Non gov 457b question

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am
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Non gov 457b question

Post by am » Sun Dec 25, 2016 5:34 pm

I have a non gov 457b at Fidelity. There is a statement about no account being established and chance of losing money in a bankruptcy in the account. There is also a record keeping fee which is less than 10 dollars a year. I am curious to know if the fees for the index funds I am using are being assesed since I am not really holding them? The account is held in a rabbi trust so I dont know if that changes anything.

retiredjg
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Re: Non gov 457b question

Post by retiredjg » Sun Dec 25, 2016 5:39 pm

If you mean expense ratios, I would assume they are being charged if these are mutual funds. The expense ratio pays for the actual running of the fund. It is taken out of the value of the fund every day before the setting of the end of the day NAV (net asset value or share price). I don't see how an expense ratio could not be charged.

If these are not mutual funds but collective investment trusts, I would assume the same thing, but I'm less sure that is the correct answer.

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Re: Non gov 457b question

Post by am » Sun Dec 25, 2016 5:45 pm

retiredjg wrote:If you mean expense ratios, I would assume they are being charged if these are mutual funds. The expense ratio pays for the actual running of the fund. It is taken out of the value of the fund every day before the setting of the end of the day NAV (net asset value or share price). I don't see how an expense ratio could not be charged.

If these are not mutual funds but collective investment trusts, I would assume the same thing, but I'm less sure that is the correct answer.
They are Fidelity and Vanguard index mutual funds. How do these accounts work? Is there one collective investment in each mutual fund by the 457b? The record keeping fee is to keep track of whats mine?

retiredjg
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Re: Non gov 457b question

Post by retiredjg » Sun Dec 25, 2016 5:53 pm

am wrote:They are Fidelity and Vanguard index mutual funds.
Then I feel sure you are paying ERs.
How do these accounts work? Is there one collective investment in each mutual fund by the 457b? The record keeping fee is to keep track of whats mine?
Can't help with this - don't know.

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neurosphere
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Re: Non gov 457b question

Post by neurosphere » Sun Dec 25, 2016 8:11 pm

This question is confusing because the investment selections in most 457 plans appear to be conventional mutual funds with expense ratios etc. But then there is always a statement such as (paraphrase) "you don't actually own these funds or have actual money in these funds, but rather represent what you are investing in". What?

I have the feeling this allows the employer to use your funds if they wish, and then "put the money back" and know exactly how much you should have. But in reality, I'm guessing that for most non-gov 457 plans, there is an actual investment/fund to which your money is directed.

Which is all to say, you are surely getting charged the expense ratios for each of your investments (but you won't see this charge as a separate line-item or anything). In addition, you'll get charged the record keeping fee, which you likely WILL see as a line-item on a statement.

But I have no particular knowledge in this area. Just guessing.
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am
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Re: Non gov 457b question

Post by am » Sun Dec 25, 2016 9:18 pm

neurosphere wrote:This question is confusing because the investment selections in most 457 plans appear to be conventional mutual funds with expense ratios etc. But then there is always a statement such as (paraphrase) "you don't actually own these funds or have actual money in these funds, but rather represent what you are investing in". What?

I have the feeling this allows the employer to use your funds if they wish, and then "put the money back" and know exactly how much you should have. But in reality, I'm guessing that for most non-gov 457 plans, there is an actual investment/fund to which your money is directed.

Which is all to say, you are surely getting charged the expense ratios for each of your investments (but you won't see this charge as a separate line-item or anything). In addition, you'll get charged the record keeping fee, which you likely WILL see as a line-item on a statement.

But I have no particular knowledge in this area. Just guessing.
When I have called Human Resources about basic questions about 457b, I usually get a pause, followed by how can we reach you with an answer? Usually takes several days, sometimes with obviously inaccurate information. I have other questions about this account like, if the hospital that I work for in the health system is sold or goes bankrupt, am I part of the larger health system account or a sub account for that hospital? I do not know who to call to get definitive answers.

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neurosphere
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Re: Non gov 457b question

Post by neurosphere » Sun Dec 25, 2016 9:48 pm

am wrote:I have other questions about this account like, if the hospital that I work for in the health system is sold or goes bankrupt, am I part of the larger health system account or a sub account for that hospital? I do not know who to call to get definitive answers.
For questions such as this one, I assume you would have to look at previous court cases of bankrupt hospitals. And even then, you might only be able to get a clue as to the truth. It may be that NO ONE knows the answer to this until there is an actual bankruptcy, and subsequent lawsuits by 457 account holders, i.e. only the future judge hearing the case knows the answer. :annoyed

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Re: Non gov 457b question

Post by am » Sun Dec 25, 2016 10:34 pm

neurosphere wrote:
am wrote:I have other questions about this account like, if the hospital that I work for in the health system is sold or goes bankrupt, am I part of the larger health system account or a sub account for that hospital? I do not know who to call to get definitive answers.
For questions such as this one, I assume you would have to look at previous court cases of bankrupt hospitals. And even then, you might only be able to get a clue as to the truth. It may be that NO ONE knows the answer to this until there is an actual bankruptcy, and subsequent lawsuits by 457 account holders, i.e. only the future judge hearing the case knows the answer. :annoyed
There is no information I could find on the internet of physicians losing money in a 457b. I could not find any info about how accounts are maintained and invested.

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neurosphere
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Re: Non gov 457b question

Post by neurosphere » Sun Dec 25, 2016 10:42 pm

45 seconds spent on google and I could not find one case of a person with a non-gov 457 who lost assets due to bankruptcy. I suspect if I spent 45 minutes I still would not find any.

Surely it has happened at least once in modern US history?

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Re: Non gov 457b question

Post by am » Mon Dec 26, 2016 7:41 am

If you do a google search for Moody's or other bond rating agency and municipal bond ratings, you'll find some long 100 page documents outlining the failure rate for municipal bonds at each rating including the names of the hospitals, municipalities, etc. Hospitals are probably the riskiest if my memory serves me right but still very low risk.

Think if an organization was rated aa or aaa than there was almost no chance of failure within the next 10 yrs. If a hospital did fail, I think the document outlined what % of money creditors received (mostly not 0). After this research I felt real good about going forward with this account and maxing it out. I work for a prominent nationally known employer aa rated. I do still have some questions as outlined above, but have no way of getting any answers.

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BL
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Re: Non gov 457b question

Post by BL » Mon Dec 26, 2016 8:40 am

IIRC, you cannot convert the non-government 457b to an IRA when you quit working there, only can transfer to another 457b.

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Re: Non gov 457b question

Post by am » Mon Dec 26, 2016 9:22 am

BL wrote:IIRC, you cannot convert the non-government 457b to an IRA when you quit working there, only can transfer to another 457b.
You can convert the account to taxable, rollover to non gov 457b,or stretch out distributions, in my case 20 yrs max.

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ERMD
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Re: Non gov 457b question

Post by ERMD » Mon Dec 26, 2016 8:17 pm

You probably know most of this already, but just to clarify..

Your non-gov 457b is technically not a traditional investment account, but deferred compensation. You authorize the hospital to withhold it from you and invest it, with the agreement that you'll withdraw it at a later date (the "deferred" part). While it sits in whatever fund you designate, it acts as any other investment account. No one touches it, redistributes it, borrows it, etc., and the money is subject to the same expense ratio as everyone else invested in the fund. However, until you elect to receive it, it is considered one of the hospital/health systems assets, and is also subject to the hospital/health system's creditors in case of bankruptcy, just the same as all of your future earnings (i.e. treat it as salary you have not yet received, just as would be the case with all of your future paychecks.)

I have also researched this subject extensively, and am yet to find any real world examples of a physician losing access to a 457b due to employer bankruptcy. Not to say it can't happen, but it just seems unlikely, which is a good thing, considered we currently have ~15% of our retirement assets in 457b funds, and this percentage will probably rise to 30-40% in the future.
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