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11-29-2007, 05:22 PM #1
- Join Date
- Aug 2001
- Kubota L210
401k cautionary tale
The thread about paying SS taxes gave me the nudge to post this.... everything about money is tractor related!
I work for a state university which has a fairly decent pension plan and also makes 403b, 401k and something called 457 plans available to employees, though without contributing matching funds because of the traditional pension plan. We have a pretty extensive list of companies we can use, which I guess is not all that common for private companies. My money goes to TIAA/CREF, and I like the way I can manage my account online and move money between the various plans. However, I had no idea what I was doing when I first started contributing to my 403b, and for several years I put all my money into an interest-bearing account which was set up to pay out only as an annuity. I finally figured out I could get much better yields from the various stock, bond and real estate (commercial, no home loans!) plans offered by TIAA/CREF, but since the interest on the annuity plan was pretty good, while the stocks rose and fell alarmingly, I left that money alone. Now I am nearing retirement age, and my calculations tell me I will be better off using one of the non-annuity payout schemes for my 403b money, like the minimum withdrawal or interest-only withdrawal mechanism, which will let me treat that money as basically a savings account.
Here's where the cautionary tale begins....
I was lucky I talked with a TIAA representative who came to town a few months ago. It turns out that TIAA requires a ten year period to move funds from their annuity plans to their other plans. While I can freely move money between stocks, bonds, money market and real estate, the annuity plan money takes ten years to transfer. I asked the TIAA rep if that was a law or a company policy, and she said policy, and that some companies, like MetLife, will not allow such transfers at all while the individual is still with the employer the plan was started with. Bottom line is I am moving my annuity money and will still be moving it when I retire, but as it will still earn interest during the process, no harm, no foul.
However....there's always a however....
My dear wife works for a major mid-western hospital management company. That company just changed 401k management from MetLife to Vanguard... they seem to only use a single company at a time. Like me, she had put a major part of her money into an annuity. We had decided that we would do with her 401k what I did with mine, and in fact we may roll hers over into her own TIAA/CREF plan when the time comes, but here's the rub. We thought the change to Vanguard would allow her to move the annuity money out of that plan and into something else. She was told that ALL her funds would be transferred to Vanguard and she would have an opportunity to distribute them as she saw fit after the transfer was accomplished. The annuity money is still with MetLife. It "could not be transferred" according to Vanguard. So, the bottom line seems to be that she now has an "orphan" annuity plan with MetLife to which she can no longer contribute through her employer, even if she was so inclined. We're still working on that little poblem, but so far it doesn't look good. The only option we know of would be for her to quit her job, at which time she should be able to do a transfer payout and roll that money into some other plan, but that is clearly not ideal. It may be that when she retires she'll have a window of opportunity when she can move that money. Or she may end up taking the annuity payments.
So, the purpose of this long-winded post is to raise a flag of warning to anyone who might have their retirement funds in an annuity. If that's what you think will be the best plan for you, great. If not, be aware that some plans are very difficult to modify.
BTW, does anyone know how companies interact with their 401k management companies. I assume wife's employer found some benefit to changing from MetLife to Vanguard. Perhaps they felt Vanguard would provide better service, i.e. they had the employee's best interest at heart. However, since companies are in business to make money, I strongly suspect they will not lose money with this change.
11-29-2007, 08:48 PM #2
Re: 401k cautionary tale
I would assume that your wife's company got a better deal with vanguard, less fees, etc,.to manage the plan. I choose to stay with mutual funds as they don't seem to have as many restrictions ( or rules ) as anniuties.There is a guy ( Dave Ramsey) that is a financial person that has a radio show. Every time someone calls his show to discuss investing in anniuties or mutual funds, he steers them away from annuity investing because of all the restrictions & fees assoicated with annuities.his web site is >>>>>>>Real Debt Help - Get out of debt with Dave Ramsey's Total Money Makeover Plan.. on his site he list ELP'S ,(Endorsed Local Providers) which are people that deal with retirments ,realestate, etc, I wish you all the best
11-29-2007, 11:28 PM #3
Re: 401k cautionary taleOriginally Posted by kenmac
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11-30-2007, 03:54 PM #4
- Join Date
- Aug 2001
- Kubota L210
Re: 401k cautionary tale
I put that info out as a warning to others who may have been throwing money at their 401k's in much the same way I did for years. I have pretty good advice I can access for my own plan, but I bet my wife's company is more the norm. When they actually had an in-house person to advise employees on their 401k contributions, about all they would do was start with the usual "How much risk are you comfortable with?" routine. Nothing wrong with that, but it sure would have been useful if they had stressed the restrictions inherent in some of the annuity plans. And, I know we are all responsible for our own financial dealings, but really reading a prospectus is a good way to invite a cerebral hemorrhage.
In our case, even if we are unable to roll that money out of the annuity and into some other vehicle, it will not severely impact our retirement. One of my wife's co-workers, on the other hand, is married to a fella whose entire retirement is tied up in a rather poorly designed annuity plan. He apparently missed a deadline period during which he could have restructured his plan such that it would have fit their retirement plans better.
The usual discussions about 401k plans are about how to roll them over when you change jobs. In this instance, the company complicated life for what I bet is a very large number of employees by changing their 401k management arrangement.