Friday, April 01, 2016

Feeling The 403(b) Fee Bern: High Fees Strike Sanders Wife

Money magazine called me about a month ago to ask if I would go through federal disclosures for Bernie Sanders and help them write a story about the structure of the Sander's family money. I literally dropped everything, spent the next three hours examining the disclosure and briefed the reporter the following day. The resulting article is Bernie Sanders Is A De Facto Millionaire.

While I think the title is a little misleading, it's actually not the most interesting thing about the Sander's finances.

What I found surprised me.



It turns out that Senator Sander's wife, Jean, worked as a college administrator and educator and thus had a 403(b) (actually multiple 403(b)s). This was the main reason Money tapped me to look at Sanders (I have a reputation for understanding 403(b) plans...as you might expect).

Jane has two 403(b)'s, one with TIAA and one with VALIC. On the surface this might sound rather boring, but in reality it's fascinating as VALIC is a company owned by AIG. Most know AIG as the company at the center of the financial crisis and part of the "too big too fail" debate.

Imagine my surprise and intrigue to learn that Sander's wife has money with one of the company's that Bernie is against. What's worse, one of the investment options in the plan (an index fund) costs 27 times that of a similar investment at Vanguard, yes, 27 times!. That's a huge number.

Bernie Sanders and his wife are paying way more to Wall Street than they should. The excerpt from the article follows:

"There’s another area where the Sanders family could probably boost its retirement income: Jane Sanders’ retirement account.
Jane Sanders holds assets in a couple of different annuities — likely invested through a 403(b) plan, thanks to her career in academia — and those assets, unfortunately, often come with high expenses and more limited choices.
Sanders could make her investment dollars stretch a lot further if, for instance, she took the amount she has invested in a VALIC annuity — valued at roughly between $75,000 and $427,000 –and rolled it over into an IRA managed by a low-fee company like Vanguard, says Murrieta, Calif., financial planner Scott Dauenhauer. 
Her VALIC account’s average fund expense fee is 1.56%, says Dauenhauer — who also says that because the account holds 20 different investments, it is probably also actively managed, which would raise her annual fees to more than 2%.
That’s a lot to pay in fees. Especially when some of the index funds she holds through VALIC could be held outside the annuity for far less. “With some Vanguard funds, she is paying 27 times the price to [hold them inside] a VALIC product,” says Dauenhauer.Since she has left the academic world and is not now contributing to a 403(b), he says, she could probably make the move without having to pay “surrender charges” — penalties for terminating a policy or withdrawing funds from the accrued value before a set time.
But because it is unclear what that time frame is for Jane Sanders’ annuities, Dauenhauer recommends that she — or anyone in a similar situation — research the plan’s exact rules and restrictions before making any moves."

Bottomline, Bernie Sanders is "feeling the burn" of Wall Street fees! Even the best make mistakes, the key is to learn from them and move on.

Scott Dauenhauer, CFP, MPAS, AIF
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