457(b) mutual funds with astronomical expense ratios - worth it?

[omega13]

One of my family members has the option of contributing to a 457(b) after maxing out his 403(b). The choices he has are mutual funds with very high expense ratios. Specifically, the following:

Mutual Fund	Expense Ratio
HIMCO VIT Index IA	1.67%
Hartford Ultrashort Bond HLS IA	1.68%
Hartford Stock HLS IA	1.76%
Hartford U.S. Government Securities HLS IA	1.76%
Hartford Total Return Bond HLS IA	1.77%
Deutsche Core Equity S	1.84%
Hartford Balanced HLS IA	1.90%
Hartford Capital Appreciation HLS IA	1.92%
Hartford Dividend and Growth HLS IA	1.92%
American Century Income and Growth INV	1.93%
Hartford Small Company HLS IA	1.97%
Hartford International Opportunities HLS IA	1.99%
Massachusetts Investors Growth Stock A	1.99%
Hartford Global Growth HLS IA	2.06%
Invesco Diversified Dividend INV	2.06%
Janus Twenty T	2.07%
Janus Balanced T	2.08%
Calvert VP SRI Balanced Portfolio	2.11%
Hartford Healthcare HLS IA	2.12%
Janus Global Research T	2.13%
Dreyfus Intermediate Term Income A	2.17%
Janus Enterprise T	2.17%
Janus Overseas S	2.17%
American Century Equity Income INV	2.19%
MFS High Income A	2.20%
Franklin Small-Mid Cap Growth A	2.22%
American Century Ultra INV	2.23%
American Century Value INV	2.23%
MFS Utilities A	2.25%
Putnam High Yield Advantage A	2.29%
Putnam Multi-Cap Growth A	2.30%
MFS Core Equity A	2.32%
Invesco American Franchise A	2.33%
Fidelity Advisor Balanced T	2.39%
American Century International Growth INV	2.42%
Invesco Small Cap Growth INV	2.45%
Dreyfus Third Century A	2.48%
Putnam Global Equity A	2.48%
Fidelity Advisor Growth & Income T	2.50%
Fidelity Advisor Growth Opportunities T	2.53%
Invesco Technology INV	2.55%
AMG Managers Skyline Special Equities S	2.72%
Putnam International Growth A	2.79%

I didn't realize but 457(b)s are considered annuities which have a bad rap.

He also has the option to choose between a fixed (3%) or variable account (following market trends.)

What do you guys think. Worth it? If so, which of these would you recommend?




     

[katsiki]

These articles may be helpful:

http://www.millionaireeducator.com/category/457

[DrF]

Wow, if I were him/her I'd craft a critical email to the 457 administrator. It's crazy not to have funds available well below even 0.5%.

Your family member may want to contribute to a traditional IRA first, and if they are able to do the max for theirself and spouse, then select the lowest cost broad market fund from the list.

[alexpkeaton]

Those are all awful choices.

[dandarc]

Wow - 1.67% for an S&P 500 fund.  Yeah - letter to the administrator.

Depending on your marginal tax rate and the length of time you expect to be there and what you plan to do with the money once you leave (withdrawing "early" is the prime benefit of the 457, so the length of time invested might be shorter than the 403B funds), might still be worth it, but those fees definitely make you stop and think.

[Poeirenta]

I've had both a 403b and a 457 (at different jobs). My understanding is the 403b is the annuity-like option. A 457 is deferred compensation which one can access upon separation from service. Unless there are different flavors of 457s out there?

But yeah, those expense ratios suck.

[MDM]

I didn't realize but 457(b)s are considered annuities which have a bad rap.

He also has the option to choose between a fixed (3%) or variable account (following market trends.)

What do you guys think. Worth it?

Investment options in a 457b often are annuities, but they aren't required to be annuities.

If the 3% is a flat interest rate, with no fee, one can reasonably treat that as a decent bond for asset allocation purposes.

See To 401k or not to 401k? That is the question. for an approach to evaluating high fee tax-advantaged accounts vs. taxable investing.

[ender]

How long is that employee likely going to be working there?

Will they invest the money elsewhere?

Keep in mind that depending on your family member's marginal rate affects this too. If they are at a 30% marginal rate, even if they put that money into a fund that returns very close to 0% before ER it will take many years before that expense ratio will overtake the initial tax savings.

[FrugalToque]

Locked due to duplication.

Please see

https://forum.mrmoneymustache.com/investor-alley/457(b)-mutual-funds-with-astronomical-expense-ratios-worth-it-79917

2nd MOD EDIT: Whoops, I missed this and merged the duplicate posts, so now there's only the one, and it was locked. Unlocked!