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Saltmarsh

GA teacher 457/403 vendor choices

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I am in my 8th year of teaching but I have 13 years in the GA system. I need tax breaks by contributing some pre-tax $ to a 457 or 403 and my choices do not appear to be good.  I've already fully funded my own IRA/Roth for the year but will need further tax breaks for this year (and need to invest more!).  I am not eligible for the HSA (I have an HMO plan with a deductible that is $50 over the minimum to have one- grrrrr) I have tried to avoid these plans until now.  Teaching is a second career and I'm late to the game but I do not like what my system has to offer.  Which one would be the least costly?  What are my options for low cost pre-tax investing without getting ripped off? Any advice is greatly appreciated!

I am in the k-12 public ed system of GA.  I work in the Savannah Chatham County Public School System. 

The choices are:

(ING) VOYA

Administration Fee No Administration Fee Surrender Fee 5% scale down to 0% after 10 years Commissions 4%

Great American (what is this?)

Administration Fees 0.15% Surrender Fees 5% scale down to 0% after 5 years Commissions Variable - .5% to 1.10

VALIC Retirement

Administration Fees $0 Annual Fee Variable Fund Fees – 1% to 2.02% Surrender Fees *Lesser of 5% of amount withdrawn or 5% of last 60-month payments Commissions Up to 3.2% on 1st year contributions, up to .75% thereafter

Horace Mann

Administration Fees $25 per year if balance < $25K; M&E Fee = 0.85% Avg. operating expense = 0.40% (Vanguard funds range from 0.05% - 0.16%) Surrender Fees *5% for first 5 years, 0% thereafter 20% “Free Out” provision for each year of your certificate Commissions Retirement Protector - 5.25% on 1st year premium for flexible contributions, 2.15% for lump sum rollover

National Life Group / Life of the Southwest (Life insurance? Annuity?)

Administration Fees No Administration Fees Surrender Fees *10% from date of issue, decreasing 1% each year Commissions 6% on 1st year contributions, declining each year thereafter Bonus 5% bonus for every contribution made in the first 7 policy years

 

Below is the link... 

https://drive.google.com/file/d/135Mpd_iXUZRZZXM6oGXgCzClk3PBiDW3/view?usp=sharing

 

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I couldn't open the attachment. Are you in the USG? 

I think we have really good options, actually. I have TIAA through the USG. They also offer Fidelity. 

 

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Yes, the link now works.

It looks like all your district’s vendors sell only annuity based 403b and 457b plans?? At least the district summary does not indicate that a custodial account plan is available. It’s often possible to get school districts to add a low-cost custodial account vendor. It can take some effort, but it would be a huge improvement for all the district employees. There is a Facebook 403bwise Group that has been effective in helping teachers add low-cost vendors and I suggest you join. https://board.403bwise.com/topic/7404-please-join-and-post-on-our-facebook-group/

You can look up your vendors on 403bcompare. The website is run by the CA pension system and all vendors are required to post their fees and funds. Vendors plans are offered nationwide. https://www.403bcompare.com/Vendors/Browse

For example: Great American annuities sold in CA, probably also in GA:

https://www.403bcompare.com/vendors/1096#/productlist

You do NOT want an equity indexed annuity! It is the worst kind of annuity in my opinion.

Here’s a NY Times article discussing the equity index 403b plans sold to teachers by National Life Group: https://www.nytimes.com/2016/10/29/your-money/403b-teachers-annuities.html

403bwise’s Scott and Dan discuss equity index annuities in this Motley Fool interview.

https://www.fool.com/investing/2019/10/13/why-403b-plans-are-so-awful-so-often.aspx

A variable annuity is probably a better choice than a fixed annuity, but both are very poor compared to a custodial account. They allow you to use mutual funds although the expense ratios can be high. VA’s have a high fee usually called a mortality and expense (M&E) fee of up to about 1.3%. They also have surrender fees of up to 10% that last up to 10 years, sometimes declining.

A fixed annuity usually has a guaranteed interest rate (often 1%) with a current rate that is reset every year. Current rates seem to be maybe 2% these days? Although there is no M&E fee, the return on these annuities is too low and doesn’t allow participation in the stock market.

Are you contributing to a taxable account for retirement at a low-cost vendor such as Vanguard or Fidelity? Don’t discount the value of total market index funds in a taxable account!

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Thank you krow36!! 

I have a Roth with Vanguard and just opened an IRA with Merrill Lynch (to keep my preferred rewards with BOA).  I have about 17K in the Roth in Vanguard 2040 target fund (VFORX)... I love Vanguard and I so wish that my district would allow them in.  I am late in the retirement game so I can contribute more to the IRA  this year (over 50 now) . I need some  of my income to go somewhere pretax (making more this year due to higher pay).  I have student loans and I am counting on PSLF (9 years to go!)... I am trying to keep my AGI low so that my student loan payments remain low (I'm in an income based repayment plan).  Home is paid for,  small auto loan,  I pay off my credit cards each month.  I have rental property that helps to offset some income but not my earned income.  I expect to work at least 15-17 more years (hopefully) and I have 13 years in the GA TRS system.   Looks like I have homework! I  looked at some of these vendors several years ago and did not like what I was looking at so I walked away and began contributing to my Vanguard Roth... now I need some pretax relief but I don't like these choices at all.  I will continue to contribute the full amount each year to my new IRA $7000 for next tax year.  I just wanted to take the pretax advantage of a 457 or 403b and it's still looking expensive ... thank you again!!

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Your district may use a Third Party Administrator (TPA) to help administer their 403b and 457b plans. The TPA may be able to tell you if they think you can add a vendor. The TPA administers the vendor list, but it’s up to the district whether another vendor gets added. A number of posters in the 403bwise FB Group have succeeded in adding either Vanguard, Fidelity or Aspire, any of which would be a huge improvement over your current vendors. The FB Group includes Scott Dauenhauer, a CPF, Anthony Isola, CFP, both professionals donating their time and expertise to help teachers get low-cost vendors. They are leaders in a national effort to reform the K-12 403b scene. Plus there are lots of posters in the Group that will offer their experience. You can learn a lot about what you are dealing with by reading older threads on this forum and on the FB Group website.

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As for which of your vendors would be best if you HAD to choose one of them, there is one that you could check out. VALIC, now goes by AIG, can offer a custodial account they call their Group Mutual Fund Product (GMFP). It has an Admin/Wrap fee of 0.0% to 1%, determined for each district. You would have to contact the VALIC rep to find out if it’s available and if so, what is the district’s Wrap fee. Even if it is 1%, you could choose 1 or more of their 3 low-cost Vanguard funds, and be much better off than with a VALIC annuity. There’s no surrender fee with the GMFP. I don’t know if they offer it in their 457b or not. The rep would much rather sell you one of their annuities because they get a much bigger commission with them. So you might have some persuading to do? Don’t sign anything until you discussed it here and in the FB Group.

https://www.403bcompare.com/products/110#/investmentoptions

If you succeed in getting one of the low-cost 3 vendors in the future, you can then transfer your VALIC balance to them.

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Thank you so much Krow36!!  I now have a homework list... I am going to contact the Valic rep and ask about the GMFP and the admin/wrap fee.  I will then contact my district HR contact and inquire if there is a TPA.  If not then I'll work on the individual (s) in charge at the district who can possibly give me information on how to add (preferably) Vanguard,  Fidelity and Aspire.  Our district is the oldest in the state (and possibly one of the oldest on the east coast).  They tend to move slowly on things and they have lots of "friends" who know other "friends" who sell things.... I will keep you posted!! Thank you so very much again!!!

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OK, good luck. I think you are doing great to max out your Roth IRA, and investigating the 403b and 457b plans. The more reading you can do on the huge advantage of low-cost investing over high fee products, the more determined you’ll be to fix your district’s vendor problem. Here’s some reading material:

http://www.nytimes.com/2016/10/23/your-money/403-b-retirement-plans-fees-teachers.html?smid=tw-share&_r=0  This is #1 of a series.

You will probably find that the district leadership does not understand the importance of low fees over time. You may have to convince them. You may find that you have colleagues that will join you in your campaign. The 403bwise FB Group has some excellent material designed to show the importance of low fees to colleagues. Be sure and look back and check out the material of Dan Otter, Christopher Nye, Anthony Isola and others. The Teach and Retire Rich podcasts are a great source of 403b and 457b info for teachers.  http://teachandretirerich.libsyn.com/page/1/size/25

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So here is the communication between me and the Valic rep:

Greetings Matthew!

I have contacted you in prior years to inquire about investment options. Thank you for answering all of my questions!
 I currently have a question listed below:
Does Valic (AIG) offer a custodial account that allows a Group Mutual Fund Product (GMFP). It has an Admin/Wrap fee of 0.0% to 1%, determined for each district.  I understand there is no surrender fee with this product.
 If this is an option, what is our district's wrap fee and is it offered in the 457 and/or 403? 
I look forward to hearing from you.  Thank you so much!
 
The Valic rep's response:

Thanks for the email- 

So the group plan for SCCPSS offers either a Traditional/Roth 403b/457b account.  The funds available to invest in are annuity based that typically have an expense ratio of 0%-2.02%.  Most companies have at least a 5 year surrender period but some companies are longer.  I’d be happy to set up a time to meet with you and discuss all of your options- My cell phone number is xxxxx 

Talk to you soon- Matt

 

So looks like the GMFP is not available? Only an annuity product...

 

 

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It looks like that the rep only wants to sell you an annuity 403b plan. Whether AIG would allow him to use their Group Mutual Fund Product is another question. He didn't answer your question about the custodial account, did he. You might play with him and write again that you are only interested in an AIG custodial (non-annuity) 403b account?

 

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Here is the latest communication:

Me: Thank you Matthew for your prompt response.

I am only interested in an AIG custodial 403b/457b account at this time.  Is the non-annuity option available for me as an sccpss employee at this time and/or can that option be added?
Thanks again for your help.
 
Matthew:
Hi  the only option available thru SCCPSS is the annuity option.  It is very similar to the Mutual Fund option and actually has 72 different funds to choose from.  Let me know if you’d like to meet and discuss your options?

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If I may chime in. You are talking to the wrong person. Is there somebody to talk to at SCCPSS so you can get objective information? Such as your HR department or benefits department?  

If not, I would not waste any more of my valuable time with an annuity salesperson. Go with the Roth until you get more information. 

 

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