Thursday, June 29, 2006

403(b) Regs Will Be Delayed

I have it on good authority (Source at the IRS) that the 403(b) proposed regs that were supposed to be released and finalized tomorrow (June 30th) will be delayed till the fall. In addition, the effective date of the regs will be delayed by at least a year as well. When the proposed regulations become finalized they won't be effective until January 1st, 2008 (they were due to become effective January 1st, 2007).

It appears the hold up is an issue between the IRS and Department of Labor that might subject non-government non-profit voluntary only plans to ERISA. The IRS apparently doesn't want this to happen and is working with DOL to ensure this doesn't happen. Governmental plans will still not be subject to ERISA.

In addition, it seems that there will not be any significant changes (from the proposed regs) in the final regulations as they relate to governmental 403(b) plans.

I'll keep you posted as to further developments, but it looks like the proposed regs won't become final until either before or shortly after the elections.

Scott Dauenhauer, CFP, MSFP
Co-Author of The 403(b)Wise Guide

Friday, June 23, 2006

Can Pricey Target-Date Funds Be Competitive?

Great article by Morningstar that rips into high cost Target Date funds. If you don't know what a target date mutual fund is you are not alone, they are relatively new.

A "Target Date" mutual fund is supposed to be a one-stop fund that a person can utilize for retirement. You pick a retirement date (or one that is close to the funds Year) and the fund does the rest, including the asset allocation and becoming more conservative as you get closer to your retirement date.

For example, if you plan to retire in 2035 (my planned phase out date) you might choose the Vanguard Target Retirement 2035 fund (VTTHX, expense ratio .21%). This fund currently has an asset allocation that is 87.5% Stocks and 12.5% Bonds and will slowly adjust as the years pass by so that by the time I am retired (or phasing into retirement) the allocation will have adjusted to 42% stocks and 58% bonds.

I am a fan of the Target Date concept, but not of the implementation. Currently most target date funds are too expensive (the point of the Morningstar article). The ones that are priced well (Vanguard) aren't diversified enough. At this point I haven't found a target date fund that I like. Other problems with Target Date funds are that you can't customize a persons portfolio to fit them or to adjust to different economic environments.

I believe that as this concept evolves the expenses will come down and they will be better diversified. I also believe that these funds are best used in retirement plans like 403(b), 457(b), or 401(k) . They are also best used for smaller account levels, as your asset grow so should your asset allocation strategy.

Scott Dauenhauer, CFP, MSFP

Wednesday, June 14, 2006

New York Teachers Union Settles Retirement Probe

The 403(b) world is changing and for the better. Unions are finally getting the message that endorsing high cost product in order to boost revenues for their Member Benefits units is a bad idea. ING just got slapped with a fine and it seems to me that the NEA is about to find itself in similar travails. Both have announced that they will bid out their programs and offer low cost products and just this week the United Teachers of Los Angeles worked to ensure that the new 457 plan that will be offered to employees is in the employees best interest.

The CTA and CFT recently endorsed legislation (AB 2462) that would allow the California State Teachers Retirement System to offer a compliance program to school districts along with a low cost 403(b) and 457(b). I think unions might finally be getting the message - supplemental retirement plans matter and they can have a big hand in making these products the best that they can be.

Many people have worked hard to get to this point, but the work is not over. We need to build on this momentum and keep pushing for better options, more disclosure, and education.

Scott Dauenhauer, CFP, MSFP

Tuesday, June 13, 2006

NYSUT agrees to retirement plan reforms to end probe

NYSUT - New York State United Teachers got away with a mere $100,000 penalty for intentionally taking "steps to conceal it." "It" being the fees and conflicts of interest that are so vary prominent in their ING Opportunity Plus program. ING pays NYSUT Member Benefits over $3 million annually to get the NYSUT endorsement.

The settlement also has some additional stipulations, as follows:

  • conduct open bidding for future retirement plan endorsements,
  • provide full disclosure of all payments from insurance companies,
  • provide free and impartial investment advice to members and allow them to roll over current savings to a new endorsed plan at no cost.
  • It will also hire an independent consultant to oversee reforms and report to the attorney general's office.

This is actually a decent settlement, but I am doubtful anything will actually change. Sptizer commented "A simple rule that my office has enforced time and time again is that fiduciaries must place the interests of their clients first." ING is clearly running the show and making the investment decisions, not anybody at NYSUT and ING is conflicted. NYSUT should hire an outside investment advisor to help them make investment decisions in the plan and bar ING from making those suggestions.

I will tell you this - if this was a public firm (like a fund company) the fines would be in the millions, people would be indicted, and ING would be in the hotseat, but Spitzer needs the NYSUT endorsement as he is running for about going soft on your buddies.

We'll keep on top of this and continue to hold NYSUT to a higher standard - though we are doubtful they will live up to it.

Press Release from NYSUT regarding announcement


Monday, June 12, 2006

NH Accuses ING of Fraud

ING apparently failed to disclose revenue sharing agreements and the state is ticked. They should be, however they should have known not to deal with a company like ING in the first place unless they could dictate the structure of the deal. I find it hard to believe that New Hampshire couldn't find out about these revenue sharing deals - I could have done it in about 15 minutes of work. Simply look at what funds are being utilized - this tells you everything. It appears the fiduciaries where asleep at the wheel allowing ING to dictate what funds to use - as if ING was going to work in New Hampshires best interest....that is laughable.

Scott Dauenhauer, CFP, MSFP

Friday, June 09, 2006

AIG VALIC Successfully Completes Major Re-Structuring of Its Fund Options; Fund Substitutions Result in Reduced Fund Expenses

Yes, it is true, fund expenses have dropped. But through a nifty maneuver they have apparently increased their revenues by 26%. I'll explain how they did this in a later post.