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Drafting Letter to Help Colleagues

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I’ve been asking my union about getting information out about 403b’s in our district.  Specifically, I wanted to let teachers in our district know about the two self-directed options: Security Benefit’s NEA DirectInvest and Lincoln’s Participant Directed Platform.  

I’ve learned so much in two years, visiting forums like this and bogleheads, and reading recommended books by authors like Clements, Makiel, Bogle etc.

The union has agreed to allow me to draft a letter that they would make available to all staff members.  I’m excited to write this but came here to ask a few questions and get some ideas.

First, I think it would be best to keep it as short as possible.  In my limited experience talking to friends about what I learned about these investments, the attention span of listeners is short and they tend to tune out when words like ‘expense ratio’ are used.  

Do you think it’s enough to just describe the self direct options and explain how to sign up for them?  Or, do you think it’s necessary to get into why all other options are bad and expensive?  My concern is holding the attention of anyone who actually starts reading the letter.  Any suggestions would be helpful.

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My initial thoughts subject to change over time:

If it were me, I’d start the article with an info graphic that shows what percentage of real profits each vendor is expected to consume over Y years (not sure what Y should be).

...hey @Dan Otter, is their chance you could ease up on the censors for the board? I can’t use the variable “ex” and plenty of other terms like exploít  

The second section would quickly explain how (using the best vendor) to build a fully diversified portfolio that returns what the market returns. I might include a link to a website with more detailed information and my personal contact info.

The third section would explain that folks from the bad plans like to imply that they’re financial advisors endorsed by the principal, district, and/or state, but in reality they’re sales reps with no obligation to act in your best interest. In fact, the incentive structure encourages them to act against your interests because they make more money that way. Then I’d directly refute the claim that they can predict the market, outperform the market, and protect you from downturns...I’d probably include a chart from Bogle that shows how these funds fail the market over time.

Thats probably enough to use up most folks attention span.

...any math, numbers, stats should be shown in graphics, tables, etc. Paragraphs should be dedicated to more abstract concepts. 

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First thoughts:  Is your audience the 70% who do not have a 403b? Or is it the 25%-30% who have annuity-based, expensive 403b plans? Maybe you should focus on the latter? And of those, focus on those with a variable annuity, not those with a fixed annuity?

How about starting out something like:  Your national union, the NEA, has developed a super low-cost 403b plan based on Vanguard index funds. It’s the Security Benefit NEA Direct Invest 403b. Why would they do that? They realized that there was a need for a low-cost 403b for K-12 employees. This plan is available in districts where Security Benefit is on the 403b vendor list.

Meanwhile, your state union, the NJEA, has arranged for a super low-cost 403b and 457 plan, also based on Vanguard index funds. It’s the Lincoln Investment Group Participant Directed Platform (PDP). This plan is available in NJ districts where Lincoln Investment is on the 403b (and 457) vendor list. 

In my experience, I get folks’ attention when I show them the large amount of money they are paying in fees, compared to the much smaller amount they would pay at low-cost plan.

I think an example is needed, for example, comparing an AXA fund with total fees of say 2%, with a Vanguard fund with a fee of 0.04%. For a $10,000 account, that’s $200 vs $4 in fees per year. For a $100,000, that’s $2000 vs $40 in fees per year. A bar graph is very eye-catching way to illustrate the difference. Maybe use an estimate of the average 403b account balance, and calculate the fees over 5, 10 and 20 years? (The annual account maintenance fee of $35 for NEA Direct Invest for balances under $50,000, and $60 for the PDP are relatively insignificant compared to the fees based on a percentage of the fund’s balance.)

I think you can avoid the use of terms like “expense ratio” and others that most teachers are not familiar with, by just sticking to terms like cost, fees, percent and $$$. Make it as simple as possible. Maybe a second letter describing the 2 plans in more detail would be allowed by the union? Or you could provide links to threads on this forum?

Trying to convince teachers to invest in a 403b(7) plan that uses the stock and bond index funds, rather than contribute to a fixed annuity, is maybe a discussion best left out of this letter? It seems most teachers prefer the fixed annuity, and we'd like to change that, but that is a complex challenge.

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Get the union to let you write a recurring column. That will let you tackle specific things in manageable chunks and anybody in advertising will tell you that you need to reach a person several times before they’ll act on it. 

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What krow and Ed suggested are fine. After 20 years of workshops, meetings, answering questions on my blog and here, there will be teachers who do not have the foggiest idea what you are talking about all the way to seasoned and savvy indexers, day traders, precious metal investment geeks, etc. and would bored to death because the information is too simple.

Our goal is to have all of our colleagues invest in the stock and bond market, that is widely diversified and the stock-bond split is appropriate for our age and willingness to take risks.  However, what you actually write in your short letter are baby steps towards that end. 

I have known that many may not know that a TSA (tax-sheltered annuity) is a 403(b). Back in the day, I didn't.

  • Start with why save extra when I have a pension.  
  • The power of compound interest, which we all learned in middle school, but cannot comprehend its power. Recall the age-old model of starting with one penny and 100% growth every day you will have $3 or 4 million in less than a month. 
  • They may not know what a stock is.  
  • Focus in on the difference between an overly safe annuity and investing in the stock and bond markets. You want people to get the best bang for the buck. You are going to fall short of your goals by purchasing annuities because it is like renting an apartment. Whereas owning a basket of stocks, known as a mutual fund, is like owning a house. Which is a better investment, renting or owning a house?
  • Almost all teachers know they have a pension plan. I use the pension plans as a model and I say that I invest my money like our pension plan. They pay more benefits than SS because the money is invested in stocks and bonds. Alway say that what you are saying is what you do with your money. 
  • But at the end of the day, people want something so they can start. Referring them to this forum or others will not work for the majority. So, I would suggest the Target Date funds. They are very popular with employer plans. 

What you are about to do is difficult because the language is foreign, and the reader has nowhere else to turn for help.  And the few items I outlined are just that. It is difficult because some of the most important aspects of investing are emotional, which you can talk about but people have to experience their emotions of their money going up and down.  

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As jebjebitz suggested he wanted, keep it short. Maybe just focus on the fact that there are 2 very low-cost providers 403b (and one 457) available. The target is teachers with variable annuities. Both the plans are somewhat hidden aren't they, especially LI's PDP. Maybe mention that expensive accounts can be transferred into a low-cost plan? I think a bar graph illustrating cost over time is necessary! 

As Steve suggested, anything more is too difficult and complex for a short letter. 

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Perhaps you could slip in that having access to these two plans is the envy of countless K-12 employees in districts across the nation that have no low-cost mutual fund based option?

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Thank you you everyone!  This is good stuff!  I’m gonna start drafting a letter this week.  I’d like to post a draft here before submitting it so you guys can look it over.  Can’t thank you all enough for the feedback!

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I think you've done a great job, sticking to the essentials. Have you considered placing the "PLEASE NOTE:" after the plans? The LI PDP could include a comment: "This platform is also available for a 457 plan for no additional annual fee."

I wish Dan would include an example of lower fees, at least as low as 0.09%, in the bar graph. Of course the average Vanguard fees for a 3 fund portfolio is probably about 0.06% or less? The "average index fund" fees have probably come down since the graph was made? In any case, a difference of over $200,00 should serve to get their attention. 

In the paragraph below the graph where you introduce the 2 plans, maybe you should mention that Vanguard index funds fees are below average, around 0.05% to 0.10%. That would tie the graph to the reason the 2 plans have outstandingly low cost. 

Is the LI PDP annual fee $60 or $35 in NJ? Or does it vary?

Nitpickings:

Make all 403b with small b.

" " around the NYT article title.

". . . a rep from either these companies. . ."

"The plan gives . . ."

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This is a good thing that you are doing, P.J.

One thought about your draft: I think some teachers may turn off when reading the line about "you will make your own choices."  Many are clueless and feel that they definitely need help with investing, which makes them prey to "financial planning" from annuity salespeople and such.

So if there is a way to sneak in a generic recommendation that makes the whole process seem simple and "idiot-proof," I think that might provoke more people to accept your advice. 

Maybe something along these lines, unless there is a legal or personal reason not to make a specific recommendation:

"To enroll in one of these plans, you do not require any help from a company sales representative.  (Financial sales reps are notorious for steering teachers into high cost products from which the salespeople draw commissions and bonuses.)  When enrolling, you will choose how much of each paycheck to direct into the 403b (I suggest 10% or more, but you can change this at any time) and which investment option to fund.  One good choice is a Target Date fund.  Pick one with a date close to the year you expect to retire.  (Your investment choices can be changed at any time if your investment goals change.)  A target date fund provides a low cost all-in-one diversified investment portfolio that becomes more conservative as you approach retirement.  It is rebalanced automatically, it is funded automatically with each paycheck and once enrolled, it requires virtually no further action from you."

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48 minutes ago, whyme said:

This is a good thing that you are doing, P.J.

One thought about your draft: I think some teachers may turn off when reading the line about "you will make your own choices."  Many are clueless and feel that they definitely need help with investing, which makes them prey to "financial planning" from annuity salespeople and such.

So if there is a way to sneak in a generic recommendation that makes the whole process seem simple and "idiot-proof," I think that might provoke more people to accept your advice. 

I was torn on this whyme.  In the past I’ve sent out similar emails and teachers have walked into the arms of mutual fund salesman pushing plans with huge wrap fees and slightly lower expense ratios.  I’m considering this a start and if anyone contacts me I can go into more detail 

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Fantastic work! 

To avoid saying "I would" or "this is my choice..."  you can say something like "people I know who are in similar situations with the same choices select the Target Date Fund".  You can even tell them what you would do if you were in their shoes (or what you do if you're comfortable with that).

I love how you started right away with your story. Maybe add the link to the NYT articles

(Nitpicking: add () around the lower case b 403(b). 😉

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4 hours ago, whyme said:

This is a good thing that you are doing, P.J.

One thought about your draft: I think some teachers may turn off when reading the line about "you will make your own choices."  Many are clueless and feel that they definitely need help with investing, which makes them prey to "financial planning" from annuity salespeople and such.

So if there is a way to sneak in a generic recommendation that makes the whole process seem simple and "idiot-proof," I think that might provoke more people to accept your advice. 

Maybe something along these lines, unless there is a legal or personal reason not to make a specific recommendation:

"To enroll in one of these plans, you do not require any help from a company sales representative.  (Financial sales reps are notorious for steering teachers into high cost products from which the salespeople draw commissions and bonuses.)  When enrolling, you will choose how much of each paycheck to direct into the 403b (I suggest 10% or more, but you can change this at any time) and which investment option to fund.  One good choice is a Target Date fund.  Pick one with a date close to the year you expect to retire.  (Your investment choices can be changed at any time if your investment goals change.)  A target date fund provides a low cost all-in-one diversified investment portfolio that becomes more conservative as you approach retirement.  It is rebalanced automatically, it is funded automatically with each paycheck and once enrolled, it requires virtually no further action from you."

If the NEA Direct Invest plan offered low-cost Vanguard target date funds, I think I would agree with whyme. However, unlike the Lincoln plan's Vanguard TR funds, NEA DI's target date funds are TR Price actively-managed funds with ERs between 0.79% and 0.97%. Suggesting them would conflict with the very low-cost index fund message. 

None of the links seem to work?

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3 minutes ago, krow36 said:

... unlike the Lincoln plan's Vanguard TR funds, NEA DI's target date funds are TR Price actively-managed funds with ERs between 0.79% and 0.97%. Suggesting them would conflict with the very low-cost index fund message. 

Good call.  Obviously, the advice would have to be based on whatever simple low-cost option is available, though it sounds as if jebjebitz is concerned that including a specific suggestion in the initial note might backfire.

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