Clarifying 'Information Sharing Agreements'

Bob Toth of Baker & Daniels clarified Information Sharing Agreements.

Scott Dauenhauer, CFP, MSFP, AIF

Lawsuit Claims Fraud in Teacher Retirement Plan

Ouch, this one is going to really hurt VALIC. Of course, they changed their name to AIG Retirement......coincidence?

To be fair, I don't know all the facts in this case and won't pass judgement. But this is a good illustration of people using sales organization that are not held to a fiduciary duty to help with their finances......the organization is going to act in the organizations best interest.

ScottyD

www.meridianwealth.com

FREE Training - Learn how to tap the lucrative 403(b) Market

FREE Training - Learn how to tap the lucrative 403(b) Market

You've got to see this. This is the baloney that the agents who sell Equity Indexed Annuities respond to.

Pure drivel.

Scott Dauenhauer

School workers find costlier choices in saving for retirement

The new regulations may be helping the IRS to track 403(b) plans better, but it is at the expense of teachers retirement. In Texas, even fewer low-cost providers are showing up on the approved statewide vendor list, meaning higher fees for participants and lower account balances at retirement. The new regs are having the short term affect of solidifying the high-cost, non-fiduciary based products as the ones that are offered. I hope this will change as the years pass.

ScottyD

Senate Passes Bill on Roth Arrangements in 457 Plans - ICMA-RC

Senate Passes Bill on Roth Arrangements in 457 Plans - ICMA-RC

Tips To Survive on Teacher's Salary

11Alive.com | Education - Tips To Survive on Teacher's Salary

A Retirement Plan Horror Story

A Retirement Plan Horror Story

More teachers ripped off by unscrupulous agents.

ScottyD

Gatekeeper - New Regulations & Updates

Gatekeeper - New Regulations & Updates

Good synopsis of additional guidance and model plan language recently released by the IRS.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Changes made by IRS could impact school district staff

Changes made by IRS could impact school district staff

Interesting article about a school districts struggle with the new 403b regs.

Scottyd

Swindler gets 9 years in prison for scamming Danville neighbors

Swindler gets 9 years in prison for scamming Danville neighbors

Bill Reimers, the now infamous con artist who ran Plan Compliance Group and a few investment advisory services is going to jail, though not until January.

Why this creep gets to spend Christmas outside of a jail cell and with his family is beyond me. Why he only gets nine years is also beyond me. This is a guy who stole millions of dollars from everyday people - people who couldn't afford to be swindled, many of which won't be able to live anything close to a retirement as they had once imagined.

I personally know some of the victims and it really makes me irate. I hope God will forgive him, I don't think many of his victims will.

The question remains whether crime actually pays - how many of you really believe he'll serve nine years? He'll be out probably within five and perhaps some of the money that he stole still hasn't been accounted for - who knows where it all went.

I for one would like to know the full story, perhaps Reimers can write a book while in prison - maybe even sell a few copies and provide a little restitution to those people he hurt so badly.

For now we will close this book and move on, learning a little something that will hopefully allow others not to be taken for a ride.

Scott Dauenhauer, CFP, MSFP, AIF

Teacher retirement plans more limited, confusing

Article by Pamela Yip on the new 403(b) regulations and how they'll affect normal, everyday teachers - it isn't looking good.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Motley Fool Skewers AIG VALIC on Fees

Is Your Retirement Plan Robbing You Blind?

The Motley Fool's Tim Hanson skewers AIG VALIC in article about his wife's high fee account. Tim's wife is a school teacher who is forced to use AIG VALIC and her account experiences excessively high fees, you'll enjoy this read - its not just educational, its kind of funny to read and imagine Tim getting all worked up!

ScottyD
949-916-6238
www.meridianwealth.com

A LESSON IN STEALING PENSIONS

A LESSON IN STEALING PENSIONS

The New York Post joins the Los Angeles Times in ripping the NEA for continuing to sell the ridiculously expensive NEA Valuebuilder product to teachers (we like to refer to it as the ValueKiller).

My wife is an NEA member as are most of my clients - they want their union to stand up for them, not use them.

When will the NEA begin treating the 403(b) and 457(b) like they do healthcare and advocate for a better system instead of profiting from the current one.

Luckily many state affiliates do not follow the NEA lead and working to better the 403(b), cheers to those affiliates.

ScottyD
www.meridianwealth.com
949-916-6238

AIG VALIC Launches New Low-Cost, No-Load Mutual Fund Platform in 403(b) Market

AIGVALIC, the largest purveyor of 403(b) products to k-12 school districts has launched a "no-load" product called the "Profile Retirement Program". Interestingly enough the program is not to be easily found, or found at all on their website and the press release that appears above on BusinessWire is not found on their Press Room section of their website......wierd. Is it possible that this program is simply a ploy to answer the critics that their products are too expensive? They can now say, "but we have a no-load product". This isn't a serious attempt to help employees lower costs, it appears to just be PR - otherwise why an announcement, but no details.

The product is available through 403(b) Compare, but the disclosure is not exactly eye-opening either as they give a range of fees, not the exact fee. The underyling investment options appear to be priced around .70%, with the S & P fund priced at .36%. However, AIGVALIC can charge a wrap fee of up to 1.00% and up to an additional .65% if the "Guided Portfolio" is chosen. Doesn't sound low-cost, but at least it's no-load!

I'll give you more information if and when AIGVALIC decides to distribute it.

In a parallel story, the NEA has come out with their own no-load product (about five years after saying they would do so). The name of the product is DirectInvest Online and is also a difficult product to find out information on. It is not registered on 403bCompare.com and thus not available in California. I had to type in "directinvest" in the search box at www.neamb.com and then click on a press release, which then had a link to the special website. If you are looking for this product to be marketed on the "Investments" section you will not find it. The website is located here. Amazingly there is little info on this site unless you really dig - for example, the fact sheets for each investment option do not list the expense ratio of the fund.....how difficult would that be to add to a sheet that is supposed to give THE FACTS?

There are four index funds and the Target Date's are done by T. Rowe Price, a good company.

The main question an investor must ask themselves is why they would choose AIGVALIC or NEA Valuebuilder for their 403(b)? Neither product is that low in cost, though they are no-load and there are much better choices out there for individuals if they want to go direct. These two products might be alluring for those individuals in school districts that have a limited provider list and offer the high cost VALIC and Valuebuilder products - through those payroll slots you should be able to access these lower cost, no-load products and thus have at least a decent option.....that is of course if you can find out any information on them.


Scott Dauenhauer, CFP, MSFP, AIF

The Free Fallacy - Why Free 403(b) TPA's Are A Bad Idea

This is a piece I wrote that I believe is one of the most important papers I've written since "Does The NEA Practice What It Preaches" back in 2001. This paper, like the last is an expose on the industry that is attempting to serve school districts across the United States in relation to their compliance for 403(b) retirement plans. A bevy of Third Party Administrators of 403(b) Compliance have popped up to offer "Free" compliance services, or low-priced compliance service - but they are all driven by product sales.

The compliance piece is simply a way to get to school employees to sell them product, not a comprehensive plan to keep them in compliance.

My paper examines the true costs of these "Free" TPA's and concludes that they are a bad idea and probably a lawsuit waiting to happen.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Time to find yourself a new broker :: Herald News :: Malcolm Berko

Time to find yourself a new broker :: Herald News :: Malcolm Berko

My letter to the Chicago Sun Times regarding a complete idiot "Advisor" columnist.



I am a fee-only financial planner who works with many teachers. I co-authored The 403b Wise Guide along with Dan Otter of www.403bwise.com (the #1 site on the internet for unbiased 403(b) information). I also consult with one of the largest pension systems in the world on their 403(b) plans.

After reading Malcom Berko's absolutely appalling response to F.L. in the above referenced article I had to write you. Not only did he refer to educators as dumb, but he made fun of the couple's lifesavings, calling it "pathetic". You should never allow him to write for your publication again and should immediately begin an investigation to see how he has unduly profited from this column. He should also be forced to make a written apology.

While I agree with the his assessment that the High Yield funds are a rotten idea, the way he talks down to the educators and berates them (how does he know what they've been through in their 31 years, maybe they had to scrimp to get to that $231k figure) is out of line and uncalled for.

What is worse is that he calls out the brokerage firm for recommending commission based products and then recommends commission based variable annuity products that will make him around 7% commission (more than the 4.75% that he berates the other broker for). The products that he is selling are horrible and excessively expensive, probably around 3% in annual fees or more. The guarantees come with catches that he fails to mention.

You would be wise to remove this ticking time bomb and replace him with someone who is less conflicted or not replace him at all.

This is one of the most self serving columns I've ever read.

I urge you to get rid of Malcom Berko.

Scott Dauenhauer, CFP, MSFP, AIF
Laguna Hills, CA 92563

403(b) Company, American Fidelity Banned By Pentagon

American Fidelity, a company that markets 403(b) and other programs has been banned by the Pentagon from military bases throughout the United States as the linked document above will show.

They were banned from deceptive sales practices and other stuff that you can read about.

Why is it that the military can ban these people, but they are free to roam my wife's school district?

Why in California can this company continue to harass school teachers and be protected by law (insurance code section 770.3). Under current California law if American Fidelity is willing to sign a hold harmless agreement with a school district they can offer their products and services........a district can not ban them. This is ridiculous.

Scott Dauenhauer, CFP, MSFP, AIF

Updated 403(b) Regulations – an In-Depth Review

Deloitte's take on the new regs.

Scott Dauenhauer, CFP, MSFP, AIF

Dechert Publishes Newsletter on 403(b) Regs

Yet another law firm with yet another offering of information on the 403(b) regulations.

Nothing new here.

Scott Dauenhauer, CFP, MSFP, AIF

ICI Begs IRS To Extend 90-24 deadline

I'll reprint the entire letter - keep in mind I don't necessarily support it, just an FYI.

Scott Dauenhauer, CFP, MSFP, AIF

September 12, 2007

Mr. W. Thomas Reeder
Benefits Tax Counsel
Department of the Treasury
1500 Pennsylvania Ave., NW, Room 3120
Washington, DC 20220

Re: Final Regulations Under Code Section 403(b)

Dear Mr. Reeder:

The Investment Company Institute1 appreciates this opportunity to comment on the final regulations governing 403(b) arrangements issued in July. We commend the Department of the Treasury and Internal Revenue Service for undertaking a comprehensive review and codification of the guidance issued under Code section 403(b) over the last 40 years. On behalf of Institute members, who offer investments and provide services to 403(b) participants,2 we write to request a delayed effective date with respect to one aspect of the regulations - the elimination of transfers and exchanges made pursuant to Revenue Ruling 90-24. We also seek certain additional guidance on several issues relating to the regulations.

Table of Contents

Extension of Rev. Rul. 90-24 Transfers
Additional Guidance
1. Reporting and Withholding for Exchanges
2. Accumulated Benefit
3. Significance of September 24, 2007 and Grandfathering
4. Orphaned Accounts
Extension of Rev. Rul. 90-24 Transfers
The final regulations make significant changes to the ability of participants to transfer their investments, as previously permitted under Revenue Ruling 90-24. Under a grandfather rule, the new rules for contract exchanges, which include certain plan provision requirements and an information sharing agreement, do not apply to contracts received in an exchange on or before September 24, 2007 (60 days after publication of the regulations). While we appreciate the goals that underlie the decision of the Treasury and IRS to eliminate unfettered transferability, 60 days does not provide enough time for providers, employers, and participants to react to this major policy change. Providers of 403(b) investments have designed their systems around this transferability and individuals have grown to rely on it. We urge the Treasury and IRS to extend the deadline until December 31, 2008 to coincide with the general applicability date of the regulations.

Participants and employers in the education field are particularly disadvantaged by the timing of this change. Most schools start their school year mere weeks before the change takes effect, and the resources needed to explain the new rules to participants will be limited at this critical time. As a result, participants may be blindsided by the abrupt cut off of their ability to move assets to investment choices not offered by their employer.

As employers and service providers analyze the new regulations, they must make decisions about how to proceed once the new rules go into effect, including whether to permit exchanges or transfers as part of their plan or business model. Many considerations enter into these decisions and providers need more time to fully understand the regulations and their implications for providers and employers.3 As described below, our members already have identified several issues as having immediate relevance during the transition period beginning after September 24, 2007. More generally, providers that determine to continue to permit transfers from existing contracts after September 24, must be given ample time to develop systems to track the transfers (for reporting purposes) and develop any new forms necessary for approving the transfer. Providers also need time to train processors, who must be able to comprehend the subtle differences between transfers, exchanges, rollovers and taxable distributions.

We urge you to consider the practical realities facing sponsors, providers and participants as they adapt to the new 403(b) landscape by delaying the effective date of the new transfer rules until December 31, 2008.

Additional Guidance
Although the final regulations are extremely helpful in codifying prior guidance and providing certainty with respect to many areas of 403(b) plan operation, we believe additional guidance in several areas would help employers and service providers meet the requirements of the regulations. In the short period of time since the final regulations were published, Institute members have identified several points that would benefit from immediate clarification. Many of these issues relate to the uncertain landscape after September 24, 2007 and are further evidence of the need for an extension of that deadline. As the new rules are put into practice in the coming months, we may communicate additional issues on which guidance is needed.

1. Reporting and Withholding for Exchanges
For contract exchanges taking place between September 24, 2007 (or such later date specified in future guidance) and January 1, 2009, the transferring vendor may not know whether the information sharing agreement and/or other required documentation will be in place by January 1, 2009, the compliance date of the regulations. This has significant implications for a vendor's reporting and withholding obligations. For all exchanges under the new rules, including exchanges after January 1, 2009, we request confirmation that a transferring vendor may rely on the employer's representation that the exchange will be legitimized by either an information sharing agreement or the requisite plan and contract provisions, as the case may be. 4 If the transferring vendor receives no such representation, the vendor must determine how to report the transaction and whether to withhold income taxes on the amount distributed or transferred. Guidance would be helpful particularly on whether the transaction should be reported on Form 1099-R, and if so, how it should be coded. If a new code is provided, systems must be reprogrammed to accept the new code.

2. Accumulated Benefit
One of the requirements for a qualifying contract exchange or plan-to-plan transfer is that the participant's accumulated benefit immediately after the exchange or transfer be at least equal to the accumulated benefit immediately before the exchange or transfer (satisfaction of Code section 414(l)(1) is deemed sufficient). Mutual fund redemptions from 403(b)(7) custodial accounts may involve contingent deferred sales charges or redemption fees (which apply in a variety of contexts and are disclosed to investors). Similarly, some mutual funds involve front-end charges. Vendors would like comfort that these types of charges, which are otherwise permissible and serve legitimate purposes, would not violate the accumulated benefit restrictions in §1.403(b)-10(b).

3. Significance of September 24, 2007 and Grandfathering
We request confirmation that the date of September 24, 2007 (or such later date specified in future guidance) relates solely to the elimination of the current transfer rules under Rev. Rul. 90-24 and the grandfathering of transfers and exchanges made on or before that date. There is confusion surrounding whether certain other new rules might apply immediately after September 24, 2007, rather than on January 1, 2009. For example, certain verbal statements made by representatives of the IRS and Treasury after release of the final regulations imply that employer authorization requirements under the final regulations apply to distributions taken from non-grandfathered accounts after September 24, 2007.5 In addition, further guidance on what it means for a contract to be grandfathered would be helpful. For example, it is unclear whether distributions from grandfathered contracts will be subject to employer approval once the distribution rules become applicable. Similarly, there have been verbal indications that loans from grandfathered accounts will require an information sharing agreement. These interpretations are not expressly stated in the regulations and appear to be inconsistent with the notion of grandfathering.

4. Orphaned Accounts
Guidance on how the regulations apply to so-called "orphaned" accounts will be most helpful. Particularly when the employer no longer exists, the employer authorization requirement will be impossible to meet. Similarly, where the individual account-holder is no longer employed by the sponsoring employer and the vendor does not know the identity of that employer, compliance will be difficult. One option for dealing with orphaned accounts is to roll over the accounts into IRAs during the transition period, but providers would like comfort that this would entail no adverse consequences to participants.

* * *

The Institute appreciates your consideration of these matters. We would be happy to discuss any of the issues raised in this letter at your convenience. Please contact the undersigned at 202/326-5821 if you have any questions.

Sincerely,

Elena Barone
Assistant Counsel - Pension Regulation

cc: William Bortz, Department of the Treasury
Robert Architect, Internal Revenue Service
John Tolleris, Internal Revenue Service
Lisa Mojiri-Azad, Internal Revenue Service

ENDNOTES
1 ICI members include 8,803 open-end investment companies (mutual funds), 671 closed-end investment companies, 457 exchange-traded funds, and four sponsors of unit investment trusts. Mutual fund members of ICI have total assets of approximately $11.140 trillion (representing 98 percent of all assets of U.S. mutual funds); these funds serve approximately 93.9 million shareholders in more than 53.8 million households.
2 According to Institute estimates, $363 billion (53 percent) of 403(b) assets were invested in mutual funds as of December 31, 2006. The U.S. Retirement Market, 2006, Research Fundamentals, Vol. 16, No. 3, Investment Company Institute (July 2007).
3 Some providers may determine that they are bound to permit exchanges under existing contracts. We note that under state law, annuity contracts may be required to provide for ongoing transfers. Providers must have time to evaluate how the new requirements interact with their existing contract and state insurance law obligations.
4 Clarification would be helpful on whether the information sharing agreement requirement applies in all cases, or only to exchanges to outside vendors. The regulations are written in a way that applies this requirement to any exchange treated as being "within the same plan." Staff have suggested orally, however, that it applies only to exchanges to outside vendors. If the information sharing agreement does not apply to vendors "approved" by the plan (in which case information sharing presumably would be reflected in the service agreement or plan document), then it would be helpful to clarify what constitutes an approved vendor. For example, approved vendors could include only accounts to which salary deferrals may be directed, or additionally, accounts to which deferrals are not permitted, but that are designated in the plan document as "approved vendors" for exchanges.
5 Applying these rules earlier than January 1, 2009 would create significant compliance burdens, particularly when a third party has been used as a clearinghouse for remitting contributions and the account was never linked to an employer. It will take some time for providers to identify the correct employers.