Author Topic: 403(b) Oversight Committee  (Read 4734 times)

MSC

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403(b) Oversight Committee
« on: April 03, 2016, 10:57:25 AM »
Hey everyone--

I've recently joined the 403(b) Oversight Committee at my employer (a not-for-profit charter school).

We currently utilize American Funds as our provider which has outrageous fees ranging from 1.3-1.8% for even the most basic funds.

Any suggestions for a lower cost option? I'm instinctively drawn to Vanguard, but I'd like to know if anyone else has an opinion.

Also--

I've heard that 457 accounts are available to not-for-profits, can anyone provide any insight? Would you just find a provider just like any other scenario? I'd like to explore the possibility with the committee (if they allow it).

Thanks,

MSC
« Last Edit: April 03, 2016, 11:00:27 AM by MSC »

MSC

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Re: 403(b) Oversight Committee
« Reply #1 on: April 03, 2016, 11:11:37 AM »
Scratch the comment about the 457:

Quote
Non-governmental 457(b) (“Top Hat”) plans must limit participation to groups of highly compensated employees or groups of executives, managers, directors or officers. The plan may not cover rank-and-file employees.

https://www.irs.gov/Retirement-Plans/Non-Governmental-457b-Deferred-Compensation-Plans

dandypandys

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Re: 403(b) Oversight Committee
« Reply #2 on: April 03, 2016, 11:21:27 AM »
My School did the same thing recently, and had a committee hands down choose Transamerica.
We were moving from TiaCref and Fidelity.
They wanted to move because of fees too.

MDM

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Re: 403(b) Oversight Committee
« Reply #3 on: April 03, 2016, 12:04:59 PM »
Scratch the comment about the 457:

Quote
Non-governmental 457(b) (“Top Hat”) plans must limit participation to groups of highly compensated employees or groups of executives, managers, directors or officers. The plan may not cover rank-and-file employees.

https://www.irs.gov/Retirement-Plans/Non-Governmental-457b-Deferred-Compensation-Plans

May depend on your school's chartering organization - if you are chartered by a public school then you may be a governmental organization.

MDM

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Re: 403(b) Oversight Committee
« Reply #4 on: April 03, 2016, 12:06:20 PM »
My School did the same thing recently, and had a committee hands down choose Transamerica.
We were moving from TiaCref and Fidelity.
They wanted to move because of fees too.

Interesting - that is exactly the opposite of what one might expect (unless Fidelity wasn't making its Spartan and Index funds available).  Do you have details on the fees charged by each?

MSC

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Re: 403(b) Oversight Committee
« Reply #5 on: April 03, 2016, 12:24:18 PM »
My School did the same thing recently, and had a committee hands down choose Transamerica.
We were moving from TiaCref and Fidelity.
They wanted to move because of fees too.

Interesting - that is exactly the opposite of what one might expect (unless Fidelity wasn't making its Spartan and Index funds available).  Do you have details on the fees charged by each?

I'm also interested, from what I can tell the TIAA index fund (TIEIX) has an expense ratio of 0.05%, and there are other cheap options.

dandypandys

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Re: 403(b) Oversight Committee
« Reply #6 on: April 03, 2016, 12:28:02 PM »
This is the letter they sent us- edited for privacy:

 
Spoiler: show
Change in Retirement Plan Provider
Dear Colleague:
As has been communicated previously, the __ Retirement Plan Advisory Committee* has been actively engaged over the past year in an in-depth examination of the current retirement plan providers (TIAA-CREF and Fidelity). This review was motivated by recent regulatory changes for 403(b) plans that now require __College to exercise increased fiduciary oversight of our retirement plans and manage greater administrative complexities. As a result, it became imperative to review our plans and take the necessary steps to ensure we offer a high quality, streamlined retirement plan program with regard to participant support and guidance, investment options, administration, legal compliance, and fees.
The committee’s analysis included a benchmark study to compare __ plans to those of comparable organizations and the Request for Proposal (RFP) process was initiated to evaluate the current plan vendor offerings, as well as those of other retirement plan administrators. This past summer, a survey was also sent out to faculty and staff to gain insight as to what matters most to plan participants.
After a year-long meticulous search, review, and evaluation of highly qualified retirement plan vendors (including our current ones) aided by an experienced, independent retirement plan advisor, the __ retirement plan committee unanimously selected Transamerica Retirement Solutions to become our new, exclusive plan administrator effective April 1, 2014.

Transamerica is an award-winning provider of educational, administrative, and investment services to retirement plans sponsored by higher education institutions. Partnering with Transamerica will enable
__ to offer a more robust retirement planning experience through comprehensive investment choices, automated tools and services for creating and improving your retirement savings strategy, and sound education and guidance to help you make confident decisions to enhance your retirement outlook.
We look forward to the coming changes and feel confident you will share our enthusiasm for this new and improved approach. As mentioned, be on the lookout for more information concerning the transition to Transamerica and its impact on you. ___ and Transamerica will work together to make the process as straight-forward and simple as possible, and in a few months we’ll be pleased to announce that the ___ retirement plans provide all of the services and resources you need to get and stay on track for a secure, funded retirement.
Sincerely,
___ Retirement Plan Advisory Committee Members:

dandypandys

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Re: 403(b) Oversight Committee
« Reply #7 on: April 03, 2016, 12:31:36 PM »
No, sorry I don't have any info on fees, it was back when i wasn't paying much attention. Looks like it was less about fees more about the fed changes.

Vilgan

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Re: 403(b) Oversight Committee
« Reply #8 on: April 03, 2016, 12:49:48 PM »
I was on a 401k committee rather than a 403b, but the concepts should be similar. When we went cost shopping, Fidelity and Vanguard stood out as the best two options and we went with Fidelity due to the familiarity, the better customer support, better website, etc. Both are great.

The key thing BEYOND the custodian though is picking cheap total market funds rather than a bevy of "this is what has been doing well and what our highly paid analysts (read: salesman) recommend". Whether its Vanguard, Fidelity, or some other option you should at a minimum offer a full spread of low cost index funds. With Vanguard that'd be Total Market, Total Market International, and a Total Bond fund. With Fidelity, it'd be similar. The ER for these should run around .05% for the total market, .15% for the international, and .08% or so for the total bond fund. Fidelity is great, but if you let them they will happily recommend a bevy of much more expensive options where they make way more money. Lifecycle funds are also great to offer but make sure you have the index version if Fidelity (.2% fees rather than .8%).

I have no experience with Transamerica. Edit> Looking at their funds, they seem really really expensive. Ugh.

I'm really glad to hear that some places are taking their 403b responsibilities more seriously. My mom's school district did not and they were fed to people offering funds with a 5% load and 2-3% expense ratio per year. I still get angry when I think about how she was taken advantage of and (in some cases) lied to.
« Last Edit: April 03, 2016, 12:54:55 PM by Vilgan »

MSC

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Re: 403(b) Oversight Committee
« Reply #9 on: April 03, 2016, 12:51:54 PM »
I'm really glad to hear that some places are taking their 403b responsibilities more seriously. My mom's school district did not and they were fed to people offering funds with a 5% load and 2-3% expense ratio per year. I still get angry when I think about how she was taken advantage of and (in some cases) lied to.

Pardon my ignorance, but what do you mean by "5% load"?

MSC

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Re: 403(b) Oversight Committee
« Reply #10 on: April 03, 2016, 12:53:32 PM »
Also, the problem with Vanguard (from my minimal research) is that they don't offer vesting options. Right now, the school operates under a 20%/year vesting schedule for their contributions. Vanguard wouldn't allow this (not a bad thing from my perspective) but it may be a deal breaker from the school's point-of-view.

Vilgan

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Re: 403(b) Oversight Committee
« Reply #11 on: April 03, 2016, 01:00:10 PM »
I'm really glad to hear that some places are taking their 403b responsibilities more seriously. My mom's school district did not and they were fed to people offering funds with a 5% load and 2-3% expense ratio per year. I still get angry when I think about how she was taken advantage of and (in some cases) lied to.

Pardon my ignorance, but what do you mean by "5% load"?

They immediately took 5% off the top for the privilege of getting to invest in their shitty fund. Investing 10k? Only $9500 of the 10k you invested actually got invested. The other $500 immediately went to other purposes, typically a commission to the "advisor" that put you in that terrible fund in the first place. The kicker was that this advisor was recommended by the school district and stated multiple times that she was "paid by the school district" and was "completely free" rather than disclosing the commission she received.

Most of her retirement is via pension so it wasn't crippling, but she still lost a significant amount of money to fees over the years. The returns were also sub par, somehow managing to not make much from 2009 to 2015 when we started talking about investments and I coached her on how to get out and move things to Fidelity. She's a lot more educated about it now, but generally trusted what the school district's recommended "advisor" told her and lost a lot of money as a result.

dandypandys

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Re: 403(b) Oversight Committee
« Reply #12 on: April 03, 2016, 01:09:00 PM »
I am not sure what you mean by high funds for Transamerica- i am still a newb, but we have a few Vanguard index funds through it, VSTAX is 0.05%

naners

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Re: 403(b) Oversight Committee
« Reply #13 on: April 03, 2016, 01:33:04 PM »
TIAA-CREF is pretty common at not for profits and allows vesting (or at least, I have TIAA and didn't vest for a year). Fees on their basic funds are good too. Look for their index fund offerings plus maybe some lifecycle funds for people who don't want to learn anything about investing.

MDM

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Re: 403(b) Oversight Committee
« Reply #14 on: April 03, 2016, 01:40:28 PM »
No, sorry I don't have any info on fees, it was back when i wasn't paying much attention. Looks like it was less about fees more about the fed changes.

When run through a handy corporate-speak decoder ring, the letter seems to say "we were scared of the new federal regs, so we sold out to the slickest sales pitch that came along."

It is of course possible that the decoder ring was malfunctioning....

Looking at https://www.transamerica.com/images/transamerica-large-cap-value-fund-fact-sheet_tcm73-27295.pdf?dt=1459711481729, one has to dive into the fine print at the bottom of the document to find the fees.  The R6 class (presumably what the 403b plan has access to) has a 0.69% fee.  That is higher than Vanguard's VIVAX or VVIAX "Large Cap Value" funds, but isn't outrageously high.  That is the only one I checked.

Also, looking on Morningstar to compare VVIAX vs. TWQIX (closest Transamerica share class that had been open at least five years), the Transamerica after-fee performance has been slightly better than Vanguard.  No guarantee about going-forward performance, but at least it hasn't been egregious to this point.

clarkm04

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Re: 403(b) Oversight Committee
« Reply #15 on: April 03, 2016, 01:53:11 PM »
The private high school I work at currently has TIAA-CREF as our 403(b) provider, but will be moving away from them. Last year TIAA-CREF reclassified their CREF funds by institution size.  Since we are a smaller institution, they doubled all our expense ratios. I'm currently paying .61 for CREF equity index and .69 for CREF bond.

The two leading candidates for the committee are Vanguard and Fidelity.