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What % of schools allow rollovers


Guest joelooper
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Guest joelooper

This is not my field...

Does anyone have data on the percent of schools that allow rollovers?

It is my understanding that 90%+ of for-profits allow rollovers but that schools do not participate at such high levels.

Relatedly - what is the effort/cost/headache to a school to amend their plan and allow rollovers?

thank you

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Are you referring to k-12 public or private school systems? Are you referring to higher education public or private institutions? Are you referring to the basic/mandatory retirement plan or the supplemental Defined Contribution plan?

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I assume you meant to tell us it is the public k-12 system.

Having said that, these employees, primarily, are covered by a DB plan which do not offer a lump-sum settlement option. Their voluntary DC plans are, primarily, IRC section 403(b) plans. These supplementary/voluntary plans do permit rollovers.

The school administration has nothing to do with DB Plan Administration which is governed by State Law. This law is the Plan's governing document. This document requires a Board of Trustees to administer the terms of the Plan as enumerated in the law.

State enabling legislation must be passed in order to permit a lump-sum settlement as a DB payment option.

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Guest joelooper

joel - thank you for your replies.... this is helpful.

Here is the specific situation. my wife is eligible to rollover some refunds from her teachers retirement system When she attempts to roll them into her voluntary 403b plan that she set up a while back through the school district,

the rep from the mutual fund organization (AXA) says that the district does not allow rollovers into this plan, and that they must approve this at the planm level in iorder for my wife to place this money into the 403b account.

You are suggesting that the school district has nothing to say in the matter... which makes sense, she no longer works for them and it is her 403b.

What actions do you believe we should take?

I know can set up an IRA for this... but i was hoping to avoid yet another account at this tiome.

thank you again...

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Be very careful about accepting or acting on any advice that you may get from an unregulated source, especially advice in response to general questions. The mutual fund organization probably has every incentive to welcome money into the plan. That adds credibility to the statement that rollovers are not allowed into the plan under the circumstances that were described to the mutual fund organization. The days of having one's own 403(b) arrangement are over, except for certain grandfathered arrangements. Employers now are required to take ownership of plans to a certain degree and plans are getting more strict about complaince and administrative issues.

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Inasmuch as your wife is no longer employed by the school district which sponsored the 403(b) I would suggest you cut all ties with AXA inasmuch as this is a high fee/commission based investment provider. I would urge her to roll this money over to the Vanguard Group of Mutual Funds as an IRA rollover account. She can then effectuate a rollover transaction of her refunds from her Teachers Retirement System to her IRA with Vanguard. Vanguard will charge her about 0.35 % for administrative and investment management services while AXA charges about 2.7 percent.

Having said all that, what are the circumstances under which she is eligible to receive a refund from the TRS? Is she about to retire?

Joel

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joel - thank you for your replies.... this is helpful.

Here is the specific situation. my wife is eligible to rollover some refunds from her teachers retirement system When she attempts to roll them into her voluntary 403b plan that she set up a while back through the school district,

the rep from the mutual fund organization (AXA) says that the district does not allow rollovers into this plan, and that they must approve this at the planm level in iorder for my wife to place this money into the 403b account.

You are suggesting that the school district has nothing to say in the matter... which makes sense, she no longer works for them and it is her 403b.

What actions do you believe we should take?

I know can set up an IRA for this... but i was hoping to avoid yet another account at this tiome.

thank you again...

You don't say which state's system you are dealing with but the name you are using Teacher's Retirement System happens to be the name of the IL teachers retirement plan. I know it also offers refunds on contributions.

IF YOU ARE DEALING WITH THE IL SYSTEM keep reading (if not just ignore me) Full disclosure I am NOT an expert on the IL system. I am some guy who works in the retirement field whose wife was an IL teacher for 11 years before she went into working for private schools in MO.

You might want to get some advice from an expert before taking that refund. In my mind the refund is a bad deal in IL. It is just the employee's contributions with a very small interest rate credit. If you take it you are giving up a pension payment with a cost of living adjustment every year.

There maybe cases where the lump sum works.

But in the case of my wife they were offering here a lump sum to give up a stream of payments starting when she hit retirement age for as long as she lives with annual cost of living payments. I had a acturary friend of mine help me work out the present value of that stream and the refund just didn't make sense.

I WANT TO BE VERY CLEAR HERE: Don't just take some guys advise from a discussion board other then maybe to realize it might be worth asking more questions before you decide what you want to do.

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Guest joelooper

ESOP guy - thanks... don't worry... we are not taking the lump sum of the retirement. Rather this is about 2 refunds that she MUST take based on not taking an ERO (early retire option) and full payment of her "2.2" option. So we prefer to take these mandatory refunds as rollovers into a qualified plan. If we do not roll them over, the retirement system will cut a check to her and it will be taxable income.

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ESOP: Your wife vested. This means her money stays with the Illinois TRS and when she reaches full retirement age she starts to collect her pension. How old was she when she vested and at what age will she start to receive her pension?

Joel

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Guest joelooper

I don't recall when she vested. She retired this past June and began receiving her pension in August.


Again - these refunds are NOT able to be part of the pension... they must either roll over to qualified plan or be taken as income. thus my interest in rollover info.
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ESOP: Your wife vested. This means her money stays with the Illinois TRS and when she reaches full retirement age she starts to collect her pension. How old was she when she vested and at what age will she start to receive her pension?

Joel

The vested pension is in "cold storage" inasmuch as it does not grow from the date of vesting to the date of receiving the first pension check. The longer this waiting period is the more advantageous it is to the Plan and the shorter the waiting period the more advantageous it is to the participant. Assume one vests at age 35 after 10 years of contributing. His/her money continues to participate in the returns of the Plan's holdings. Assume the pension begins in 30 years at age 65. This individual's own money has grown, over 30 years, to at least the necessary Reserve required to guarantee the lifetime pension. Result: The vested participant has financed 100 percent of his/her pension by vesting at age 35. If, however, vesting takes place at age 55 after 10 years of contributing and age 65 as the date of payability the participant's own contributions with investment gains is insufficient to meet the Reserve requirements. Result the employer must contribute the shortfall.

This is why I asked the questions?

Joel

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Guest joelooper

Yes - it can be rolled into an IRA... but i was hoping to avoid opening one now for just this sum... when rolling into the existing 403b makes so much sense.

But since that is not allowed, my choices seem to be to 1) open IRA for her, or 2) take as ordinary income.

And i guess no one knows what % of k-12s allow such rollovers. o well.

thanks all.

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ESOP: Your wife vested. This means her money stays with the Illinois TRS and when she reaches full retirement age she starts to collect her pension. How old was she when she vested and at what age will she start to receive her pension?

Joel

We left IL in our early 30s and I beleive she can collect full benefits around 65. I would have to look and see there might be an earlier age for full benefits. She is vested. As far as I can tell becoming vested in the IL TRS is rather easy. It might be from day one in fact.

She was given an option to take a "refund" of her contributions and that money has been creditied with interest every year since she left. The refund amount goes up every year by an interest rate factor. But my understanding is if she did that she would be forgoing the DB annuity option. To me the question would be if you thought about taking such a refund is the refund more or less then the PV of the annuity.

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Sure it is quite easy to vest. The TRS has the use of your wife's money in perpetuity. That being said, she must wait at least 30 years to start collecting her pension. This makes taking the refund in her early 30s the far better choice. She could have invested this sum inside of an IRA and it would have grown to be more than the needed Pension Reserve established by the TRS at age 65 to guarantee her the lifetime pension. For this purpose I would have placed the refund/IRA in a no-load balanced mutual fund and forgot about it. Another way to have looked at this was to ask: What will be the purchasing power of my pension, payable when I turn 65, if the pension is based on the salary I earned 30+ years earlier? Your wife's own contributions with investment gains over 30+ years will be more than enough to fund her to-be lifetime pension.

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Yes - it can be rolled into an IRA... but i was hoping to avoid opening one now for just this sum... when rolling into the existing 403b makes so much sense.

But since that is not allowed, my choices seem to be to 1) open IRA for her, or 2) take as ordinary income.

And i guess no one knows what % of k-12s allow such rollovers. o well.

thanks all.

Do you like paying high fees/commissions? I guess you do otherwise you would not be fixated on the high fees/commission based 403(b) maintained by your wife at AXA. Have you digested my prior post? What other k-12 districts allow should not be an issue for you at this time----you must deal with your options and your options are either to pay tax on the distribution or roll it over to an IRA with Vanguard. For me this is a no-brainer!!!

Joel

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ESOP: Your wife vested. This means her money stays with the Illinois TRS and when she reaches full retirement age she starts to collect her pension. How old was she when she vested and at what age will she start to receive her pension?

Joel

We left IL in our early 30s and I beleive she can collect full benefits around 65. I would have to look and see there might be an earlier age for full benefits. She is vested. As far as I can tell becoming vested in the IL TRS is rather easy. It might be from day one in fact.

She was given an option to take a "refund" of her contributions and that money has been creditied with interest every year since she left. The refund amount goes up every year by an interest rate factor. But my understanding is if she did that she would be forgoing the DB annuity option. To me the question would be if you thought about taking such a refund is the refund more or less then the PV of the annuity.

The refund is not the PV of the future annuity. The pension reserve established at age 65 is the PV of future annuity income payments. The refund left on deposit with the TRS simply helps the TRS fund the PV of the prospective annuity payments----that PV is the Pension Reserve.

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ESOP: Your wife vested. This means her money stays with the Illinois TRS and when she reaches full retirement age she starts to collect her pension. How old was she when she vested and at what age will she start to receive her pension?

Joel

We left IL in our early 30s and I beleive she can collect full benefits around 65. I would have to look and see there might be an earlier age for full benefits. She is vested. As far as I can tell becoming vested in the IL TRS is rather easy. It might be from day one in fact.

She was given an option to take a "refund" of her contributions and that money has been creditied with interest every year since she left. The refund amount goes up every year by an interest rate factor. But my understanding is if she did that she would be forgoing the DB annuity option. To me the question would be if you thought about taking such a refund is the refund more or less then the PV of the annuity.

The refund is not the PV of the future annuity. The pension reserve established at age 65 is the PV of future annuity income payments. The refund left on deposit with the TRS simply helps the TRS fund the PV of the prospective annuity payments----that PV is the Pension Reserve.

What are you blathering about? I never said the refund is the Present Value of the annuity. In fact I clearly said it wasn't the PV of the annuity.

What I said was the only way to determine if you should take the refund or not is if the refund exceeded the PV of the annuity. Or put another way could I invest any refund in such a way that when my wife turned 65 I could buy a better annuity with a 3% COLA. That is what a PV calculation of an annuity to today would measure.

Are you trying to sell me something? Because honestly I am not a DB expert but the more you talk the more I am convinced you know less then me. Otherwise I am at a lost as to why you keep trying to convince me to think taking a refund is the better idea when you are making no argument for it that makes any sense to me.

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Guest joelooper

joel - dude - relax...

1. i am not buying anything from you so no need to sell.

2. I will eventually rollover the entire 403b to an IRA.. I am just not doing it today. it is one piece of a larger puzzle that needs a bit more analysis before opening the IRA.

3. My interest in knowing about k-12 districts and their willingness to allow rollovers is still a very valid point... because while the rollover is not allowed today ... it should be - and i plan to make the case to the district board that it is a small action to take that benefits their employees in the future. And data about patterns is always helpful in making one's case.

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ESOP: Your wife vested. This means her money stays with the Illinois TRS and when she reaches full retirement age she starts to collect her pension. How old was she when she vested and at what age will she start to receive her pension?

Joel

We left IL in our early 30s and I beleive she can collect full benefits around 65. I would have to look and see there might be an earlier age for full benefits. She is vested. As far as I can tell becoming vested in the IL TRS is rather easy. It might be from day one in fact.

She was given an option to take a "refund" of her contributions and that money has been creditied with interest every year since she left. The refund amount goes up every year by an interest rate factor. But my understanding is if she did that she would be forgoing the DB annuity option. To me the question would be if you thought about taking such a refund is the refund more or less then the PV of the annuity.

The refund is not the PV of the future annuity. The pension reserve established at age 65 is the PV of future annuity income payments. The refund left on deposit with the TRS simply helps the TRS fund the PV of the prospective annuity payments----that PV is the Pension Reserve.

What are you blathering about? I never said the refund is the Present Value of the annuity. In fact I clearly said it wasn't the PV of the annuity.

What I said was the only way to determine if you should take the refund or not is if the refund exceeded the PV of the annuity. Or put another way could I invest any refund in such a way that when my wife turned 65 I could buy a better annuity with a 3% COLA. That is what a PV calculation of an annuity to today would measure.

Are you trying to sell me something? Because honestly I am not a DB expert but the more you talk the more I am convinced you know less then me. Otherwise I am at a lost as to why you keep trying to convince me to think taking a refund is the better idea when you are making no argument for it that makes any sense to me.

You need to take a calming pill. I assure you I am not attempting to sell you or your wife anything. Even if I were, you have told us that she already vested her refund with the TRS so that money can never be invested by her. No? She simply must wait until 65 to collect her vested benefit.

You said: "What I said was the only way to determine if you should take the refund or not is if the refund exceeded the PV of the annuity."

A refund taken in the early 30s can never exceed the PV of an annuity which does not start until age 65. Again, the Present Value of the annuity is the TRS Pension Reserve established at age 65.

That said, your wife would have been much better off if she took the refund and rolled it into an IRA with a no-load fund. Why? Because she had more than 30 years to see this IRA grow----and it would have grown to a larger sum of money than the TRS pension reserve that will be established when she turns age 65 and starts to collect her vested pension. Your wife, with her own contributions (refund) has more than financed her future TRS Pension Reserve (present value of future annuity payments) and thus her future lifetime pension.

I would have advised her to effectuate a rollover of the refund to an IRA when she was in her early 30s.

Best,

Joel

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joel - dude - relax...

1. i am not buying anything from you so no need to sell.

2. I will eventually rollover the entire 403b to an IRA.. I am just not doing it today. it is one piece of a larger puzzle that needs a bit more analysis before opening the IRA.

3. My interest in knowing about k-12 districts and their willingness to allow rollovers is still a very valid point... because while the rollover is not allowed today ... it should be - and i plan to make the case to the district board that it is a small action to take that benefits their employees in the future. And data about patterns is always helpful in making one's case.

Your accusatory assertion is without foundation I did not offer to sell you anything. I gave you the unsolicited advice not to use your wife's commissioned based/high fee 403(b) as the rollover vehicle for her TRS refund. My advice to you was to have your wife use an IRA (no-load fund) for this purpose.

Having said that, I encourage you and your wife to log onto www.403(b)wise to learn all about the abusive 403(b) products and practices; i.e. your wife's AXA account.

Best,

Joel

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Guest joelooper

Thanks Joel - I will check out the site. I fully realize that i nee to move the 403b to an IRA - I am just looking to do so in a more planful way than i can this minute. And I realize these 403bs can be abusive as you say.... but often times one is locked into the products/companies that the employer allows.

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