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MIA-MD

From 403b To 401k Plan

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Okay, Joals and FT. . . try to restrain yourself long enough to bring the attention back to my original problem in finding as much information about what to do with my 403b. I'm calling for a cease fire here.

 

I finally met with my vendor who verified the following about our current plan:

 

M & E : 1.34%

Operating cost: 0-1.85% depending on actual fund selected

Admin charges: $30 max; waived for acct $25k + ; 2% if less $1500

Front end sales: 0

Back load (they claim doesn't not exist since we have only one vendor and moving funds within that portfolio free)

Surrender charges: 6% for initial 5 yrs with 12 yr declining charge

 

Also, the plan has two index funds (S & P and Small cap), and most of the funds are managed by multiple managers. Total funds in portfolio is around 50. They will allow a rollover (90-24) to other 403b or 403b(7), but such transfer will incur surrender charges.

 

So, it looks like a very expensive plan in terms of the cost. What do you think about the "load" claim? Something about it didn't sound right to me. I believe Joels like index founds, which is one of the reasons he prefers Vanguard and we have that option with this plan. If this were your money, what would you do?

 

HELLLPPPPPPPPPPPP!

 

MIA-MD

 

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Guest TR1982

MIA-MD,

 

 

Are you asking for yourself or for the organization?

 

How many people are in the group and how many have money in this plan?

 

Remember, if you are asking for the group you cannot force individual employees to transfer the funds.

 

Are they unhappy?

 

Would they be happier if you switched to a no load fund company?

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TRI,

 

I'm inquiring for myself and for the organization. I'm in a position to influence what the org. decides to do and what vendor to work with etc. Half of the ee are unhappy with our current plan (high cost, low performance) and the other half are unaware/uneducated to even have an opinion. I owe it to the org. to look into these things and recommend the best option. I don't know how much are in the funds collectively as they are individual accounts. My acct has less than 3k in it.

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I finally met with my vendor who verified the following about our current plan:

 

M & E : 1.34%

Operating cost: 0-1.85% depending on actual fund selected

Admin charges: $30 max; waived for acct $25k + ; 2% if less $1500

Front end sales: 0

Back load (they claim doesn't not exist since we have only one vendor and moving funds within that portfolio free)

Surrender charges: 6% for initial 5 yrs with 12 yr declining charge

 

Also, the plan has two index funds (S & P and Small cap), and most of the funds are managed by multiple managers. Total funds in portfolio is around 50. They will allow a rollover (90-24) to other 403b or 403b(7), but such transfer will incur surrender charges.

 

So, it looks like a very expensive plan in terms of the cost. What do you think about the "load" claim? Something about it didn't sound right to me.

 

Personally, I believe the "load" claim, since lying to you about it is a pretty serious offense. But don't take your eye off the ball: the absence of a load matters little when they have so many other ways of making money off you:

 

* an M&E charge of 1.34%

* expenses as high as 1.85% on the funds

* surrender charges of up to 6% that take OVER A DECADE to disappear entirely

* and a $30 annual fee that declines as your balance grows.

 

Also, whatever index funds may accomplish for you, my understanding is that their benefits (low cost, mostly) are negated by the M&E fee that accompanies your plan. In essence, you'll be paying a minimum of 1.34% for an index fund, which is high.

 

If you're generally happy with the level of service (and you'd have to be REALLY happy to justify the price you're paying for it), then all is well. Otherwise, the search for alternatives should realistically apply to contributions going forward, since transferring the funds from one place to another might be a really expensive proposition. You can leave those funds there, though, and direct future contributions to go to a new provider. Once your money passes the magical 12-year mark, then you can initiate transfer procedures. Of course, there are any number of middle grounds to choose from, including partial transfers, complete transfers when the surrender charge drops to a lower level than the maximum, etc.

 

Hope this helps.

 

 

 

 

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The utilization rate for service is very low because most people here (including myself until recently) put the money away and hope all goes well. I don't think any type of "service" is worth all these fees though. I'd love to hear from the rest of you. Thanks.

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Guest Sierra

mia; ALL OF YOU SHOULD GET A POLICE ESCORT TO THE NEAREST NO LOAD HOSPITAL! THE VANGUARD HOSPITAL WOULD BE A FINE CHOICE! YOU MUST STOP THE BLEEDING!!

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Guest TR1982

MIA,

You don't have to make this that complicated. Why don't you just add another firm to the list of vendors available to employees? That way, if people want to stop contributing to the one you have, they can. If they want to transfer their funds, they can. This way, everybody gets a choice and no one is forced to change or incur a loss.

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You have to start with the Contract. Who are the parties to the Annuity Contract?

 

If the arrangement is between the Carrier and each individual, then the decision to continue with the current carrier is not up to the employer. Each individual has a legal contract and must determine which direction to go. If it were my money, I'd surrender, take the hit and move to an arrangement with less expense burden.

 

If the contract is between the Carrier and each individual, the employer may discourage on-going contributions through various means. The most obvious is to select another provider/approach and only facilitate payroll contribution remittances to that facility.

 

If the contract is between the carrier and the employer, the employer has complete control, including full contract surrender. If it were my decision, I'd surrender, deal with the surrender charges as best possible, and move on.

 

Very early on, there should be great attention paid to the surrender charge. If surrender is selected, who pays the surrender charge? Will the employer pick it up or will it be allocated to individual participants, or shared? And why would it ever make sense to pay it? (It does when on-going expenses suck up 2.5 - 3.0% per year)

 

Forget about service - it is not going to happen; an agent was paid a front-end sales commission by the carrier to sell the case. The incentive structure is designed to distribute product. (And this is the case whether or not there are no or front or back end loads on the funds!) The high expenses are just the mechanism by which the carrier recovers what it has fronted to the agent.

 

I was glad to hear in your early post that your organization provides a traditional pension plan. I'd suggest that the hows & whoms of governance of that plan be applied to your organization's 403(b) simultaneously. You might also find that the providers of the pension services can be a resource for your organization.

 

Good Luck & Best Wishes!

 

Danc

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Guest Sierra

Forget about service - it is not going to happen; an agent was paid a front-end sales commission by the carrier to sell the case. The incentive structure is designed to distribute product. (And this is the case whether or not there are no or front or back end loads on the funds!) The high expenses are just the mechanism by which the carrier recovers what it has fronted to the agent.

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

Encore, Encore, Dan! It is simply amazing how the commissioned agent has used the term "service" as a code word to mean that you get something less than "service" if you use no-loads. That is the bait to suck you in. The commissioned agent is being paid to distribute product not service (educate/advise/guide) old cases. There is only so many working hours in the day---so if you were a commissioned agent would you be "servicing" or distributing product? You can't make a living with just the residuals of old business! You must be constantly talking to prospects and referrals because that is where the money is------"follow the money" and if you don't you will not meet your quota and you will be fired.

 

 

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Guest TR1982

What a joke. I love hearing this kind of drivel from people who have never worked in the business.

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Guest Sierra
What a joke. I love hearing this kind of drivel from people who have never worked in the business.

TR: Are you asserting that Danc has not worked in the business? He has asserted that he is a 25 year veteran of the industry.

 

Joel

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Guest Joel Lee Frank

TR: Why would my position on paying a load to acquire a 403(b) investment have more creditability with you if I had worked in the business? I'll tell you for sure that your creditability with me would be greatly enhanced if you used a commissioned broker to acquire financial investments for your own account or for those of your family.

 

Danc has 25 years of experience and has asserted what I and others have always believed about "service" and how it relates to paying a commissioned agent to acquire 403b product. For your convenience I have pasted up his quote again.

 

"Forget about service - it is not going to happen; an agent was paid a front-end sales commission by the carrier to sell the case. The incentive structure is designed to distribute product. (And this is the case whether or not there are no or front or back end loads on the funds!) The high expenses are just the mechanism by which the carrier recovers what it has fronted to the agent."

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Guest TR1982

Sierra,

 

This is what you said and I quote:

 

"Encore, Encore, Dan! It is simply amazing how the commissioned agent has used the term "service" as a code word to mean that you get something less than "service" if you use no-loads. That is the bait to suck you in. The commissioned agent is being paid to distribute product not service (educate/advise/guide) old cases. There is only so many working hours in the day---so if you were a commissioned agent would you be "servicing" or distributing product? You can't make a living with just the residuals of old business! You must be constantly talking to prospects and referrals because that is where the money is------"follow the money" and if you don't you will not meet your quota and you will be fired."

 

Since when did you decide how many customers an advisor can service? Have you polled my customers to see if they are satisfied with my services? If 90% of my customers are satisfied with my service, then how can you say this? This is the problem I have with guys like you on this thread: you don't like salespeople. That's fine. I've never been particularly been enamored of guys like you. I don't, however, go around crticizing how you do your job since I have no idea how what you do. Why do you seem to think that you can speak to how I do my job? This will degenerate into more ad hominem attacks.

 

Sierra, if you would spend your time suggesting positive things here instead of engaging in wholesale criticism of people and professions, I think the discussions would be more helpful. I have raised this issue before and will continue to raise it as long as you bring it up. If this board is just going to be a place where you can bash salepeople because you don't like them, then it will become boring pretty quickly.

 

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