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Sara

NJ 403b vendo list

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Hi, I could really use your help. I've been teaching in NJ for 14 years. The first year I started, AXA came into the teacher's lounge and had me sign up for a 403b. Typical of a lot of stories I'm hearing from others. I was young and naive and thought I had to have a 403b because I'm a teacher and I had no clue there were other vendors. Through 403bwise and montley fools, I am just starting to learn about retirement plans. The more I learn, the more I realize that I am probably in a terrible plan. I contacted HR to get the vendor list:

403b:

AXA

Lincoln Investment Planning

The Legend Group

Edward Jones/403bASPire

Metropolitan Life

TPAF Supp. Ann. Coll. Trust TSA

Wealth Management/ING Reliaster

Life Insurance Company of the South

AIG Valic

457 vendors:

AXA

Legend

Lincoln

Valic

Yesterday I sat down with AXA trying to get an understanding of what fees I have with them. They said the max my fees are is 1.03% and $30 a year admin fee. I asked about loads, back end fees, variable annuity fees, and they said no, no, no only 1.03%. From what I hear about variable annuities, they are terrible with the fees (usually around 3%). I'm so confused. What are they hiding? Where are my hidden fees? I know about surrender charges but what else am I missing? Does it have something to do with the expense ratio? Could anyone help me. Both of the AXA salesmen said they were fiduciaries, which I was shocked by. I thought AXA people weren't fiduciaries? 

Moving forward, I plan on stopping contributions with AXA and going to Vanguard and opening up my own IRA with index funds (my AGI is too high for a Roth IRA which is what I would have preferred). You all seem so knowledgeable here. Any advice would be so greatly appreciated. 

 

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1 hour ago, Sara said:

Moving forward, I plan on stopping contributions with AXA and going to Vanguard and opening up my own IRA with index funds (my AGI is too high for a Roth IRA which is what I would have preferred). You all seem so knowledgeable here. Any advice would be so greatly appreciated. 

 

I would agree that you do this but depending on your surrender fees it might be better to freeze your AXA fund and stop contributing to it until you clear your surrender charges and then transfer it over to aspire.  In the meantime Open an IRA with Vanguard is a great Idea and start investing in that. If you go Traditional IRA you can still get a tax deduction from it when you do your taxes. IRA's have a lower contribution rate of 6,000 a year. Vanguard can help you set up a auto withdrawal from your checking or savings account. Your choices are pretty bad but you do have Aspire but I am suspicious of its association with Edward jones.

If you self direct with Aspire and refuse the advisor you can come out really well investing with Vanguard. But you must stay FAR away from an advisor. You can do it on your own. Don't believe the Hype. Invest in a Vanguard  target retirement fund. Then just save.

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1 hour ago, Sara said:

What are they hiding? Where are my hidden fees? I know about surrender charges but what else am I missing? Does it have something to do with the expense ratio?

Sara, if you can track down a prospectus of the product you have you can locate your total fees. maybe Krow will chime in if you can tell him the product you own. These articles might help. There are many slick ways these guys can blur things so that you can never really ever figure out what you are paying in fees but you can bet its usually a huge rip=off.

https://www.barrons.com/articles/the-annuity-trap-teachers-need-to-avoid-51558743092?mod=past_editions

https://www.thebalance.com/variable-annuity-fees-to-ask-about-2389027

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Just a little additional information. I just found the prospectus for the series 200. I found a lot of fees there, but one part stated that the total separate A and variable investment fee and trust charges and direct operational expenses will not exceed 1.75%. mortality and expense risk charge is 1.15-1.24% Is that the max my fees would be? Is that considered high? 

thank you!

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47 minutes ago, Sara said:

ust a little additional information. I just found the prospectus for the series 200. I found a lot of fees there, but one part stated that the total separate A and variable investment fee and trust charges and direct operational expenses will not exceed 1.75%. mortality and expense risk charge is 1.15-1.24% Is that the max my fees would be? Is that considered high? 

 

Now does that include the cost of the expense ratio of the funds? If it doesn't you need to add the fund expense ratio to all that. Either way its way too high.  and its very confusing. Krow can probably give you a better answer than I ever could.

Take a look at this and your assignment is to tell me if you think you need all those fees. Plus your retirement pension plan is already an annuity so why do you need to invest separately in an annuity?  Take a close look at Vanguard's Index fund fees as that's what we recommend here. take a look at the target retirement funds too. What Vanguard states is their total fees  period and no surrender fees ever!! https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns. Overtime those fees you are paying now is killing your growth. vanguard funds are DIRT cheap.  

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8 hours ago, Sara said:

Just a little additional information. I just found the prospectus for the series 200. I found a lot of fees there, but one part stated that the total separate A and variable investment fee and trust charges and direct operational expenses will not exceed 1.75%. mortality and expense risk charge is 1.15-1.24% Is that the max my fees would be? Is that considered high? 

Hi Sara

It sounds like you are in AXA’s Equi-vest Series 200 variable annuity 403b. You can look up the fees for their Series 201 which they sell to CA teachers. CalSTRS (CA State Teachers Retirement System) requires all vendors to detail their 403b product’s fees in their 403bcompare website. I suspect that the Series 200 and 201 fees are very similar.
 
AXA  Equi-vest Series 201
$30/yr admin fee
1.20% M & E fee
The lowest cost stock fund I saw was their EQ/Equity 500 Index with an Expense Ratio (ER) of 0.58%. All funds have ERs. 
Most of AXA’s funds have ERs of 0.8% to 1.4%. As you know, Vanguard's ERs are as low as 0.04%, and that M&E fee of 1.20% is a ripoff. https://www.403bcompare.com/products/153
 
You are likely to be paying annual fees of around 2.2% on you AXA balance, plus the $30. Your annual fees could be higher if you have signed up for any riders. You can look up your funds (called sub accounts in annuities) on the 403bcompare website for AXA’s Series 201 variable annuity. The ER’s are likely to be the same as those of their Series 200. 
 
I agree that you should stop contributing to this AXA 403b. You have a very good choice on your vendor list which I’ll discuss in my next post. It’s past lunch time here!

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You are fortunate to have Lincoln Investment Planning on your vendor list because you work in NJ. They have a 403b plan called Participant Directed Platform that is only available in NJ and a few school districts in IL and NY as far as we know. It is not publicized and we only know about from teachers which have used it. It allows the use of low-cost Vanguard mutual funds and only charges an admin fee of $35 per year. You can not find out about it on Lincoln Investment’s website. It’s believed that the NJEA, the NJ state organization of the NEA was involved in setting up this option (and that it is a required option by law?).  
 
This plan was first discussed in 2016/2017 in this thread: https://board.403bwise.com/topic/6361-lincoln-investments-participant-directed-platform/  Poster jebjebitz describes his experience setting up this plan and it’s worth studying his posts.
 
 
Once this plan is set up and you’ve started contributing to it, you can work out what to do with your AXA account. Does the AXA Series 200 annuity have a of 5% surrender fee for the last 6 years, like the Series 201? Have you asked AXA for the amount of your surrender fee? Because of the very high annual fees you are being charged, you may decide to just pay the surrender fee and get the whole balance started with super low-cost investing!

 

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Krow, I'm glad you are here with all the exacting details. Saves me lots of work LOL!!  I'm going to leave the specifics to you because you are so good at it.  I'm the general practitioner and you are the specialist.

Sarah, you must now know that it's time to move on. If you call to find out your surrender fee, don't let them talk you out of transferring or stoping your contribution.

Years ago when I got out of a bad high cost 403b company, I was stonewalled. I called the company directly and they refused to stop contributions before speaking to my "advisor". Sure enough he called about 30 minutes later. He was a complete jerk and basically said I was an idiot and didn't know what I was doing in so many words  He was so nice when i first signed up.

 I was talking about transferring about $250,000 dollars at the time so he obviously didn't want his relationship with me to end as I was contributing good amounts of money to the account..  He lied and lied about my performance and how low his fees were. He even said he made very little money on my account . I've noticed they ALL say they make little money on 403b annuity accounts. HA HA . He also never sent me the transfer papers I needed even after three requests by phone. This was a different time and forms were not always online yet. I didn't even have internet back then. I finally called the main company headquarters and demanded the paperwork or I was going to get a lawyer. Sure enough the paperwork came and I got out . Unfortunately they also stalled the transfer for another six months.

Maybe things have changed now but I would not let them lie you into staying with your account.. They don't care about you but they do care about your money.

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I just wanted to endorse what Krow said.

Also, even if "all" you were being charged was 1%, that is absolutely egregious.

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On 10/8/2019 at 6:09 AM, Sara said:

Moving forward, I plan on stopping contributions with AXA and going to Vanguard and opening up my own IRA with index funds (my AGI is too high for a Roth IRA which is what I would have preferred). You all seem so knowledgeable here. Any advice would be so greatly appreciated. 

Are you planning to make a contribution to a deductible traditional IRA? I ask because the salary limits on a deductible IRA are lower than the salary limits for making a direct contribution to a Roth IRA. The limits depend on your filing status (single, MFJ and are based on your Adjusted Gross Income (AGI) which is line 7 on the new Form 1040 for 2018 tax year. In prior years it was line 37.
 
You can take a full deduction on a traditional IRA contribution if your AGI is $64,000 or less if you are Single. For MFJ, it’s $103,000.
You can make a full Roth IRA contribution if your AGI is $122,000 or less if you are Single. For MFJ, it’s $193,000. 
 
If indeed your AGI is above the limit to make a full Roth contribution (congratulations!), are you aware that you can still make a Roth contribution by using what’s called a “backdoor Roth”? It’s perfectly legal and is widely used by those with higher incomes. It involves contributing to a traditional IRA but not deducting it. There is no salary limit on contributing to a non-deductible tIRA. Within a few days, the tIRA is converted to a Roth IRA. There is no limit of any sort on converting a tIRA to a Roth IRA. This is a non-taxable event because you bought the tIRA with after-tax money, as you would do if you contributed directly to a Roth IRA. 
 
There is one catch that can make the backdoor Roth not worth doing. You should not have any other traditional, SIMPLE or SEP IRAs because their balances will be partly or mostly taxed due to the IRS pro rata rule. This applies to any non-Roth IRA balance on Dec 31 of the year you make the conversion. The IRS requires that you complete a Form 8606 to keep track of the non-deductible tIRA contribution and its conversion to a Roth IRA.  

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