403b Question: Individual vs. Group Custodial Agreement?

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Mrs.Feeley
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403b Question: Individual vs. Group Custodial Agreement?

Post by Mrs.Feeley »

Just received a bewildering jargon-filled letter from Fidelity. It says that my husband's employer has changed his 403(b) account from an "Individual Custodial Account Agreement" to a "Group Custodial Account Agreement." According to the letter this was done in anticipation of future changes to "retirement plan services." Beyond this the letter says nothing about what if anything this change means. Have done a bit of googling but can't figure out whether this account change is something we should be concerned about. Any ideas?
fcirullo
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Re: 403b Question: Individual vs. Group Custodial Agreement?

Post by fcirullo »

Ask HR what this change will mean for you in terms of contributions, investments, and costs. Or call the Fidelity 403(b) specialists at 1.866.418.5173, and ask the same questions. http://workplace.fidelity.com/403b.html
Frank R. Cirullo | | "It isn't what we don't know that gives us trouble, it's what we know that ain't so." -- | Will Rogers
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Mrs.Feeley
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Re: 403b Question: Individual vs. Group Custodial Agreement?

Post by Mrs.Feeley »

fcirullo wrote:Ask HR what this change will mean for you in terms of contributions, investments, and costs. Or call the Fidelity 403(b) specialists at 1.866.418.5173, and ask the same questions. http://workplace.fidelity.com/403b.html
Will certainly do this. Although according to the letter the change means no change in terms of contributions and investments at Fidelity.

However... From what bits I've been able to gather, changing the 403b from individual custodianship to a group custodian means that control of the account, and with it decisions about how the money is invested, moves from the employee to the employer. In other words the employer could suddenly decide they want to move all the employee 403b's from Fidelity to Ameriprise or to a hedge fund or whatever and there's nothing the employees could do about it. Supposedly having a group custodian agreement over the accounts means the employer can better bargain with Fidelity for lower fees arguing something like "If you don't come up with lower fees we'll just move all our accounts over to Ameriprise!" Still, it's a little unnerving losing control of the account. Also, under group custodianship the employer has the ability to find out how much money is in all the employee 403b's, information they didn't have under individual custodianship.
Fallible
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Re: 403b Question: Individual vs. Group Custodial Agreement?

Post by Fallible »

Mrs.Feeley wrote:
fcirullo wrote:Ask HR what this change will mean for you in terms of contributions, investments, and costs. Or call the Fidelity 403(b) specialists at 1.866.418.5173, and ask the same questions. http://workplace.fidelity.com/403b.html
Will certainly do this. Although according to the letter the change means no change in terms of contributions and investments at Fidelity.

However... From what bits I've been able to gather, changing the 403b from individual custodianship to a group custodian means that control of the account, and with it decisions about how the money is invested, moves from the employee to the employer. In other words the employer could suddenly decide they want to move all the employee 403b's from Fidelity to Ameriprise or to a hedge fund or whatever and there's nothing the employees could do about it. Supposedly having a group custodian agreement over the accounts means the employer can better bargain with Fidelity for lower fees arguing something like "If you don't come up with lower fees we'll just move all our accounts over to Ameriprise!" Still, it's a little unnerving losing control of the account. Also, under group custodianship the employer has the ability to find out how much money is in all the employee 403b's, information they didn't have under individual custodianship.
You've gathered some good "bits" and they'll form the questions you'll need to ask in addition to those fcirullo suggested. It's entirely up to you, of course, but I would talk with both Fidelity and HR. I think you're right to be concerned.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
texasdiver
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Re: 403b Question: Individual vs. Group Custodial Agreement?

Post by texasdiver »

This happened to my wife a few years back. She had an individual 403(b) plan with Vanguard and the employer chose a new group plan with Standard Insurance that was much inferior.

First, my wife kept her individual plan with Vanguard. She could no longer contribute to it through payroll deduction but there was no requirement or reason to roll the funds over into the new account.

As for the new plan, she went ahead and opened an account and continues to maximize her contributions in the new account, buying the same Vanguard funds for the most part. Except now Standard Insurance is skimming off its 1.25% off the top which still frosts us every time I think about it. They are providing nothing of value and have much inferior choices, online account access, everything. And yes, her statements now come cc'd through her payroll office so they do know what is in the account. Not that I suspect they care one way or the other. But you are correct about that.

Maybe you will be lucky and you won't get shafted by excessive fees the way my wife did.
Beelzebozo
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Re: 403b Question: Individual vs. Group Custodial Agreement?

Post by Beelzebozo »

Other posters are correct that the main reason the change was made was to make the plan available to move to another provider. HR may be considering moving or may already have a new vendor in mind. Asking about this is certainly a good idea.

Fidelity is better than 90% of 403(b) vendors if used appropriately so any move is probably going to be bad for you. The 403(b) market is saturated with costly annuity providers with slick salespeople. At this point the best thing you can do is lobby that the new provider have a mutual fund based (Net Asset Value) platform that includes a Self-Directed Brokerage Account where you can put 100% of your balance. Adding an SDB feature is usually quite easy so it's less of a fight with HR people. Basically it gives you an escape route if things go south.

At this point your account is not materially affected. Your primary issues are what's going to happen in the future.'


Disclosure: I work within the retirement plan industry and over just the past year have analyzed more plans than almost anyone in the nation. I am an Investment Advisor Representative of a fee-only Registered Investment Advisory firm and receive no compensation from plan providers nor investment companies. This post is for education purposes only and should in no way be considered investment advice or a solicitation of business.
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