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Moving 403(b) to Another Investment/Insurance Firm?


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Guest 403(b)

We have a 403(b) with AXA-Equitable and, frankly, we are losing money. :angry:

How this happens is that they advise us what to invest a percentage of our 403(b) into and that percentage is supposed to grow at around 3%. In almost a year of investing we have accumulated a WHOPPING $2.93! That is all well and good but at the end of the contract year we pay a service fee of $35. You do the math. No wonder they've been in business for nearly 200 hundred years.

That said, can we transfer our 403(b) to another invesment firm, w/o penalty? Our employer has a list of several companies other than AXA-Equitable and we'd like to switch if the penalty is not too great.

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Revenue Ruling 90-24 permits a 403(b) plan participant to transfer funds from one 403(b) account to another without incurring a taxable event. However, the ruling does not require plans or vendors to make the transfer... the ruling is permissive, not mandatory.

Also, if your plan and vendor do permit the transfer, the transfer would not be without charge. I suspect that the current account has some form of penalty for the early withdrawal of funds, which you would still incur if you made the transfer.

You may want to consider redirecting your current contributions to a new vendor and simply let the current account coast along until withdrawal penalties are gone.

Hope this is of some value to you.

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How would moving help you?

The big problem with your current situation is revealed in your statement "they advise us what to invest a percentage of our 403(b) into ". The 403(b) sales rep usually does not give such advice and even if he/she did make such a mistake and did give such advice, you had no reason to do what was said. Investment decisions are yours to make and yours only. The sales rep gives you the list of available Funds and any relevant prospectus(es) and you take your pick.

Moving to another provider does not solve the problem of being able to make investment choices and accepting the consequences of your choices.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest happyretiree

Dear 403(b) and Joel -- I'm not sure that bad mouthing any of the vendors in the market is an appropriate use of this board. It's quite easy to ask a question or make a point without naming a company like that. It might be an unusual situation, or a misunderstanding, and should not be an indictment of a whole company.

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I'll happily badmouth any company that makes a habit of selling accumulation phase annuities. Except for very special circumstances (the individual has funded every other tax deferred option open to them), heavily loaded, underperforming annuities are not a good choice.

Show me an annuity and I'll show you at least a dozen mutual funds with better performance, lower expenses, and at least equal, if not lower, risk.

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I'll happily badmouth any company that makes a habit of selling accumulation phase annuities. Except for very special circumstances (the individual has funded every other tax deferred option open to them), heavily loaded, underperforming annuities are not a good choice.

Show me an annuity and I'll show you at least a dozen mutual funds with better performance, lower expenses, and at least equal, if not lower, risk.

Demo: Encore, Encore!

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Demo:

CREF Stock Variable annuity 1 yr return 8.17%, 10 yr 9.15%, since 1952 10.39% return. expense ratio 40 bp. morningside rating- 4 stars

CREF Equity Index variable annuity 1yr return 6.55%, 10yrs, 9.96%, since 1994

10.43% return. Expense ratio 36bp. morningside rating- 5 stars

mjb

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mb: Please note that TIAA-CREF is a no-load variable annuity option and is most appropriately included in a discussion of investment results of no-load mutual funds which it offers for IRA investing but not for custodial account investing under section 403(b)7.

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It is still an annuity, isn't it? How is 403(b)7 applicable to this thread?

Let us see what Demo uses to show "at least a dozen mutual funds with better performance, lower expenses, and at least equal, if not lower, risk."

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Joel: CREF offers both variable annuities and mutual funds under 403(b)(7) to fund 403(b) annuities. The mutual funds are a separate product line from the VA. I dont see any reason why CREF no load annuities cant be compared to mutual funds under 403(b) plans.

mjb

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mb:

For 403b arrangements: section 403(b)1 authorizes the annuity contract while section 403(b)7 authorizes the Custodial Account for investment in mutual funds.

TC offers both funding arrangements. But because they are a no-load outfit the investment results of their 403(b)1 annuity contracts is properly compared to other carriers that offer direct investment in mutual funds through 403(b)7 Custodial Accounts.

I would venture to say that Demo was excluding TC when he said: "

I'll happily badmouth any company that makes a habit of selling accumulation phase annuities. Except for very special circumstances (the individual has funded every other tax deferred option open to them), heavily loaded, underperforming annuities are not a good choice.

Show me an annuity and I'll show you at least a dozen mutual funds with better performance, lower expenses, and at least equal, if not lower, risk."

Peace and hope,

Joel

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Joel: According to the T/C website, TIAA-CREF offers the retirement class of shares of TIAA-CREF institutional mutual funds as an option for retirement plans as a separate retirement product from the CREF VA. The prospectus for the retirement class of mutual funds has different expense ratios.I dont think the SEC would consider the mutual funds to characterized as a VA. In any event I think Demo can speak for himself as to what he really meant and not what he said in his post on annuities being non competative to mutual funds.

mjb

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I'll happily badmouth any company that makes a habit of selling accumulation phase annuities. Except for very special circumstances (the individual has funded every other tax deferred option open to them), heavily loaded, underperforming annuities are not a good choice.

Show me an annuity and I'll show you at least a dozen mutual funds with better performance, lower expenses, and at least equal, if not lower, risk.

MB: You are one tough customer. By the language in Demo's statement he clearly was not referring to the no-load VAs sold by Tiaa-Cref.

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Guest robinmingle@aol.com

Dear Michael:

I am looking at Rev Ruling 90-24 and having a problem with it only being permissive rather than mandatory. Can you point me to someplace in the ruling that I can refer to. I appreciate

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The "holding" of the ruling states that "If an individual transfers...". The key word is "if." The ruling only addresses the fact that transfers are not taxable if the conditions of the ruling are met.

There's nothing in the ruling that requires plan language to permit transfers. Additionally, there's nothing in any other provision of the tax law (at least, to my knowledge) that places a requirement on plans to allow transfers from a 403(b) plan. Thus, if a plan is so structured, participants can be denied the ability to make transfers.

Alternatively, if the plan so elects, transfers can be made without current taxation under the provisions of Rev. Rul. 90-24. I would argue that if the plan is silent on the matter of transfers, they are permitted.

Hope this helps.

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Ther is no need for employer approval or plan provision permitting a transfer funds held in an individually owned annuity since the employee owns the contract. Distribuons form a group annuity are subject to the terms of the contract.

mjb

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Sorry folks, I've been on the road the last couple of days. Let me start out by saying, "That'll teach me to make sweeping generalizations"

mbozek, you're right TIAA-CREF is a tough competitor. They certainly have an expense advantage because of their status as a non-profit and I think their culture truly puts the customer's interests above that of the company and its sales force.

Unfortunately, that does not seem to be the prevailing attitude of annuity providers and their sales forces. Before I generalize again, let me also say that a number of reps recognize the situation and do not approve.

http://forums.registeredrep.com/forum_posts.asp?TID=669&PN=1

That said, I'll throw out some contenders for the throne. Best view is to copy and paste these comma separated values into word pad, save the file and pull them up in Excel. All numbers are sourced from www.morningstar.com

Fund (Ticker),Morningstar Category,1,3,10,Sales,CDSC,Expense Ratio

Vanguard STAR (VGSTX),Moderate Allocation,8.39,6.84,10.31,None,None,0

Dimensional U.S. Large Cap Value III (DFUVX),Mid-cap Value ,12.11,7.54,12.8,None,None,0.19

Vanguard Value Index (VIVAX),Large Value ,13.18,7.17,10.57,None,None,0.21

Glenmede Large Cap Value (GTMEX),Large Value ,15.29,7.95,10.44,None,None,0.29

Vanguard Wellington (VWELX),Moderate Allocation,9.43,6.89,11.06,None,None,0.31

Vanguard Equity-Income (VEIPX),Large Value ,10.89,5.25,11.09,None,None,0.32

Vanguard Windsor II (VWNFX),Large Value ,13.84,7.88,12.19,None,None,0.36

American Beacon Lg Cap Value AMR (AAGAX),Large Value ,15.71,9.87,11.27,None,None,0.38

Columbia Small Company Index Z (ISCIX),Small Growth and Value,10,6.28,11.87,None,None,0.41

Vanguard Growth & Income (VQNPX),Large Growth and Value ,6.83,4.68,10.75,None,None,0.42

California Investment S&P MidCap Idx (SPMIX),Mid-cap Growth and Value ,9.13,6.39,14.48,None,None,0.49

Federated Mid-Cap Index (FMDCX),Mid-cap Growth and Value ,9.15,6.16,13.58,None,None,0.49

Dreyfus MidCap Index (PESPX),Mid-cap Growth and Value ,9.26,6.23,13.84,None,None,0.5

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While the funds are competitive with t/c annuities there are additonal costs associated with mutual fund 403(b) plans for administration and record keeping which are not included in the mgt fees. Another problem is that the low cost providers demand high amounts of assets which most NP cannot deliver leaving commission annuity contracts as the source of plan contributions. Finally NP 403(b) plans must be provided through annuity contracts if the employer makes fixed contributions. Only plans exempt from ERISA such as salary reduction only plans can be funded through mutual funds only.

mjb

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I was somewhat dissappointed with Demo's offerings. I had hoped that something more meaningful would have been offered, not that it was not a good try.

By meaningful, I mean funds that would be available to a fair number of 403(b) plan participants. Aside from Vanguard the other funds are rather obscure, and I doubt that even Vanguard is available in most 403(b) Plans. Maybe a few 403(b) involved persons will chip in as to whether or not these chosen funds are available in the 403(b) plans that they are familiar with.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Finally NP 403(b) plans must be provided through annuity contracts if the employer makes fixed contributions. Only plans exempt from ERISA such as salary reduction only plans can be funded through mutual funds only.

====================================================

mb: Please direct me to the rule/regulation that says that annuity contracts under 403(b)1 as opposed to Custodial Accounts under (b)7 must be the funding medium when the NP contributes.

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ERISA 205(a) requires that the normal form of benefit for money purchase pension pension plans must be a Joint and 50% survivor annuity and a pre retirement survivor annuity. The normal benefit for a single person is a single life annuity. 403(b) plans with fixed contributions are regulated as money purchase plans. In order to fund benefits under a MP plan with mutual funds, the plan must have a provision that the benefits will be automatically paid in the the form of a J & S annuity unless the employee opts out. This means that every time a participant terminates, dies or retires from a MP plan funded with mutual funds, the plan must get quotes from several reputable annuity providers of the rates for an individual single life annuity or J & S annuity of the expected annuity benefit payable to the participant and then determine if the quoted rate is reasonable. Very few employers want to to go through the trouble of getting quotes every time time an employee comes up for a distribution. Most insurance companies will not issue quotes on small account balances or have higher charges. Employers terminate qualified MP plans because the plan is required to get quotes for a J & S annuity even though no employee elects the benefit.

mjb

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