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Fbuchner23

457 plan fees too high? What are my options?

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Hello everyone,

I am a 40 year old teacher with 18 years of service. I started a 457 plan with Security Benefit 14 years ago. I currently have roughly 80K in the account. I have been trying to research a little more recently and I would love to convert the 457 into a 403(b) and invest with Vanguard (my district uses them as a provider) to keep my fees as low as possible. Based on what I can see, that isn't an option for me. My only real option if I am unhappy with my current 457 is to roll it into another sponsored plan through my district. I have a few questions:

1 - Is what I am stating above true? 457 to 403(b) rollover is not an option?
2 - How can I determine ALL of the fees associated with my security benefit plan? My quarterly statement shows an "Asset Based Fee" which breaks down to roughly .25%. I have read that 403(b) and 457 accounts can have hidden fees. How would I find load fees, maintenance fees, etc.?
3 - Based on your knowledge or experience what plan would you recommend for me to roll my investment into. My district sponsored plans are here: https://tdsplans.org/forms_PD.aspx?orgID=5653
I am leaning towards Fidelity based on what I have researched. I am confirming with my current provider that there will be no surrender fees.
4 - Finally, would you recommend I explore any other options? Stop contributing to my current 457 and open a 403(b) with Vanguard? Explore a IRA or Roth IRA? Any other suggestions or things I should consider?

Thank you in advance

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1 hour ago, Fbuchner23 said:

Hello everyone,

I am a 40 year old teacher with 18 years of service. I started a 457 plan with Security Benefit 14 years ago. I currently have roughly 80K in the account. I have been trying to research a little more recently and I would love to convert the 457 into a 403(b) and invest with Vanguard (my district uses them as a provider) to keep my fees as low as possible. Based on what I can see, that isn't an option for me. My only real option if I am unhappy with my current 457 is to roll it into another sponsored plan through my district. I have a few questions:

1 - Is what I am stating above true? 457 to 403(b) rollover is not an option? Yes, true.
2 - How can I determine ALL of the fees associated with my security benefit plan? My quarterly statement shows an "Asset Based Fee" which breaks down to roughly .25%. I have read that 403(b) and 457 accounts can have hidden fees. How would I find load fees, maintenance fees, etc.?
3 - Based on your knowledge or experience what plan would you recommend for me to roll my investment into. My district sponsored plans are here: https://tdsplans.org/forms_PD.aspx?orgID=5653
I am leaning towards Fidelity based on what I have researched. I am confirming with my current provider that there will be no surrender fees.
4 - Finally, would you recommend I explore any other options? Stop contributing to my current 457 and open a 403(b) with Vanguard? Explore a IRA or Roth IRA? Any other suggestions or things I should consider?

Thank you in advance

1. You can not roll the 457 to a 403b unless you leave your employer. 

2. If you tell us the name of the Security Benefit 457, we/you may be able to find the fees using 403bcompare.com if it's a similar plan. Is the plan an annuity-based 457 or a mutual fund based 457? The title may help you with this. 

3. You are very fortunate in having Fidelity as an option. It has excellent low-cost index funds. There's absolutely no doubt in my mind that a Fidelity 457 can be much lower-cost than a SB 457. Good luck on the surrender fees. 

4. I would open an 457 account with Fidelity. Find out how much lead time your district needs to stop the contributions to SB. Start contributions to the Fido account. Talk to Fido about transferring your SB account to them. The paperwork can take weeks or more and may involve paperwork from both parties, signed by you and them. It can be frustratingly slow, so patience is needed.

A contribution to a low-cost IRA, either traditional or Roth, at Vanguard (or Fido) is an excellent option. Opening a Vanguard 403b is a great option, but the $60/yr fee makes it a bit more expensive than an IRA or the Fido 457. All 3 are great options. I'd max the 457 first because of the flexibility in distribution if you quit your employer before age 55. Then the IRA, finally the 403b.

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Thank you krow36,

The name of my plan with Security Benefit is "Security Benefit Advisor Retirement Program - Option 7". I have my statement and the quarterly performance results. I can cross reference those two documents to find the expense ratio for each of the funds. How would I find out if there are load fees? What about commissions? Any other fees I should try and find?

Bad news about the surrender fees. It looks like I am stuck for a while:
1st year – 5%, 2nd year – 5%, 3rd year – 4%, 4th year – 3%, 5th year – 2%, 6th year – 1%, 7th year and over – 0%

Because of these fees, do I still open the account with Fidelity and start my contributions with them. Then transfer whatever $$ I can without incurring surrender fees and then repeat the process every year until all of my money is moved over? Depending on my total fees, I might be able to break even after year 5 assuming the difference between the Fido charges and SB charges are around 2%?

 

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So I was able to figure out my account and breakdown what I am invested in with the "Security Benefit Advisor Retirement Program - Option 7". I plugged the funds into Morningstar and found this:
ACEIX - Load 5.5 - Expense .78%
PTRRX - No Load - Expense 1.14%

SECIX - Load 4.75 - Expense 1.15%
SEQAX - Load 4.75 - Expense 1.22%
ACSTX - Load 5.5 - Expense .82%
DMCVX - Load 5.75 - Expense 1.16%
FHETX - Load 3.5 - Expense 1.33%
RSPFX - Load 5.75 - Expense 1.45%

This is bad right? What is a reasonable expense ratio? A no load fund would be another goal correct?

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16 minutes ago, Fbuchner23 said:

So I was able to figure out my account and breakdown what I am invested in with the "Security Benefit Advisor Retirement Program - Option 7". I plugged the funds into Morningstar and found this:
ACEIX - Load 5.5 - Expense .78%
PTRRX - No Load - Expense 1.14%

SECIX - Load 4.75 - Expense 1.15%
SEQAX - Load 4.75 - Expense 1.22%
ACSTX - Load 5.5 - Expense .82%
DMCVX - Load 5.75 - Expense 1.16%
FHETX - Load 3.5 - Expense 1.33%
RSPFX - Load 5.75 - Expense 1.45%

This is bad right? What is a reasonable expense ratio? A no load fund would be another goal correct?

Yes, this is bad! The first thing I would do tomorrow is to stop your contributions to this 457. The loads are like a sales tax, levied when you buy these funds. It's a one-time fee which will be levied each payday if you are contributing to all those funds. However, it's possible that the numbers you got from M* are not those that this plan uses. To be sure, you should verify the loads and ER numbers with Security Benefit. I think it's likely that the M* numbers are those you are paying. SB is not known for giving investors a break on fees!

Because you started with this account 14 years ago, your actual surrender fee is complicated and you should ask SB to calculate it for you. It is likely a "rolling surrender fee", which I believe applies the fee to each year-end balance. So there would be no fee to w/d the year-end balances for years 1 through 7, year 8 (6 yrs ago) would have a fee of 1%, etc. Assuming that your contributions over the last 6 years have been fairly constant, the average fee for those last 6 years might be about 4%. The overall surrender fee for your full account might be only about 2%. 

These charges are guesses on my part, but SB must inform you of their value and explain them if you request it. If 2% is close to it, I would plan to transfer it all to a Fidelity 457. Remember you are paying at least 1.0% in ERs (depending on the balance in each fund) every year. In addition, these actively-managed funds have other costs that reduce their growth, such as trading costs. I think that Fidelity's super low-cost Total Index funds will outperform the funds in your list, although I haven't bothered to look them up.  

A load fee is never reasonable these days. In our view on this forum (and other forums I'm familiar with) paying a load for a mutual fund is nuts. As for ERs, you will pay about 0.04% to 0.10% for the Fidelity or Vanguard index funds you need for a 3 fund portfolio. I think Fidelity's 403b admin fee is $24, Vanguard's is $60. That's it! There is no admin fee for IRAs at Fido or VG. There are many studies that have confirmed that low fees are the best predictor of fund outperformance over time.

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I followed up with my financial representative for security benefit and he said this:

"The SBG ARP program is load-waived, i.e no sales or loads. Instead, SBG charges a flat 1% or .25% quarterly asset-based fee plus the individual fund expense".

That makes me feel a little better. I still think these expense fees are high and I can do better.

I contacted Fidelity and can't really get much info on their 457 account until I actually open up an account which seems weird. I just wanted to find out fee information and my options for investments. That information would be helpful to make sure I was making a move towards lower fees. Any suggestions on how to handle this hurdle?

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1 hour ago, Fbuchner23 said:

I contacted Fidelity and can't really get much info on their 457 account until I actually open up an account which seems weird. I just wanted to find out fee information and my options for investments. That information would be helpful to make sure I was making a move towards lower fees. Any suggestions on how to handle this hurdle?

I'm glad that the loads have been waived on your SB 457. I agree that those ERs are way too high. Did you ask them to calculate what your surrender fee would be?

I believe that Fidelity offers the same fund selection and fee structure to both their generic K-12 403b and 457 plans. The 403bcompare.com website gives Fidelity's funds and fees. This website is run by the CA teachers pension system and is accurate for CA. Most vendor plans for the K-12 403b market are generic plans used in other states. https://www.403bcompare.com/products/68

I would recommend that you use only Fidelity’s super-low-cost index funds.

The custodial fee is $24/yr.

Fidelity® Total Market Index Premium, FSTVX, ER 0.02%

Fidelity® International Index Premium, FSIVX, ER 0.05%

Fidelity® US Bond Index Premium, FSITX, ER 0.03%

Or you could use one of the index target retirement funds Fidelity Freedom® Index 20(XX) Investor, ER 0.14%. You would pick out one that has the stock to bond ration you prefer. Or you can just use your expected retirement date.

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The surrender fees are being calculated. I was told I will get a phone call with those numbers by Wednesday.

Thank you for the recommendations krow36. Makes sense that the fund selection would be the same for each the 403 and 457. I'll look into it more and hope that is the case. 

If there are different options I will check back for recommendations. Lower cost is the goal.

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OK! Please let us know how setting up the Fidelity 457 goes, and how the 457 transfer from SB to Fido goes. Good luck on the SB surrender fees!

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Hi Fbuchner,

Call me a skeptic but I'd want to see it on my statements supporting what your security benefit rep told you.

"The SBG ARP program is load-waived, i.e no sales or loads. Instead, SBG charges a flat 1% or .25% quarterly asset-based fee plus the individual fund expense". 

Of course, if you're transferring, it won't matter much to you, but then you can tell a colleague what you learned about the front-load charges and waiving. 

Good luck either way.

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