Only option for 403b is a Metlife Var Annuity

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getttinggoing37
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Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Tue Apr 21, 2020 7:53 am

Hi everyone, this question is for my sister who is a teacher in NJ. Her school has only one option for its 401k/403b program, which is to invest in the Metlife Freedom Select Plan. Is it worth doing this, or is she better off opening a Roth IRA in lieu of an annuity-only plan?

jco
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Re: Only option for 403b is a Metlife Var Annuity

Post by jco » Tue Apr 21, 2020 8:02 am

I feel like we need some more information. Has she confirmed with the plan administrators that there is only a single choice in their plan and this is not simply the default option? Is there an employer match? You pretty much always want to invest up to the employer match because it is free money. Many schools also have a 457 option. Does her employer have one?

informal guide
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Re: Only option for 403b is a Metlife Var Annuity

Post by informal guide » Tue Apr 21, 2020 8:04 am

Unless there is some sort of match (highly unlikely), my strong vote is for the Roth IRA. Unlike an annuity, a Roth has no surrender charges or limitations and much lower expenses and offers an almost limitless choice of investments. The usually appropriate and easiest investment choice is a target retirement fund for the year nearest her retirement (e.g., Vanguard 2065 target retirement fund if she is around 25 years old).

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getttinggoing37
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Re: Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Tue Apr 21, 2020 8:06 am

jco wrote:
Tue Apr 21, 2020 8:02 am
I feel like we need some more information. Has she confirmed with the plan administrators that there is only a single choice in their plan and this is not simply the default option? Is there an employer match? You pretty much always want to invest up to the employer match because it is free money. Many schools also have a 457 option. Does her employer have one?
Yes, this is what was said: "The only option is an annuity as the investment vehicle, you can invest in an index fund within the annuity."

lakpr
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Re: Only option for 403b is a Metlife Var Annuity

Post by lakpr » Tue Apr 21, 2020 8:10 am

@gettinggoing37,

Which school district is this? My wife is a school teacher in NJ too, she worked so far in 4 school districts, and every single one of them has multiple choice of 403b providers. IF Security Benefit is an option in the school district, one can opt for a 403b plan provided through NEA Direct Invest, with low costs and access to Vanguard funds. It REALLY pays to contact the HR team at the school district and obtain a full list of authorized 403b providers.

As had been mentioned already, many school districts also have the 457b plan option

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getttinggoing37
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Re: Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Tue Apr 21, 2020 8:12 am

lakpr wrote:
Tue Apr 21, 2020 8:10 am
@gettinggoing37,

Which school district is this? My wife is a school teacher in NJ too, she worked so far in 4 school districts, and every single one of them has multiple choice of 403b providers. IF Security Benefit is an option in the school district, one can opt for a 403b plan provided through NEA Direct Invest, with low costs and access to Vanguard funds. It REALLY pays to contact the HR team at the school district and obtain a full list of authorized 403b providers.

As had been mentioned already, many school districts also have the 457b plan option
It's a private school

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Stinky
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Re: Only option for 403b is a Metlife Var Annuity

Post by Stinky » Tue Apr 21, 2020 8:42 am

getttinggoing37 wrote:
Tue Apr 21, 2020 7:53 am
Hi everyone, this question is for my sister who is a teacher in NJ. Her school has only one option for its 401k/403b program, which is to invest in the Metlife Freedom Select Plan. Is it worth doing this, or is she better off opening a Roth IRA in lieu of an annuity-only plan?
Some salesman has done a great job in convincing the school board to offer only his variable annuity to employees. And I expect that the salesman is profiting handsomely from his sales job.

I feel sorry for your sister.

That being said, I'd opt for Roth IRA in a heartbeat.
It's a GREAT day to be alive - Travis Tritt

retiredjg
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Re: Only option for 403b is a Metlife Var Annuity

Post by retiredjg » Tue Apr 21, 2020 8:44 am

How much does she intend to save each year? If the answer is $6k or less (under age 50), she might as well just use Roth IRA (or traditional IRA if she prefers deferring taxes and her income is low enough to defer.)

If she wants to save more, the answer lies in the costs of the plan offered. An annuity is not anybody's first choice, but they are not all bad. She should find out the cost (expense ratio) of the index funds in the plan and if there are any additional administrative costs that she would pay.

If those costs are way high (2% or more), I'd use taxable once the Roth IRA is filled. If the costs are lower, it would depend on how valuable tax-deferral is to her and that involves information we don't know. If the costs are way low, I'd probably fill a Roth IRA and use the 403b after that.

This answer assumes she expects a pension.

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Thrifty Femme
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Re: Only option for 403b is a Metlife Var Annuity

Post by Thrifty Femme » Tue Apr 21, 2020 8:45 am

Is there anything she could do with suing her employer for lack of investment options?

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getttinggoing37
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Re: Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Tue Apr 21, 2020 8:50 am

Thrifty Femme wrote:
Tue Apr 21, 2020 8:45 am
Is there anything she could do with suing her employer for lack of investment options?
Haha, i wish, but don't think that's gonna happen.

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getttinggoing37
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Re: Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Tue Apr 21, 2020 8:56 am

These are the listed fees: https://imgur.com/a/nvHhzQ4

lakpr
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Re: Only option for 403b is a Metlife Var Annuity

Post by lakpr » Tue Apr 21, 2020 9:06 am

getttinggoing37 wrote:
Tue Apr 21, 2020 8:56 am
These are the listed fees: https://imgur.com/a/nvHhzQ4
Oh my, run away!! Those are obscene fees. If this is the only 403b provider available at this private school, she is much better off not participating in the plan at all, and using taxable accounts after the IRA for any additional investments.

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Stinky
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Re: Only option for 403b is a Metlife Var Annuity

Post by Stinky » Tue Apr 21, 2020 9:06 am

getttinggoing37 wrote:
Tue Apr 21, 2020 8:56 am
These are the listed fees: https://imgur.com/a/nvHhzQ4
These fees should be criminal.

The lowest contract fee is 1.15%. But that comes with a massive and very long surrender charge. For no surrender charges, you need to bump up to 1.45%.

And that doesn't include the underlying fund fees.

Somebody is making a lot of money off this. Maybe the agent is getting rich. Maybe the school board is getting a nice kickback. Maybe both.

But the employee is getting the raw end of this deal.
Last edited by Stinky on Tue Apr 21, 2020 10:34 pm, edited 1 time in total.
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Thrifty Femme
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Re: Only option for 403b is a Metlife Var Annuity

Post by Thrifty Femme » Tue Apr 21, 2020 9:14 am

getttinggoing37 wrote:
Tue Apr 21, 2020 8:50 am
Thrifty Femme wrote:
Tue Apr 21, 2020 8:45 am
Is there anything she could do with suing her employer for lack of investment options?
Haha, i wish, but don't think that's gonna happen.
Sometimes the threat is enough. There was a court case a while ago that ruled employers must offer reasonable choices if they offer a retirement account as a benefit.

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WoodSpinner
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Re: Only option for 403b is a Metlife Var Annuity

Post by WoodSpinner » Tue Apr 21, 2020 9:38 am

OP,

Terrible situation!

You might pass this link on how to lobby for a better 401k plan to your sister.
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

WoodSpinner

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getttinggoing37
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Re: Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Tue Apr 21, 2020 9:44 am

WoodSpinner wrote:
Tue Apr 21, 2020 9:38 am
OP,

Terrible situation!

You might pass this link on how to lobby for a better 401k plan to your sister.
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

WoodSpinner
Thanks for this.

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Re: Only option for 403b is a Metlife Var Annuity

Post by Dottie57 » Tue Apr 21, 2020 9:49 am

retiredjg wrote:
Tue Apr 21, 2020 8:44 am
How much does she intend to save each year? If the answer is $6k or less (under age 50), she might as well just use Roth IRA (or traditional IRA if she prefers deferring taxes and her income is low enough to defer.)

If she wants to save more, the answer lies in the costs of the plan offered. An annuity is not anybody's first choice, but they are not all bad. She should find out the cost (expense ratio) of the index funds in the plan and if there are any additional administrative costs that she would pay.

If those costs are way high (2% or more), I'd use taxable once the Roth IRA is filled. If the costs are lower, it would depend on how valuable tax-deferral is to her and that involves information we don't know. If the costs are way low, I'd probably fill a Roth IRA and use the 403b after that.

This answer assumes she expects a pension.
I think Roth + taxable is a very good option. I would not use the annuity.

retiredjg
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Re: Only option for 403b is a Metlife Var Annuity

Post by retiredjg » Tue Apr 21, 2020 9:58 am

What are the fees for the funds?

Is she covered by a pension?

Is she married to someone with a 401k or other plan at work?

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grabiner
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Re: Only option for 403b is a Metlife Var Annuity

Post by grabiner » Tue Apr 21, 2020 10:23 pm

Thrifty Femme wrote:
Tue Apr 21, 2020 9:14 am
getttinggoing37 wrote:
Tue Apr 21, 2020 8:50 am
Thrifty Femme wrote:
Tue Apr 21, 2020 8:45 am
Is there anything she could do with suing her employer for lack of investment options?
Haha, i wish, but don't think that's gonna happen.
Sometimes the threat is enough. There was a court case a while ago that ruled employers must offer reasonable choices if they offer a retirement account as a benefit.
403(b) plans are not covered by ERISA; this is one reason they often have such bad options.
Wiki David Grabiner

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fortfun
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Re: Only option for 403b is a Metlife Var Annuity

Post by fortfun » Tue Apr 21, 2020 10:32 pm

You should encourage your sister to join the 403bwise Facebook page. Dan Otter, former teacher, runs the non-profit and has a TON of good information for teachers like your sister, including how to advocate for a better plan. Here's his blog:
https://403bwise.org/

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getttinggoing37
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Re: Only option for 403b is a Metlife Var Annuity

Post by getttinggoing37 » Thu Apr 23, 2020 3:29 pm

fortfun wrote:
Tue Apr 21, 2020 10:32 pm
You should encourage your sister to join the 403bwise Facebook page. Dan Otter, former teacher, runs the non-profit and has a TON of good information for teachers like your sister, including how to advocate for a better plan. Here's his blog:
https://403bwise.org/
Thank you!

DarkHelmetII
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Re: Only option for 403b is a Metlife Var Annuity

Post by DarkHelmetII » Thu Apr 23, 2020 4:15 pm

Remember putting $$ into VA rather than taxable converts more favorable capital gains rates to less favorable ordinary tax rates. This generally dwarfs the tax deferral benefits.

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grabiner
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Re: Only option for 403b is a Metlife Var Annuity

Post by grabiner » Thu Apr 23, 2020 4:38 pm

DarkHelmetII wrote:
Thu Apr 23, 2020 4:15 pm
Remember putting $$ into VA rather than taxable converts more favorable capital gains rates to less favorable ordinary tax rates. This generally dwarfs the tax deferral benefits.
This is not correct for a variable annuity within a 403(b). As with any other 403(b) investment, contributions are tax deductible and withdrawals are taxable. Thus it makes sense to invest in such a variable annuity; usually, the fees (which you pay only until you leave the employer and can roll into an IRA) are less than the benefits of tax deferral.

It doesn't make sense to hold a variable annuity inside a retirement account, but for historical reasons, many 403(b) plans are set up this way. Ordinary mutual funds, with lower expenses, would work better in a retirement account.
Wiki David Grabiner

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Re: Only option for 403b is a Metlife Var Annuity

Post by Mel Lindauer » Thu Apr 23, 2020 11:51 pm

IMO, it should be illegal to put a tax-deferred annuity, with all of it's extra costs, inside an already tax-deferred retirement plan.
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