with the Vanguard Small Cap Index Admiral fund, VSMAX, ER 0.05 in a 4 to 1 ratio will give you the equivalent of a Total Stock Market fund. VINIX is mostly large cap stocks but also includes significant mid cap stocks so the Mid Cap Index fund VIMAX is not really needed.

The Fidelity International Index Premium FSPSX, ER 0,05% is a good choice for international stocks.

Vanguard Total Bond Market Index Admiral VBTLX, ER 0.05% is a great choice for your bond fund.

These 4 excellent funds allow you to invest in a very low-cost, completely diversified 403b.

Or you could use one of the Vanguard Target Retirement funds, ER 0.14%. A little more expensive but also completely diversified.

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29 minutes ago, Rubbadubbss said:

okay, thanks everyone! I feel better.

@MNGopher-- what are wraparound fees?  What's the best way to make sure the benefits rep and Valic rep honestly answers about those?

Ask for documentation in writing or online or maybe a prospectus-  I think we are talking about administration or recordkeeping fees exclusive of the funds' expense.

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You are aware of some of the disadvantages of the non-governmental 457. Have you read White Coat Investor on this subject? He and his guest writers have discussed the subject a number of times. https://www.whitecoatinvestor.com/should-you-use-your-457b/

I would definitely consider carefully whether to use it vs investing in a taxable account after you've maxed out your 403b and Roth IRA. If you change employers, the distribution that the plan allows could be a problem for you. The WCI blog is a source of excellent financial information.

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Wow, I just read all that on Krow's link and had no idea how non-governmental  457b operate. I just assumed they were similar to governmental 457b plans.I would definitely take note of those differences and be aware of them but I am not sure if any of that would sway me from investing in your plan.   I guess it depends on your personal situation and future plans.

Also, White Coat Investor website would be a great resource for you since you are a doctor.

Krow always adds to the discussion!!

 

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15 minutes ago, Rubbadubbss said:

okay, thanks everyone! I feel better.

@MNGopher-- what are wraparound fees?  What's the best way to make sure the benefits rep and Valic rep honestly answers about those?

I doubt that you need to worry about being miss-led by the benefits rep or VALIC. Your employer has bought their employees an excellent low-cost plan. You have a choice of some very low-cost index funds and I don't think anyone will try to talk you out of them. You don't know what the admin fee is yet, but that should be easy to find out. If you can't find it online, call or email the benefits rep. With such good index funds available, I wouldn't expect the admin fee to be unusually high. 

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46 minutes ago, krow36 said:

I doubt that you need to worry about being miss-led by the benefits rep or VALIC. 

I doubt it too but sometimes they don't know and might not give the info clearly or accurately. I know in the past when I have dealt with these folks on every level I was given wrong info. I would definitely want to see it stated in writing or online in writing.  That's just me. 

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