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Guaranteed 3% return vs 2% ER funds in pretax accounts

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  • Guaranteed 3% return vs 2% ER funds in pretax accounts

    The 'crap options' 403b/457b saga continues... As I've posted multiple times before, my company offers awful investment options with high ERs, administrative fees and front loads. We are in the process of (beginning to think about the process of deciding to explore the options of... ad nauseum) switching plans.

     

    In the interim, I can't hold out on investing in tax-sheltered accounts that I otherwise have no access to. I set it up so that I can get 19k in each of the plans with the 8 paychecks remaining for this year.

    Considering the high expenses, I am thinking about simply throwing the money in the 'general account' with a guaranteed 3% return. I figure it is optimistic to hope for a 5% return on investments and then have the almost across the board total ERs of ~2% taken out versus simply getting a guaranteed 3% return.

    This general account (or 'declared rate' account) is available in both the 403b and the 457b. I am attaching the information on this account from the respective plan booklets and the 408b2.

    Does this make sense?

  • #2
    For reference here are the alternative funds in each account. They all have at least 0.7% ERs with an additional 0.5% administrative fee added on. Some of them have front loads. None of them are mutual index funds.

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    • #3
      Where are yocoming up with your 2% ER figure. I researched a handful of decent funds available in your plan and the expense ratios ran between 0.93% and about 1.25%. Not great, but certainly not 2%.

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      • #4
        They all have an additional 0.5% ER when purchased through our plan. For example, here are the 403b options with expenses:

         

         

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        • #5
          Are you sure you pay the loads? Sometimes they are waived in plans.

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          • #6
            I am not 100% sure of the frontloads. The trouble is the broker (Edward Jones) does not know anything.

            From the 408b2:

             

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            • #7
              ???

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              • #8
                Does silence mean assent?

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                • #9
                  I would use the guaranteed account for your fixed income and try to get a taxable account as large as possible. Hopefully a spouse has some tax advantaged space.  But even this year, 20% growth - 2% in fees still crushes the 3% guaranteed. You may have to use one of these awful accounts.

                  The other factor is that changing the funds is only part of the problem.  The account fee is completely unreasonable. So is Hartford's additional fee. This is the stuff of lawsuits. If you can stomach it and could land another job, lawyering up is definitely an option. Seeing what other cases have won, I think these fees would be hard to defend when benchmarked with other plans of similar size.

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                  • #10


                    This is the stuff of lawsuits. If you can stomach it and could land another job, lawyering up is definitely an option. Seeing what other cases have won, I think these fees would be hard to defend when benchmarked with other plans of similar size.
                    Click to expand...


                    It should be criminal to offer the 5.25% front loaded A shares instead of institutional shares.

                    Normally I don't presume malfeasance where simple incompetence would suffice.  However, with those poor investment options and excessive expenses...

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                    • #11
                      Everything made sense when I read EJ was involved

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                      • #12




                        Hopefully a spouse has some tax advantaged space.  But even this year, 20% growth – 2% in fees still crushes the 3% guaranteed. You may have to use one of these awful accounts.
                        Click to expand...


                        No other tax-advantaged space. I'd rather have a SAHS than another source of income though.

                        Who's seeing 20% growth?

                         

                        I guess to counteract it I can put all of this year's backdoor IRA in SWTSX?

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                        • #13
                          VTSAX YTD 20.41% as of 7/31

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                          • #14
                            You'll have to balance across all accounts but unfortunately i think you'll need to invest in some of those funds to meet your desired AA.

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                            • #15
                              This is a pretty lousy plan. If your employer is not immediately open to making improvements, I think you'd have an excellent shot at filing a complaint with the Department of Labor for a violation of fiduciary duty. You could sue for your lost gains due to excessive fees.

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