403 B Question

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ZG3455
Posts: 5
Joined: Wed Sep 05, 2018 7:26 am

403 B Question

Post by ZG3455 » Fri Feb 08, 2019 9:59 pm

I'm a teacher that will have a pension when I retire in the state of PA. Right now I currently have a Roth Ira through Vanguard and I also have a 403b. I've been reading a lot about the high cost of 403b plans. I currently have a 403b with the district that is through Pacific Life Select fund. I'm maxing out my Roth but only putting in about 1300 a year in the 403b. I currently have 26k in the 403b.

The total annual fund operating expenses for the 403b is 1.03%. My questions is should I stop contributing to the 403b because of the 1.03% annual fee and use that money for a non-retirement account that utilized index funds with low expense ratios? Or does the tax deferral benefit of the 403b outweigh the annual 1.03% fee?

Any help would be appreciated. Thank you
Rob

spooky105
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Joined: Fri Aug 14, 2015 11:38 pm

Re: 403 B Question

Post by spooky105 » Sat Feb 09, 2019 8:52 am

Rob,

The benefits of investing pre-tax dollars in a 403b outweigh the high expense ratio, provided the account has access to reasonable investment options (not annuities, etc.).

That said, I recommend doing a deep dive on every provider you can use in your district, looking at every possible account type they offer. Do this homework directly with the companies, not with whatever material HR provides or through any "advisors." Be prepared to really dig around on the company websites and have conversations with their reps as required. The magic words you're looking for are "self-directed" accounts.

At first glance, my wife's district uses 6 providers that only offer annuities or 1%+ ER investment accounts. All garbage. However, I found one of them (Security Benefit) offered a self-directed investment account (NEA DirectInvest) that was buried in an obscure area of the their website. I was able to open an account directly with Security Benefit and use the account number on the HR forms for setting up 403b contributions. HR was terribly confused when the "advisor" paperwork wasn't filled out, but everything went through without a hitch. Contributions are flowing into the Vanguard Total Stock Market and the only added expense is $35 / year for admin overhead.

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CyclingDuo
Posts: 2716
Joined: Fri Jan 06, 2017 9:07 am

Re: 403 B Question

Post by CyclingDuo » Sat Feb 09, 2019 9:29 am

ZG3455 wrote:
Fri Feb 08, 2019 9:59 pm
I'm a teacher that will have a pension when I retire in the state of PA. Right now I currently have a Roth Ira through Vanguard and I also have a 403b. I've been reading a lot about the high cost of 403b plans. I currently have a 403b with the district that is through Pacific Life Select fund. I'm maxing out my Roth but only putting in about 1300 a year in the 403b. I currently have 26k in the 403b.

The total annual fund operating expenses for the 403b is 1.03%. My questions is should I stop contributing to the 403b because of the 1.03% annual fee and use that money for a non-retirement account that utilized index funds with low expense ratios? Or does the tax deferral benefit of the 403b outweigh the annual 1.03% fee?

Any help would be appreciated. Thank you
Rob
Rob,

Good for you to take advantage of the tax deferred saving. Do you also have access to a 457b plan?

What are the funds available and their expense ratios in the 403b plan? Is there more than one provider? Many plans have a low cost index fund available as a choice.

403bwise.com is a good sight as well as here to get up to speed on all matters 403/457. An ER fee of 1.03% is high, but not abnormal for some of the options available within a 403b plan. Ideally, you would want to find a lower cost option if it was available. Say in the neighborhood of less than .25%.
The higher the ER fees, the more it eats into your return over time...

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krow36
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Location: WA

Re: 403 B Question

Post by krow36 » Sat Feb 09, 2019 12:29 pm

CA requires that all K-12 403b vendors disclose their plans’ fees on the 403bcompare.com website which is run by the CA teachers pension authority (CalSTRS). These plans tend to be generic plans that are offered throughout the US. Pacific Life Insurance Company offers CA teachers two 403b variable annuity plans called Pacific Value Select and Pacific Innovations Select. Is either one what you have? https://www.403bcompare.com/vendors/1130#/productlist

In addition to having sub accounts with expense ratios of around 0.8% to 1.3%, there are additional fees:

Pacific Value Select: Admin fee 0.15%, Contract Fee $40, Mortality and Expense Fee 1.45%, an 8 year rolling surrender fee starting at 9%
Pacific Innovations Select: Admin fee 0.25%, Contract Fee $30, Mortality and Expense fee 1.40%, an 3 year rolling surrender fee starting at 7%

I think it’s very likely that your fees are higher than you think. As others have suggested, you should post a list of all your school district’s 403b vendors. Also post your district’s 457 vendors.

02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: 403 B Question

Post by 02nz » Sat Feb 09, 2019 1:23 pm

ZG3455 wrote:
Fri Feb 08, 2019 9:59 pm
The total annual fund operating expenses for the 403b is 1.03%. My questions is should I stop contributing to the 403b because of the 1.03% annual fee and use that money for a non-retirement account that utilized index funds with low expense ratios? Or does the tax deferral benefit of the 403b outweigh the annual 1.03% fee?
You almost certainly have other choices besides just one fund with a 1.03% fee. Get those choices and list them here.

Topic Author
ZG3455
Posts: 5
Joined: Wed Sep 05, 2018 7:26 am

Re: 403 B Question

Post by ZG3455 » Sun Feb 10, 2019 3:52 pm

Thank you all for the advice, this week I’m going to look into all my choices. The Pacific Life Value select is the one I currently have, so yes it does look like I have fees on top of the 1.03 ER.
Once I find out my other options I will post them online here to see what the best option is. Hopefully they have a self directed option as one of you have stated. Once again, thank you all for your input.

Topic Author
ZG3455
Posts: 5
Joined: Wed Sep 05, 2018 7:26 am

Re: 403 B Question

Post by ZG3455 » Sun Feb 10, 2019 6:59 pm

https://www.hasdk12.org/site/handlers/f ... _26_18.pdf

I don't know if the link above will work, so I will list the choices below that I have for 403B options within my district.


The only thing I could find as of now was the 403b companies they work with but it doesn't say what plans within those companies.
1. Ameriprise Financial
2. AXA Equitable Equi-Vest TSA
3. Horace Mann
4. Lincoln Investment Planning
5.Metropolitan
6.Pacific Life
7.Security Benefit
8. Valic

I haven't found anything on the 457 Plans offered. As far as my Roth that I have with Vanguard, can you guys suggest what allocations I should have? Right now I have 100 % percent of it in the 500 Index fund. I will have a pretty good pension, but the more I read I'm thinking I should allocate some towards bonds and possible international stocks?

Thank you

spooky105
Posts: 133
Joined: Fri Aug 14, 2015 11:38 pm

Re: 403 B Question

Post by spooky105 » Sun Feb 10, 2019 8:03 pm

Security Benefit has the previously mentioned DirectInvest account you can set up. It offers all of the building blocks for an excellent portfolio. Only overhead above and beyond Vanguard's exceptionally low fees is $35 / year for portfolios less than $50k. This is what I set up for my wife -- enrolled on the Security Benefit website and then used HR's form to set up the monthly deposit. Hardest step was calling Security Benefit to confirm the account number.

Overview: https://www.securitybenefit.com/individ ... nvest.aspx

Vanguard Options: Total Stock Market, Total International Stock, Small Cap Index, Real Estate Index, Intermediate Term Bond, etc.

As for your allocation, take a look at the below page with a focus on the links under example portfolios. You can expect many of the recommendations from folks will advocate either the Target Retirement fund approach or a three fund portfolio. There is also a school of thought (Jim Collins Stock Series) to just dump everything into Vanguard Total Stock Market (second link below).

https://www.bogleheads.org/wiki/Boglehe ... el_of_risk
https://jlcollinsnh.com/stock-series/

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Peter Foley
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Location: Lake Wobegon

Re: 403 B Question

Post by Peter Foley » Sun Feb 10, 2019 8:24 pm

If you qualify, using an IRA rather than a 403b is not a bad option. You cannot defer as much but you can choose low cost index funds.

I would hold bond in the 403b (or IRA if you go that route). Leave the Roth invested in stocks.

gwrvmd
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Location: Calabash NC

Re: 403 B Question

Post by gwrvmd » Sun Feb 10, 2019 11:54 pm

Another vote for going to website: 403bwise.com

Some states require or advise that Security Benefit be an option but often times that is intentionally not obvious. Apparently some times is easier to just call them and ask if they are in your plan

Good advice is don't buy investments from an insurance company or insurance from an investment company..........Gordon
Disciple of John Neff

krow36
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Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: 403 B Question

Post by krow36 » Mon Feb 11, 2019 12:11 am

I agree with spooky105 that the only vendor on your list with a low-cost plan is Security Benefit’s NEA Direct Invest. It is an internet-based, not a local rep based plan. The low fees that spooky105 mentions make it the lowest cost 403b plan for K-12 school districts.

I would keep it simple and only use the 3 broad-based Vanguard Admiral class index funds:
Total Stock Market Index
Total International Stock Market Index
Intermediate-term Bond Index

There have been a number of threads on NEA Direct Invest which you can look over using the Google Search on this site.

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