joel

Mgb: Please stop winging your answers. Your assertion makes for nonsense inasmuch as a tripling of the fees to 24 basis points stills makes the old program one of the lowest cost programs of its kind in the nation.

You dont grasp the economic issues involved in marketing to small groups who cant offer enough premium volume to satisfy the admin costs of low cost providers which leaves the market to the agent driven products which have higher costs needed to sell on a one on one basis. Some states/ public employee groups have sponsored 403b plans although this creates other issues, e.g. requiring the provider to pay a fee to the organization that controls access to the participants, eg. 1% of the premium volume. mgb: Where have you been? Don't you know that the NY AG has been investigating just such a relationship between the New York State United Teachers and ING. The union has been collecting an endorsement fee of about $3.4 million annually in order for ING to place the union label on its 200 bp variable annuity product known as "Opportunity Plus". What an outrage!! Eliot Spitzer is expected to hand down his ruling/settlement shortly. Nothing prevented the union from going to a low cost provider like Vanguard...but then the union would be ethical. The union wanted to use section 403b as a revenue enhancement...they could not care less about the financial futures of their members. Of note: For nearly 20 years the union has in place for its employees a no-load 401(k) Plan. How's that for sporting two hats?

Hi John, I recommend this fund for the SP 500 portion of your pre-tax investing account. It is interesting to note that the State of NJ is all over the map when it comes to watching out for fees paid by plan participants. Is it not outrageous that after 25 years of having one of the lowest cost programs in the nation the Deferred Compensation Board decided to farm their 457b plan out to Prudential Financial with expense ratios that average about 12 times higher than what the state use to charge directly.

WSP: All NJ School District employees should use the 403(b) plan offered by the State's Division of Pensions and Benefits for his or her common stock allocation. I know you will welcome the expense ratio of zero. Now how's that for looking out for the little guy? Joel

MJB: You need to do some research about the 403b situation in NJ. The State's Division of Pensions and Benefits has offered a 403(b) Plan to all of the State's public school employees for more than 40 years. The trouble with it is an investment lineup of 1...an all equities fund. According to you they should have been sued years ago for fiduciary breach...it hasn't happened. What say you? The same Division of Pensions and Benefits had it right for 25 years when they offered an internally managed 457(b) for State employees. This plan offered 4 investment funds each sporting an expense ratio of 8 bp. This all changed on January 1, 2006 when the state farmed out the plan to Prudential Financial. Now the Plan has 23 investment funds with the lowest cost one charging 25 bp and the highest about 175 bp. In your opinion has the State breached its fiduciary duty by closing out the old funds to on going contributions? In your opinion are NJ School Districts liable for fiduciary breach for allowing high priced variable annuities to be sold under 403(b)?

MJB: You need to do some research about the 403b situation in NJ. The State's Division of Pensions and Benefits has offered a 403(b) Plan to all of the State's public school employees for more than 40 years. The trouble with it is an investment lineup of 1...an all equities fund. According to you they should have been sued years ago for fiduciary breach...it hasn't happened. What say you? The same Division of Pensions and Benefits had it right for 25 years when they offered an internally managed 457(b) for State employees. This plan offered 4 investment funds each sporting an expense ratio of 8 bp. This all changed on January 1, 2006 when the state farmed out the plan to Prudential Financial. Now the Plan has 23 investment funds with the lowest cost one charging 25 bp and the highest about 175 bp. In your opinion has the State breached its fiduciary duty by closing out the old funds to on going contributions?

MJB: You need to do some research about the 403b situation in NJ. The State's Division of Pensions and Benefits has offered a 403(b) Plan to all of the State's public school employees for more than 40 years. The trouble with it is an investment lineup of 1...an all equities fund. According to you they should have been sued years ago for fiduciary breach...it hasn't happened. What say you?

It's not clear from the proposed regulations, but my reading is no, this would not be allowed under the proposed regulations. The IRS is aiming for the end of June but (i) it hasn't communicated anything that even sounds like a firm commitment yet and (ii) the IRS' record of issuing the proposed or the final 403(b) regulations shows that they miss their deadlines a lot. I don't mean to bash the IRS because they are better at meeting their goals elsewhere. Seems to me that 403(b) regulations only affect a few industries and it's easy for this project to get bumped down their priority list. The IRS is more clear in saying that the effective date should be January 1, 2007 (originally it was going to be January 1, 2006), so final regulations as late as September 30 wouldn't be too big of a surprise. The IRS has definitively announced that the effective date of the regs is January 01, 2007.

Yeah, that document requirement is going to cause some compelling issues with K-12 403(b) deferral only plans. The proposed regs are effective for years beginning after 12-31-06---- the regs require the establishment of a 'plan document'----therefore, the 'plan document' need not have an effective date prior to January 01, 2007. I would like to hear from anyone that knows of a salary reduction only plan that is currently operating under a written plan document pursuant to the proposed regs.

=================================================================== You are absolutely right and make an excellent case for cannig the 403b in favor of having the various school districts in the 50 states participate in the 50 statewide 457/401(k) plans. Joel

In my view the plan sponsor is breaching its fiduciary duty NOT to have no-load funds on its platform. Having said that please let's not confuse paying a commission to ACQUIRE an investment with the receipt of investment advice. Nothing could be further from the TRUTH. The commissioned or loaded mutual fund is dispensing investment advice to the same degree as the no-load mutual fund. In the first instance the customer is paying a commission to acquire shares while in the second instance the customer is dealing with the mutual fund directly.

The new regs will apply to all employers that are allowed to sponsor 403(b) arrangements. This definitely includes Code section 501©3 employers.

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.

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.

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

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.

Demo: Encore, Encore!

Happyretiree; I fail to see how my question is "badmouthing" AXA? Joel

Why was AXA chosen in the first place?

Please furnish me with the Code Section that makes these payments free of federal income tax.

May a 403(b) plan use "Separately Managed Accounts" as the investment medium?

I did not mean to respond.

But, pre-1989 earnings on pre-1989 contributions are grandfathered and can still be withdrawn [PL 100-647, Sec. 1101A©(11)]. ---------------------------------------------------------------------------------------------- Hardship withdrawals was first added to 403(b)7 Custodial Accounts by the Revenue Act of 1978 and applied to ee and er contributions. So if one wants to make a withdrawal for hardship after 1988 he/she is limited to the account balance as of December 31, 1988 and to ee only contributions made to the account after December 31, 1988. Hardship still must be proven. When it comes to a 403(b)1 annuity contract one does not need to prove financial hardship in order to be entitled to a pre 1989 amount because all of the triggering events under 403(b) 11, including hardship, did not go into effect until January 1, 1989.

It is the earnings on post December 31, 1988 balances (derived from salary reduction contributions) of 403(b)1 Annuity Contracts that may not be withdrawn for hardship. PL 99-514, section 1123©(1).

Bel, Do they intend to lifetime annuitize their balance?