This is a very long query. Thanks for your patience in getting through it, and for your input. Fund Alarm and MFO have never steered me wrong. I'm retired with a reduced pension, 58 right now. She's 39 and JUST started her first legitimate "career" type job at one of the two big hospitals in town. ("Environmental Services." We refuse to call it simply "housekeeping," because we are politically correct, and EVERYONE is a valued Specialist.) She has been working full-time hours, but now is cut to 80% time: she was hired brand-new just a little over a month ago as part-time. She will do well. She can work hard and thrive and impress the bosses in such an environment, unlike myself. Besides, once she smiles, you BELONG to her. (Grin.)
My own 403b was always wide open and self directed. I chose funds. My luck choosing stocks is abysmal. Wife's plan is structured as an ANNUITY. It says so on p. 1 of the little sign-up booklet. My mom had one, but it's run its course and is now past-term, so it's just a memory. As for me, I am innately afraid of annuities. All I hear is that the extortion fees ("administration" fees) and other expenses related to owning an annuity are crazy nuts, way too high to be worth the investment. I imagine approaching Annuity Universe like the souls in Dante's "Inferno," reading the sign over the gate: "Abandon hope, all ye who enter here."
...But the menu selections within the annuity include Vanguard Target Retirement funds for many years into the future; and there are open-ended mutual funds. I will steer clear of front-load funds, like Mainstay. (My brother works higher-up for the same outfit, Baystate Health Systems in Springfield. He's in a Mainstay fund with a 5% load. No, thanks!)
Options: 1) choose your own ingredients and go. (Including Vanguard Target-Date Retirement funds)
2) Allow them (MassMutual) to diversify you by selecting a pre-packaged low, medium or high risk sampling.
3) keep the money in short-term instruments like Money Market.
I don't mind choosing from among the 19 listed offerings. Of course, the booklet doesn't even say a word, for the sake of uninitiated rookies, about front-load, no-load, higher vs. lower fees. I will be choosing from among the no-load choices available. I recognize many of them, but not all. I'm going to do some homework, soon.
MY BIGGEST QUESTION and my biggest fear is this: HOW does this WORK? If the investment choices are all mutual funds, why not allow employees to CHOOSE funds and just get going, under the 403b banner? Why is the package created to BE an annuity? By the way, I'm surprised NOT to find any of MassMutual's own funds on the list. That's OK by me.
Among the options I recognize at first glance are:
TRP New Era
Cohen & Steers Realty
Oppenheimer Dev. Mkts (no way, Jose!)
Oakmark International
Conestoga Small-cap
Easton Vance Small-cap
Vanguard Treasuries
"Select" PIMCO Tot. Rtn.
I understand that an annuity provides guaranteed income for a TERM, or another sort promises to provide income for LIFE... The ANNUITY aspect here has me spooked. Anyone else with experience in this regard? Thank you.
Comments
A blip before I must travel the roads.
It is not uncommon for a retirement plan, and it seems in particular; a non-profit organization to have the retirement plan wrapped inside of an annuity. It would be nice to find a more normal path for a 401k/403b plan; like via Fidelity and such.....but that is another story, eh?
The one area that may be common to such plans is that there may be an additional 1% fee built into the plan and perhaps slightly higher fund fees.
Any 403b (annuity) program I am familiar with does not carry "A" share class fees; as these are waived. Logging into the site to review the plan should provide all of the fee structure you need to read. I question whether or that your brother is paying a 5% inside of this structure. I would have to read this for myself, in black and white.
The "annuity" should not be as you would normally regard as the type purchased by an individual. Your wife would be able to "rollover" any amounts in the account at a future date into an IRA.
In name, even a traditional defined benefit pension plan is an annuity for purposes of disposition of the monies at a future retirement date from the employers account with whomever manages the account.
I checked Brightscope, but they only list 401k plans. Check the full list and all associated documents or have your wife obtain the plan documents from the hospital.
Got to run.
Catch
There are different types of annuities. The retirement products provided by insurance companies typically wrap mutual funds in an annuity in a 403b 457 etc. That means in addition to mutual funds you will be paying some wrapping fee. Now, it would be better if there was not wrapping but that is the nature of the beast. For that reason, your retirement plan will probably will not be referring these funds by the mutual fund tickers but internal codes or numbers. They will be publishing the performance record (not necessarily every day) as well.
Secondly, do not be so afraid of loaded funds in retirement plans. Typically (but not always) these funds are provided as load waived but wrapped with extra annuity layer. Explicitly ask about it.
Now even if you think you know the mutual funds in the list, they will probably not exactly tract the returns of the underlying mutual fund due to the wrapping charges hidden in the ER. But it could also be that they may be selling a bit of each fund you have invested and extract fees directly each month. You need to read the offer statements and other prospectus in detail. You might be provided a summary prospectus but if you ask you might get a detailed one.
You can simply invest in a "Vanguard Target Retirement" and it would not be a bad choice. If load waived Oppenheimer Developing Markets fund is not a bad choice to invest a portion. Conestoga Small Cap is a good fund that I considered investing. C&S Realty is a good REIT fund. Oakmark International and PIMCO Tot. Return are choices to look.
Without necessarily intending to do so, we've ended-up with a barbell. The heavy ends are MAPIX and PREMX. In between---not necessarily in order of size, is: DLFNX, MACSX, MAINX, SFGIX, MAPOX, MSCFX, and TRAMX.
PREMX is 41.18% of total. MAPIX is 33.46% of total. None of the others is more than 3.56% of total. We could just use her portion to even things out, what? And these are all standard items, not peculiar, annuity-wrapped things with hidden, non-transparent fees and their own arcane fund ticker symbols and all of that. We know what we've got. It may be simpler and wiser to simply add to what we've got?..... I've shared the contents of my portfolio here numerous times, but there it is again, for reference. Thank you for the informative, thoughtful replies.
I see what you mean about front-loads being waived in a retirement vehicle, yes. On the other hand, a close friend trusted a colleague who also was licensed to be a stock broker/financial advisor. He worked for or with an investment group connected to Smith Barney, but then they were bought-out, and my friend's account went to the new outfit as a matter of course. Though it was a 403b, this particular investment advisor must not have registered the thing that way, because his statements all clearly listed the 5.75% FRONT-LOAD on each monthly contribution!
As Investor noted; the choices are not all that bad. A few additional thoughts about all of this for consideration and/or options.
--- Your gross household taxable income will be reduced by the amount of your wife's 403b contributions, if she chooses this route.
--- If BayState provides a $ match towards her contributions in the 403b, she may choose to invest up to that cut-off point.
--- You should also now qualify for the so-called "spousal IRA" contribution, based upon your wife's wages, if you choose to add to your existing IRA. IRS Pub 590 link and one site regarding spousal IRA's.
--- Also, although I know you are not a fan of this route, is that your wife set up a Roth IRA; say with a large company in your state.......Fidelity.
Depending on the household budget, any or all of these investment choices could be used to mix investment directions.
Lastly. You should be able to obtain a close match to the funds available in the 403b for reviewing the choices; as to fund ticker symbols, so that you may review returns and have a better idea of the constuction of a particular fund. No, they may not be twins or have the same full management team in place; but enough so, to perhaps know more about a choice.
An example would be the Pimco Total Return fund you noted. Review the returns indicated within the 403b document and compare this to PTTRX. Another would be the Cohen & Steers Realty fund. CSRIX is one of their funds; although C & S has several real estate funds among several class structures.
Hey, as you have noted...........break a leg with this.
Regards,
Catch
There are two reasons to contribute:
1) It enables you to lower your current tax liability.
2) You should strongly consider investing in 403b if the employer is contributing to the account as well. You should contribute enough to get the maximum employer contribution in that case.
Now that your wife is earning, you can also contribute monies to a (spousal) IRA. My suggestion is to her contribute enough to get employer match, open a Roth account for you and your wife and contribute the max (would be $5000 for her, $6000, with catch-up, for you per year). If any more monies are left to invest, you can continue to add to her 403b. Of course, she should earn at least $11000 for you guys to invest in IRA accounts as these accounts require earned income. Roth IRA is particularly attractive as you will not be paying taxes on growth of money and unlike taxable account you will not be paying taxes on distributions every year and you will not be required to take minimum distributions after 701/2.
This is what I do with my 401k. I max at $17000 in my 401k (+ plus my employer contributions), invest $5K for my Roth and $5K for my wife Roth (still have to contribute the Roth for 2012 but that is until tax day 2013).
Finally, do not make assumptions on loaded funds in the account. You have to ask some questions and obtain more information. If there are really loads in use, avoid those loaded funds but do ask and obtain information first.
Were we within some "Twlight Zone" thing with this? Read both of our replies to Max; although the post times vary. Excellent advice, by the way.
Very strange, eh?
Catch
Wow. You've gotten great advice from the others. I just want to stress the marching order. First capture any and all possible employer match, then fully fund the Roth IRA - self and spousal, and THEN contribute additional $ to the 403(b). As for your choices, feh, they don't look too bad. You should be able to work with them. One thing you do need to keep in mind is that her new biweekly contributions will be buying your chosen mix of their fund offerings (and you can do better than taking a Target Allocation). But this is new money. Also keep in mind that over time, you will develop old money that you can also consider reallocating as appropriate. Check into trade limitations and clearance. Also, can you trade online? And keep something in cash in case stuff happens. She's 39 so this is long term money.
The plan doesn't sound that bad. Worst I ever saw was wifey at her old baby bell job in the 90's. Could only make exchanges once a month at the end of the month. Five funds to choose from but all 'in house' unlisted funds. Feh. You always maintain a cash position and in her case, it came in very handy when Saddam invaded Kuwait. The market puked and rono bought as much as possible of what they had for an equity fund.
peace,
rono
So I would suggest to keep it simple. I know from your posts you are a believer in Asia being the future. How about just 2 funds, the target date fund with a diversified equity/bond ratio that she is comfortable with and MACSX for that Asian spice?
You've gotten really good advice from these nice people. Good luck to her and you.
The simple problem? Login. The gorgeous booklet provided by the employer says nothing about the fact that it's your own SS number which serves as your login User-ID. An initial PASSWORD is provided, but as for the User Name, you're just somehow supposed to already know, without being told. Which is why there's no option at the lovely MassMutual webpage to click on "Create Acct" with a new UserName. Duh.
OK, I got in. Here's the deal: it would be possible, I suppose, to begin right away contributing to the account with some of her paycheck money. But guess what? The employer provides not a "match," but 100% (of what?) of regular contributions into the account starting in the third year of employment (or maybe AFTER 3 years? Starting with the fourth year? ) What is the BASIS of the 100% that appears there? I dunno. The chart says there's a "3 year cliff" after which the provider offers to fund the account with 100%. and the employee is vested, after the 2nd year or 3rd year. Damn chart is confusing. I guess it's not the chart, but the terminology.
-Vesting method: 3 year cliff.
-Employer contribution: ZERO for years 1 and 2. After that, 100%. (Again, 100% of... WHAT?!)
OK, that's information I could not provide in my initial query, above. Any further help would certainly be much appreciated, in light of what I just found out after logging-in....
You noted: This area would have to be defined directly from the HR dept. at the hospital. All organizations have their own policy structures regarding matching.
As to the concept regarding a "match"; the below, which is a copy/paste of another's text may offer some insight.
"Some employers will make matching contributions to a 403(b), especially if it is their only retirement planning option. For example a 5% match means that the employer will match contributions up to 5% of the employees annual salary. In other words, if someone earns $50,000, and contributes $4000 to his/her 401(k), the employer will contribute a maximum of $2500 (5% of salary). In some cases, the match is not dollar-for-dollar and employers may only match 50%, or 25% of the employee's own contribution."
Hopefully, some examples will be provided regarding BayState's policy.
Take care,
Catch
From what you have written this is what I interpret:
1) The employer will not put any money in her account in her first and second year of employment.
2) After that the employer will match 100% of the monies contributed by the employee (this is typically up to a % limit of her yearly income. For me it is 4.5%).
3) The vesting period is pretty typical of 401k/403b plans. For you to take ownership of the employer monies, there is a vesting period in this case it is 3 years. Sometimes the employer specifies a portion of shares vest each year past but in this case nothing vests until 3 years have passed.
The investments purchased by employer contribution will be subject to 3 year vesting. If your wife leaves her job before 3 years after the investment is purchased, she will not be able to take that portion of the investment with her. 401k/403b plans do keep track of what shares are employee purchased (and always 100% vested), what shares purchased by employer contribution are vested and what shares are yet to be vested. Sometimes you can leave your job, take a break, come back and the vesting will resume from that point on. This should be in the plan document.
In other words, you need to get the plan document and read it.
I do believe I've selected two funds out of the menu as destinations for wifey's money. That second pile of info. had photocopied pages right out of M*, complete with tickers and expenses.
OF NOTE:
1) Select PIMCO Total Return Fund carries the ticker, MSPZX, "Z" class of shares. Expenses are 0.40%.
2) Conestoga Small-cap, CCASX. ER is listed as 1.10%, but in italics underneath, the "Total Annual Operating Expense" comes to 1.27%, which would seem to connect with "Waiver Data" underneath: The TYPE is "Contractual" and the "Exp. Date" (Expiry?) is 02-01-2013. The amount there is 0.17%.
So, it looks like MassMutual is tacking-on .17% for themselves?
These choices are not bad, I think. I'm calling the benefits office shortly to confirm what I mentioned above: that after the three-year cliff is reached, then Baystate Med. Ctr. matches 100% of employee contributions.
I'm grateful to those of you who replied. More info. and different angles presented are very helpful in getting this done with maximum benefit for my wife. Thank you.
1) MSPZX is Mass Mutual PIMCO Total Return fund. It is sub-advised by PIMCO similar to Harbor one, I believe
2) CCASX fund has an expense waiver, keeping expenses at 1.10% until Feb 2013.
"Conestoga Capital Advisors, LLC has contractually agreed to limit the Fund’s net annual operating expenses to 1.10% of the Fund’s average daily net assets until at least February 1, 2013 , subject to termination at any time at the option of the Fund."
Either their net expense ratio is wrong in the documentation or 0.17% is the wrapper fee etc. You still have to figure out if there is an explicit fee taken each month or there is a fee embedded in the fund expenses or her company pays for it indirectly.
My understanding is that 3-Year cliff is for vesting after the fund is purchased by employer monies. You said that they will not be matching anything in the first 2 years of employment. They will match 100% of contributed on year 3 but it will vest some time after that. Anyway, you need to clarify matching and vesting details with the employer. Check the documents you are sent. It should be there somewhere.
a) a cover-all-bases collection of junk intended to be so generic that it is almost useless, AND
b) certain portions are deliberately presented in finance-ese, quite unintelligible, on purpose. (And of course, when I call the benefits office at the hospital, they will not want to actually do any WORK, so they will shuffle me off and direct me to contact Mass Mutual. Whenever I make such calls to get answers to questions, the ones who are supposed to be able to help invariably deflect the caller back to some bullshit website, which the caller stopped looking at because it does not have answers or else it is not navigable to begin with.)