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Did anyone read the Wall Street Journal article about the proposed regulations the IRS is going to enforce about prohibiting 403b particpants from transferring to ouside vendors? QWe would be trapped in crappy plans run by Valic and Ing and others that our schools lock us into,. is there any possibility this will not happen?

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The Wall Street Journal article by Karen Damato ran on the front page of Money & Investing [section C] and is called "Investing Flexibility That Teachers Enjoy May Get 'F' From IRS"

 

Yes, it is a very real possibility that the 90-24 transfer will be eliminated. The government wants the 403(b) to more closely resemble the 401(k). The loss of the 90-24 would indeed be bad news. The hope (and perhaps wishhful thinking) is that the other main provision getting attention--the necessity for employers to adopt a plan document--will force employers to start offering better investment choices. The fear is that some employers may simply drop their 403(b) all together. Though this line of thinking has been called vendor scare tactics.

 

On the subject of a Plan Document I encourage you to read Schools Districts Would Be Wise To Adopt a Plan Document which is written by a school business official.

 

There is also a Discussion Board thread on this topic where a second school business official comments on the proposal.

 

For more information on the proposed regs read our Legislation section

 

Dan Otter

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Would the loss of the 90-24 mean that schools could not have approved list with multiple vendors? As I read the article for the 90-24, if you are unhappy with the choices your employer provides you can use the 90-24 to transfer to a cow cost company. As I understood the article the schools would be required to have a plan document that had one vendor, and no other choices. Am I reading this correctly?

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Would the loss of the 90-24 mean that schools could not have approved list with multiple vendors? As I read the article for the 90-24, if you are unhappy with the choices your employer provides you can use the 90-24 to transfer to a cow cost company. As I understood the article the schools would be required to have a plan document that had one vendor, and no other choices. Am I reading this correctly?

Not necessarily. I read it to mean that from now on (after the passage of the new regs), you'd be strictly limited to the approved vendors list, since the 90-24 would go the way of the dodo. I imagine the approved vendors list would get mighty small, due to the written plan required.

 

If some of the no-load companies refused to sign a hold harmless agreement (thus hampering access in some places), what are the odds that these companies will want to be part and parcel of a written plan? We may see the 403(b) be dominated to an even greater extent by the annuity providers vs. the no-load fund providers.

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Hey FrenchTeacher,

 

It is an interesting question to think what kind of vendors will be offered if and when a Plan Document becomes required. I tend to think the 403(b) may begin to look more like the 401(k) in terms of the vendors being predominately mutual fund companies. I think if employers are required to look at fees and surrender charges I just don't see how some (not all) of these companies will be able to pass muster. I don't see how the companies charging more than 3% in fees and imposing surrender charges of 7 years and more could survive under such scrutiny. These higher fee companies would probably lower their fees which they often do when they are forced to compete for slots via the RFP process. Perhaps we would end up with a few lost cost products for the do-it-yourselfers and a few agent-sold products with more reasonable costs.

 

I think no load mutual fund companies often balk at signing hold harmless agreements because of the way in which many of these agreements are written. At my old county of employment the H.H. held companies responsible for actions they could not possibly control. I think mutual fund companies would welcome rules similar to the 401(k) world.

 

Dan Otter

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In the 401(k) market, employers pay for plan administration. In the 403(b) market, the participant pays, via fees. If plan administration becomes expensive -- as it will, in some school districts at least, if the new regulations are passed -- school districts will have the option of approving low-load vendors and having the school district pay for administration, or of approving higher-load vendors who will do the administrative tasks at no charge to the school district and also sign a hold-harmless agreement that absolves the school district if the vendor messes up. If you were the school administrator, and you were already struggling to squeeze every dollar you could out of your budget, which option would you choose?

 

I think that it's a pretty safe bet that a lot of low-cost vendors will be eliminated from many disticts' plans if the regulations pass. Or else they will have to match the competition and provide administrative services to the school districts, but in that case they will have to charge higher fees to cover the costs.

 

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Perhaps all is not doom and gloom. In Texas, a few years ago, we went to an approved vendor list (you can go to www.trs.state.tx.us for details) There are mutual fund companies on the list including Vanguard, Fidelity, and T Rowe Price. People who contributed to 403's before this list were grandfathered. My wife and I complete a form each year which states we were contributing to these companies before the approved vendor act became law and, even though some of my mutual fund famalies are not on the approved vendor list, we continue, to this day, contributions to these companies. I am new to this forum, but surely there are members of congress who could be contacted; congressmen who would support such a grandfather clause on the national level. Surely, this group is activist enough to begin an e mail campaign to contact all our helpful constituents.

 

Administrative costs need not be a burden to your school district. My wife teaches in a large urban district. Her district contracted with National Plan Administrators( NPA ) to administrate their 403 program. My wife pays a monthly administrative fee of $0.60.

 

Several years ago, the smaller, rural district I work for had concerns about 403 administrative costs brought on by changing federal regulations. I offerred to pay an administrative cost to keep my ability to purchase mutual funds for my 403. They contracted NPA and presently, employees pay no administrative fee.

 

I'm sure there are other firms like NPA, but perhaps your teacher's union, district HR director, or a sympathetic Board Trustee in your district needs to know there are positive solutions to the 403 administration problem.

 

Thank you.

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If the IRS, in practice or in theory, holds employers responsible for the administration of the "plan," then it makes sense that the employers should be able to control the choice of vendors. Schools will be able to purchase an plan document for a small fee that will accept all vendors(subject to school approval) and apply to all vendors.

 

Another variable to consider is state law. In Ohio, if a vendor attracts a sufficient number of clients, then the district must offer the vendor's products.

 

Mark

 

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Guest Sierra

Hi Stubborn:

 

Great post! Is that 60 cents per month or 60 basis points (6/10 of 1 percent) per month. I also would like to know the identity of the large urban sd you refer to. Us activists must have the facts in real terms. If I write a personal letter to the IRS individuals that will be responsible for making the proposed regs final it would be great to say: A,B,C, D etc school districts have done xyz regardless of whether or not they did what they did in contemplation of the upcoming regs.

 

I am of the belief that the regs will force the er's to finally realize that they must do their due dilligence. They have been legally insulated from stepping up to the plate for 45 years.

 

Please check out the 457(b) and 401(k) plans of the City of New York and let us know if the same program can be duplicated with a 403(b) plan. They can be located at: www.nyc.gov/deferredcomp.

 

Mark...I would appreciate your views as well.

 

Peace and hope,

Joel L. Frank

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Hello Sierra,

 

My wife teaches at San Antonio Independent School District (approximately 50,000 students, urban, inner city). Their administrative charge is sixty cents per month, regardless of the amount or number of vendors (fund families or insurance companies) involved.

 

I work at East Central Independent School District( approximately 8,000 students, rural, small town). We presently have no administrative charge, regardless of the amount or number of vendors (fund families or insurance companies) involved. Both school districts use National Plan Administrators. You can learn more about them at www.natplan.com; or perhaps you would prefer:

 

NPA

PO Box 161630

Austin, TX 78716

(512) 327 6481

(512) 327 1027 (fax)

 

NPA administrates more than 403b plans; and, to the best of my memory, do business outside the state of Texas.

 

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Guest Sierra

Stubborn:

 

THANK YOU FOR YOUR KIND AND PROMPT REPLY.

 

Peace and hope,

Joel L. Frank

 

When you get a moment please log onto the NYC website that I talked about this am.

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Hello Sierra,

 

Have logged onto your NYC site. If you go to the link, Enroll in DCP, 403's are mentioned several times along with the statement that the 401 and 457 plans were the plans selected. I have more questions than answers.

 

How were 401k/457 plans selected? Can this same process be used to add a 403b?

 

What do other educators want?

 

DCP appears to be an umbrella group. Who runs it? What are the pressure points they respond to?

 

Do you want a 403b plan, better options in the current offerings or both?

 

Are teachers considered governmental employees in NYC?.

 

How do city workers qualify for a 401k?

 

For background info, you may wish to look at www.irs.gov for :

 

IRS Pub. 4406

IRC 401k

IRC 403b/457 Plans

 

Sorry, all I can provide is a cursory view.

 

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