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Zippy The Pinhead

Lag Time With Lacoe 403(b) Deposits: Costly

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LACOE claims to have responsibility over the payroll for 130,000 employees on their Web site. They claim to issue 165,000 payroll warrants per month.

 

I work for one of the districts which falls under the LACOE umbrella. LACOE has no problem doing a direct deposit for my paycheck, but when it comes to 403(b) funds, they don't do a direct deposit, but rather send a paper check (by regular mail), which typically takes anywhere from 15-25 days to show up in my 403(b) account.

 

I once asked them about this and one of the people in School Financial Services basically told me that "there are too many vendors for 403(b) funds for us to do direct deposit." Frankly, this strikes me as BS, because I figure there has to be more banks/credit unions receiving their direct deposits than there are 403(b) fund vendors, but I can't say for sure.

 

My wife works for a private company (around 4000 employees), and when her 401(k) contribution is deducted from her paycheck, it shows up in her account the very same day, i.e., it is deposited directly.

 

The lag time for my own deposits got me to wondering how much the delay was costing me in returns ("interest," if you prefer), so I sat down and constructed an excel spread sheet to calculate the damage.

 

Depending on the level of contribution and the amount of time involved, the damage ranges from a few hundred dollars to several thousands of dollars at maximum contribution levels. For example, if we assume a constant contribution of $1,000 per month, earning 10% per year, over 20 years, a consistent 20-day lag time will cost me around $4400 (in lost growth). Now, admittedly, I probably won't miss $4400 spread over twenty years or whatever. At a $500 per month contribution level, we're looking at $2200 over 20 years; I'd probably miss that even less.

 

But if you do the math, out of 130,000 employees, if just half have a 403(b), over a twenty or thirty-year period, that $4,400 per person adds up to some serious money. It could be as much as $250 million over a twenty-year period.

 

I'm wondering if my union could be of any assistance in this. I doubt that just one faculty association will make much of a difference, but if several started to push for the same thing, who knows... maybe we could even get them to route money to more than one direct deposit location.

 

==================

 

When I posted this I was pretty groggy so I have edited it for clarity and to amplify my question. Mainly what I am wondering is if pressure from the union(s) could force payroll services at LACOE to step into the 21st century and become more flexible, useful, etc.

 

In particular there are two things I'd really like to see:

 

1) direct deposit of 403(b) monies.

2) direct deposit to multiple recipients of after-tax dollars; e.g., $200/month to a Roth IRA, $300/month to my "summer saver" account at the credit union, and the rest into my checking account, or whatever.

 

It's worth to note that at the moment, the contract at my district is renegotiated every three years. Our faculty association is affiliated with the CTA, and every three years the CTA slurps between $400K and $500K worth of union dues from the pockets of my coworkers and myself. Since I've been working there I've yet to see the CTA earn DIME ONE of that money. It certainly doesn't cost that much to renegotiate our contract. I'm just wondering out loud if the CTA could actually be of use, just this once, to a working stiff like myself.

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Guest Sierra

Pathfinder: In your response to Zippy I expect a dissertation on the assasination of President Lincoln.

 

Peace and Hope,

Joel

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on the contrary "uptown" joel....I am expecting you to post a link leading to the excel spreadsheet you used to calculate the monies lost from investors who do not use TC;<)

 

then following that link will be another link directing people to your own dissertation on the spreadsheet. I find myself at this point anxiously awaiting your post.

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Guest Sierra

By your response are you agreeing with Zip's complaint or are you of the opinion that it is as frivolous as you contend mine is when I talk about converting the $4,000,000 that ING pays NYSUT to bp?

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Oh, thank God. I was deathly worried that ING and its endorsement deal with NYSUT would somehow NOT find its way into a thread.

 

Of course, none of this is actually helping poor Zippy with his posted question, but let it never be said that the primary purpose of this board wasn't to grandstand.

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Guest Sierra

Zip,

 

Under current rules there is no time period upon which moneys must be dispersed to the carrier. Rest assured this is addressed in the proposed regs and this abuse will be a thing of the past as of January 1, 2006.

 

Peace and Hope and stay with us,

Joel L. Frank

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Guest Sierra

Zip,

 

Does your er offer a low cost 457(b) plan with the services that you rightfully expect?

 

Joel

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In general, Joel, I don't pretend to have expertise in areas where I clearly lack it. I have no idea how to go about pressuring a payroll department to start acting responsibly. I'm grateful to have never had the need to do so.

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Under current rules there is no time period upon which moneys must be dispersed to the carrier. Rest assured this is addressed in the proposed regs and this abuse will be a thing of the past as of January 1, 2006.

 

1. If I read the proposed regs correctly, this is not true. The wording is rather vague, to the effect that it must be disbursed "in a reasonable amount of time." I doubt there's serious relief in sight.

 

2. Also gone with the proposed regs will be the right to effectuate 90-24 transfers; more than ever, teachers will be prisoners of the approved vendor lists that their employers foist on them. And there is NO requirement, expressed or implied, to include no-load vendors as one of the investment options.

 

Things are about to get worse...possibly MUCH worse...on the 403(b) landscape.

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Guest Sierra

FT: What is the lag time for the investment of your money with ING? How long does your SD hold the money? Are you satisfied that your money is being invested in a timely manner?

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Guest Sierra

So Zip and the FrenchTeacher have about the same lag time, 2-3 weeks----Zip is quite upset while the French Teacher is satisfied. French Teacher, do you consider 2-3 wks of lag time simply a necessary cost of being a salary reduction investor?

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Guest Sierra

But for someone like you that pays 175-200 bp out of the box to ING an unnecessary 2-3 wks of lag time becomes even more of a drain on your investment dollars than a Tiaa client who pays 25 bp with the same lag time. But you already gift with an open mind about 150 bp to ING so what does another couple of hundred dollars per year mean. You might just as well consider the couple of hundred dollars a year as a gift to the school district that employs you. And while you're in this mood of gifting could you please send me a check, I need new tires.

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