what's your fee ceiling on retirement investments?

[bright eyed]

hello all,

my 403b plan is a group annuity thru ING...i've looked thru the archives and see that the reason my fees are higher than the lovely Vanguard 0.18 is the insurance component etc.

aside from being annoyed - i'm reviewing my current investments and considering some moves. i'm going through the giant book of investment prospectus' and finding the fees range from a low of .50 to over 1.0 - exceptions of course are the bonds that are very low fees.

What are people's rules of thumb on the fees?

i have about $44k in the account, i'm almost maxing out my contribution - my goal is to do that in the next year or two, and at this time it is earning 12%, and i'm 30 yrs old.

thoughts!!!

thanks in advance

 

[mickeyd]

my 403b plan is a group annuity thru ING

This annuity is your only 403(b) choice? If that were my retirement plan I would insist that the school/hospital/workplace expand their offerings. If they will not for some reason, I would not contribute to it (more than any match) and make sure that I funded a Roth IRA and then funded a taxable account and forget about this costly option.

 

[bright eyed]

really! i can ask about the options.

but a roth is only up to $6k per year...

 

[mickeyd]

really! i can ask about the options.

I am assuming that you are not being sarcastic.

Of course, you can insist on options. Remember one important thing: this is YOUR retirement plan, not theirs. If they do not structure it in a way that is beneficial to the employees, why even have the plan at all?

The 403(b) that they offer now seems to profit the ING rep more than any employee.

The Roth IRA max for 2007 is $5000 (50+) but $4000 (49-) I believe.

 

[bright eyed]

hehe, i am a sarcastic person, but no, i'm not being sarcastic in this instance.

it's a small/med sized non-profit and i can definitely ask about the options.


our org works hard to provide good benefits, this might just be something our finance person didn't have flagged for them...

 

[FinanceDude]

This annuity is your only 403(b) choice? If that were my retirement plan I would insist that the school/hospital/workplace expand their offerings. If they will not for some reason, I would not contribute to it and make sure that I funded a Roth IRA and then funded a taxable account and forget about this costly option.

Is there a match? If there is, you can make it work...........

 

[bright eyed]

match is 4%, as a bonus it was 5% in 2006, but i think the ongoing is still 4% of your salary...

 

[FinanceDude]

match is 4%, as a bonus it was 5% in 2006, but i think the ongoing is still 4% of your salary...

Since getting your employer to change the plan is not going to be easy, I would look at it this way.

If you make $50,000 a year, and put 10% away, here's a possible scenario:

$5000 - you save
$2000 - employer contributes
$1250 - pre-tax savings, assuming a 25% tax rate

$7000 in 403B balance, plus saving $1250 in taxes........much better deal than a ROTH IRA........so max out the 403B, and then do a ROTH.

Also, typically companies change 403B providers every 3-4 years, so they will change in the future..........put the bug in their ear about a lower cost provider.........

 

[bright eyed]

anyone else out there w/ a 403b - what's the range in fees you're offered/paying?

thx

 

[saluki9]

This annuity is your only 403(b) choice? If that were my retirement plan I would insist that the school/hospital/workplace expand their offerings. If they will not for some reason, I would not contribute to it and make sure that I funded a Roth IRA and then funded a taxable account and forget about this costly option.

Variable Annuities are the only choice for the vast majority of plans. There is another option called the 403(b)(7) which uses a custody agreement with mutual funds, however that is not as common.

Also, I'm a little shocked at all the hysteria here when somebody is in a high fee retirement plan. Yes, the employee should ask their employer about lower cost solutions, but for the vast majority of people the tax benefits more than make up for the extra investment costs

 

[LOL!]

I have some 403(b) money at TIAA-CREF, a mid-cap value fund has 0.78%, CREF stock fund is 0.48%. Not quite in the Vanguard range, but decent.

I have a 401(k) with an S&P500 index fund with a 0.68% expense ratio.

Now my spouse's 401(k) at a small company is pretty bad. At least the company pays the 0.75% annuity expense. The expense ratios are between 0.8% and 2%.

You just have to pick the best funds in your plans and get your asset allocation from a combo those best funds and elsewhere.

 

[bright eyed]

the paperwork says the "mortality and expense risk & admin charge" is 1.2% - (is that the annuity expense you cite above?)

i'm seeing all of my money just fly out of my hands!

 

[AlmostDone]

I have a 403(B) plan and Vanguard and Fidelity are among our options.

 

[kramer]

Article on teachers getting reamed by their their unions via high expense 403(b) accounts created via sweetheart deals:

http://www.latimes.com/business/la-fi-retire25apr25,0,132341,full.story?coll=la-home-business

I did send this article when it was first written to two of my teacher friends who are brainwashed by their union but never got a response.

I helped another teacher union member at a local community college. The 403(b) plan was incredibly opaque, and barriers were put up to obtaining more information, so we decided it was best for her to defer no money into it.

Kramer

Unions' Advice Is Failing Teachers

Labor groups have joined forces with investment firms to steer members into savings plans that often have high expenses and poor returns.

By Kathy M. Kristof, Times Staff Writer
April 25, 2006

Second-grade teacher Crystal Mendez was in the staff lunchroom at 42nd Street Elementary in the Crenshaw district when an investment broker introduced herself and started talking up a retirement plan.

Mendez, fresh out of college, thought she could trust the woman because her company had been endorsed by the Los Angeles teachers union.

Mendez agreed to put $400 a month into a retirement account. She assumed her money would be invested in stocks. Just 22, she figured she had plenty of time to ride out any dips in the market. She said the saleswoman told her: "Leave it to me."

Nearly two years later, when her boyfriend started bragging about the returns he was earning on his 401(k), Mendez took a closer look at her own account.

"He was earning 15% a year and I was earning 3%," she recalled. "I thought, 'There's something wrong here.' "

Mendez's money was languishing in a fixed-rate annuity, an investment ill-suited to someone in her early 20s. Worse, she would have to pay a steep penalty to bail out.

Public-school teachers across the country are in similar predicaments. And many have their unions to thank for it.

Some of the nation's largest teachers unions have joined forces with investment companies to steer their members into retirement plans with high expenses that eat away at returns.

In what might seem an unlikely partnership, the unions endorse investment providers, even specific products, and the companies reciprocate with financial support. They sponsor union conferences, advertise in union publications or make direct payments to union treasuries.

The investment firms more than recoup their money through sales of annuities and other high-fee products to teachers for their 403(b) plans — personal retirement accounts similar to 401(k)s.

New York State United Teachers, for instance, receives $3 million a year from ING Group for encouraging its 525,000 members to invest in an annuity sold by the Dutch insurance giant.

The National Education Assn., the largest teachers union in the country with 2.7 million members, collected nearly $50 million in royalties in 2004 on the sale of annuities, life insurance and other financial products it endorses.

Teachers unions across the country — including those in Las Vegas and San Diego and statewide teacher associations in Pennsylvania, Michigan and Oregon — have struck their own endorsement deals.

Unions in Dallas, Miami, Phoenix, Seattle and Atlanta, among others, refer members to products approved by the NEA and typically receive a share of endorsement revenue in return.

 

[livnlow]

.... Also, I'm a little shocked at all the hysteria here when somebody is in a high fee retirement plan. Yes, the employee should ask their employer about lower cost solutions, but for the vast majority of people the tax benefits more than make up for the extra investment costs.

I am paying a 2.24% expense ratio and a 1% deferred fee for the funds in my 401k. I think some hysteria is in order. Some recent calculations show that the expense ratios alone could cost me in excess of $1,000,000.00 at retirement.

 

[FinanceDude]

A retirement plan can be low-cost or high cost, but a LOT depends on the match and such.

TIAA-CREF IS low expense, but their customer service is beyond horrendous..................

In the retirement plan market, a lot of advisors can sell Vanguard and Fidelity, and add a wrap fee on it. In DW's plan at a pharmaceutical company, they had all Vanguard funds, but the advisor was charging .80% a year on a $50 million plan.................

 

[bright eyed]

does someone know how the 1.2% mortality and expense ratio is applied? is it applied annually or monthly to my account?

and that is on top of whatever fee each individual fund has right?

so if i had a fund that was .8 plus the 1.2, is my expense ration 2.0?

there are a couple fidelity funds, and those are the lowest in the big book.... at .6

 

[saluki9]

does someone know how the 1.2% mortality and expense ratio is applied? is it applied annually or monthly to my account?

and that is on top of whatever fee each individual fund has right?

so if i had a fund that was .8 plus the 1.2, is my expense ration 2.0?

there are a couple fidelity funds, and those are the lowest in the big book.... at .6

Most likely it is either quarterly or taken at NAV which means they take a little bit each day.

Yes, your calculation is correct, the ER would be a total of 2.0

 

[saluki9]

I am paying a 2.24% expense ratio and a 1% deferred fee for the funds in my 401k. I think some hysteria is in order. Some recent calculations show that the expense ratios alone could cost me in excess of $1,000,000.00 at retirement.

Ok, what would the cost to you be if you gave up the tax deferral on that money?

 

[mickeyd]

the vast majority of people the tax benefits more than make up for the extra investment costs

What is the basis for this statement? Are there any studies that you can site that indicate that the investment in a VA that is included in a 403(b) is a worthy financial investment? The reason that I am inquiring is that I have read a number of articles and reports that indicate otherwise.

 

[FinanceDude]

What is the basis for this statement? Are there any studies that you can site that indicate that the investment in a VA that is included in a 403(b) is a worthy financial investment? The reason that I am inquiring is that I have read a number of articles and reports that indicate otherwise.

Umm.......I posted a scenario on page 1 OF THIS THREAD We are not debating whether he has a "good" plan or a "bad" plan...........we are debating/refuting the advice to "not invest" because the costs are higher than a Vanguard or Fido plan. But, you are the expert in benefits........seems to me you have the studies yourself.............

 

[saluki9]

What is the basis for this statement? Are there any studies that you can site that indicate that the investment in a VA that is included in a 403(b) is a worthy financial investment? The reason that I am inquiring is that I have read a number of articles and reports that indicate otherwise.

Seems like simple math to me I'll use my situation as an example. I'm 29 and contribute the max to my 401(k) which will be $15,500 this year.

Instead I could just take that money as W2 income, pay around 36% in taxes, and then pay taxes on dividends and interest each year.

Please tell me under what expense ratio my plan would need for that to make sense? Even if my plan charged 2% or more it would still make sense for me to contribute and take the tax deduction. The value of tax dererral is very very high.

 

[jazz4cash]

The value of tax dererral is very very high.

I agree, but HOW MUCH of that value is the financial institution entitled to? I think that is the OP's original q. I don't think they are entitled to capture much of the savings just because the investor gets a tax break. The fees should be competitive to comparable plans and the value added by the financial institution. A small overcost compounded over many years will make a big difference in the end.

 

[LOL!]

.... The fees should be competitive to comparable plans and the value added by the financial institution.

The fees are competitive to comparable plans because most all 403(b) plans charge relatively hefty fees.

I am a member of my employer's 401(k) committee. One pitch that a financial institution made to us was how cheap their plan was -- to the company. They had no consideration whatsoever to how much expenses the employees paid at all. I'm afraid that many employers just look at what it costs them and not what it costs their employees.

 

[FinanceDude]

The fees are competitive to comparable plans because most all 403(b) plans charge relatively hefty fees.

I am a member of my employer's 401(k) committee. One pitch that a financial institution made to us was how cheap their plan was -- to the company. They had no consideration whatsoever to how much expenses the employees paid at all. I'm afraid that many employers just look at what it costs them and not what it costs their employees.

A really good way to get them to pay attention is to ask the board of directors how THEY like PAYING the most fees of everyone in the plan.............they usually say wha??