YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     Note: This is an actual letter used by a fellow Wise patriot in his effort to improve his 403(b) investment choices. In his situation, the employer only offered variable annuities. This letter requests that both low fee mutual funds and low fee variable annuities be added to his 403(b) plan. He graciously made this letter available to the 403bwise community. Feel free to tailor this letter (just copy and paste) to suit your situation. FYI: the names have been changed to protect the guilty (or unwise).     Sample Employer Lobbying Letter     Employee Benefits Office Unwise Corporation   The purpose of this letter is to request that Unwise Corporation make available additional 403(b)/Tax-Sheltered Annuity (TSA) choices to its employees. Specifically, I request that two additional plans be made available:   1. A low-cost plan that is not a variable annuity plan but which, instead, makes available mutual fund choices that avoid the costs associated with variable annuities. The range of mutual fund choices should include an index fund based on the S&P 500, Russell 3000 or Wilshire 5000 indices. The Vanguard family of funds is a particularly low-cost, high quality option that includes both an S&P 500 fund and a Total Market (Wilshire 5000) fund.   2. A variable annuity plan sponsored by TIAA-CREF. This company has a particularly low cost variable annuity that is reputed throughout the retirement investment community for both its investment success and its diligence in keeping costs well under industry averages. Furthermore TIAA-CREF does not impose surrender charges.     The current Unwise Corporation investment choices, while perhaps suiting the needs of some employees, have the following disadvantages:   1. They are all variable annuities. As insurance products, variable annuities have the advantage of permitting investments to grow on a tax-deferred basis. However, there is no free lunch and the cost of the "insurance wrapper" is known as the mortality expense. Mortality expenses on plans available at Unwise Corporation add at least .25% percent to the annual costs and often more. This is a totally unnecessary expense because 403(b) plans, by definition, grow on a tax deferred basis; therefore employees are paying a mortality expense to obtain a tax deferral to which they are already entitled. (Note that TIAA-CREF has an extremely low mortality expense of .10%.) At one time 403(b) plans were required to be placed in annuity vehicles; however, this requirement no longer exists. Therefore, employees in 403(b) plans may now get all the advantages of tax-deferred growth of their investments without the need to be invested through an annuity.   2. In addition to mortality expenses, administration and distribution fees plus the management fees on the funds themselves (some of which also include additional 12b-1 marketing fees) make the total cost of most available funds in the 1.5% - 2% range. While this appears innocuous, when one considers the long-term impact of fees of this magnitude on an employee's retirement nest egg, the result is dramatic. I have included a table comparing the impact of the high costs of one such plan with the lower costs available through TIAA-CREF. (Note that if a non-annuity 403(b) option with Vanguard were selected, the costs would be lower still — approximately 20 basis points or .2% per year — and the long-term benefit to the employee even more dramatic.) Finally, I have attached a column by noted financial columnist Scott Burns which echoes what I am saying about the impact of lower cost annuities. (His examples are not necessarily 403(b) annuities; however, the fundamental point is exactly the same for 403(b)'s.)   3. Many variable annuities, including two of the choices at Unwise Corporation, make it very costly for employees to exercise their freedom of control over their own money because they charge surrender (or exit) fees. These surrender/exit fees remain in effect for up to seven years from the time of the most recent contribution to the plan. So an employee who terminates employment with Unwise Corporation and wishes to transfer his/her retirement nest egg to a Rollover IRA (or to an new employer's 403(b) plan) must wait up to seven years to do so without financial penalty. TIAA-CREF annuities have no surrender charges. A 403(b) plan invested in a pure mutual fund would not have surrender charges either.   4. Although the current provider list offers a range of investment choices, none of them include an S&P 500 Index fund (or similar broad-based index) among the choices. One or more index options should be available to employees for the following reasons: — Index funds have historically low management fees associated with them because they require very little management. All other things (like investment return) being equal, lower management fees will ultimately increase the value of the employee's retirement nest egg. — Index funds have, on average, historically outperformed more costly managed funds. (This historical trend has not been true for the past calendar year; however, over a much longer period of time, it can be empirically shown to be true.)     As the internet has made more financial information available to the general public and employees of school systems, hospitals, colleges, universities and research organizations are becoming more sophisticated about their finances in general and retirement plans in general, there has been a backlash against expensive annuity-based 403(b) plans. The website 403(b)wise (http://www.403bwise.com) has more detailed information on this growing movement where employees are asking (or demanding) that their employers be more mindful of their long-term retirement needs when contracting with 403(b) providers. Unwise Corporation has the opportunity to be a leader in this movement, just as it is in Wise Widgets. I would very much appreciate your giving consideration to the expansion of choices as outlined in this letter. For the record, neither I nor any friends or family have any financial interest in Vanguard, TIAA-CREF or any other financial services firm and would not stand to profit (other than by having a lower cost 403(b) options) by any decision Unwise Corporation would make on this issue.   I would appreciate your consideration in this matter which effects so many Unwise Corporation employees.   Sincerely, A Wise Employee     Home | Disclaimer | © 2001 403(b)wise. All rights reserved.