http://www.morningstar.com/Cover/videoCenter.aspx?id=632405Hello. I tuned-into this and also read the transcript. Clear as...mud? I am interested because my wife's retirement thing is a 403b "wrapped" in an annuity. She works at a big local hospital, and the retirement plan administrators are at MassMutual. (Big surprise, being at their HQ city of Springfield.)
Anyhow, I understand the fellow when he speaks of annuities that are available to choose from the menu of available investment options in the Plan. Then he only very briefly mentions a different sort of animal, in which the 403b ITSELF is wrapped in an annuity. This latter case is what is being provided to my wife. The hosp. contributes in one big lump sum each Spring. My wife can add to it, herself, too--- of course. But so far we've decided not to put any spare retirement money THERE, because it just smells fishy.
I've asked about this before, but I still don't "get" it. How does that annuity "wrap" operate--- besides bigger FEES!? And how does it matter when the time comes --- many years from now--- when my wife wants to take money out of it? (I understand that it's smarter NOT to take it all out in one big lump, yes?)
Thanks, folks.
Comments
I was very fortunate that I had a lump sum option. I rolled that into a Rollover IRA with American Century Brokerage. So far I have beaten what the annuity would have done. If that option is available to your wife, I would not discount it. Since it sounds like she has "many years" to go, chances are she will have switched jobs and I feel it is better to keep that money close to the vest rather than leaving it with the company. Of course, it all depends on the circumstances.
Disclaimer: I am not a tax attorney; nor do I act as one in any public place, movie or tv program.
First, I will presume you read the whole transcript including the below directly regarding 403b's.
From the text:
Benz: I'd like to discuss one area where annuities tend to be more prevalent; that's in the 403(b) market. Can you give us a little bit of history on why this is the case? And do 403(b) participants today tend to see a lot of annuities in their plans?
Farkas: They do. When 403(b)s were established in the '50s, the only allowable investment options were annuities. That changed in the '70s; that restriction was lifted, and regular mutual funds can now be in 403(b)s. But inertia is strong, and the people who sell the annuities to these tax-exempt organizations' 403(b)s really have their foot in the door. Today, reportedly more than half of 403(b) assets are still in annuities, which is obviously much higher than what you find in 401(k)s.
As you are aware, not unlike your own previous 403b, your wife's is the same; except her employer chose to use an insurance company for the product which also includes: mortality and expense charges in additional to the expense ratio of the funds available within the plan. Whether there is any legal benefit to your wife's plan with the mortality fee, I can not know. You'd have to ask the question directly and be shown the language and its meaning(s).
Not unlike a 401k, the 403b grows earnings tax free and offers the ability to deduct any deposits into the plan from taxable gross income. The 403b is for non-profits (IRS 501 types).
You noted: "And how does it matter when the time comes --- many years from now--- when my wife wants to take money out of it? (I understand that it's smarter NOT to take it all out in one big lump, yes?)"
>>>IRA rollover, a tax free move
From the video: " Anyhow, I understand the fellow when he speaks of annuities that are available to choose from the menu of available investment options in the Plan."
>>>I wouldn't have hired him to explain........but anyway; your wife is not investing directly into an annuity, but the funds that are available.
Tis a screw job, for such; an already tax sheltered 403b that is wrapped up inside a high fee annuity plan that is also tax sheltered.
There's nothing fishy with her 403b; it just has extra expenses (insurance company) that are not needed for an employer to provide a 403b plan. She may still rollover the monies to an IRA, not unlike yourself; when she retires. She may also be allowed to move this money to another employer plan, in the event she stops her current work.
There may be restrictions in her plan regarding the "vesting period" of the employer match that you noted. If she moves to another employer, she may not be able to move the match for a given time frame.....that info should be in the paperwork/contract.
Does her 403b receive this money whether she has contributed or not ???
If you both have the money to spare, don't want the gross income deduction and she still gets the match anyway; perhaps place the money in a Roth IRA.
Her 403b is very common when vendored by an insurance company with the extra fees, which likely range in the 1.5% range per year. Pretty crappy stuff, eh? My unqualified guess is that the employer is receiving something for selecting the vendor.
What are her fund choices?
Basically, forget the "annuity" part, unless there is some benefit thrown into the plan (check the contract), pretend she just has a retirement plan with available funds to choose; and either invest or not.
If you can't make heads nor tails from the contract, have another meeting with an rep. at the hospital and have the right questions that will require a proper answer.
Well, there is probably more; but we have hashed some of this before, and I must hit the pillow....5:30 am is already too close.
Take care,
Catch
And yes, the hospital deposits X% of her salary into the plan for her, whether or not she adds anything at all. The wonderful pencil-pushers won't even talk to me. And wifey won't take the time to go "visit" them. At any rate, though I love her dearly, her English is limited enough so that any explanation I might get from her will be just a half-step removed from precisely correct, anyhow.