Recently, on an Office Hours Zoom event that Dan Otter (Executive Director at 403bwise.org) and I host once a month, we had someone from New Jersey reach out with a conundrum. She had money in a Roth 403(b) with Equitable and wanted to move it. This teacher had no good Roth 403(b) vendors to move the money. There was one option that I'd not been able to find much information about, so I decided to dig deeper, and I'm glad I did. Not only did I find a new "Secret Low-cost Option," but I found what I think will be a good solution for our teacher with the Roth issue.
The vendor I'm referring to is PenServe.
PenServe is generally known as a recordkeeper and one of the smaller 403(b) & 457(b) compliance administrators. If you've heard of PenServe, it may be due to them taking over your accounts from another vendor. My colleague Ken Ford wrote a blog post about PenServe's history, you can read it here.
The product offering I'll refer to is a newer option.
When I initially reached out to PenServe they responded to me with the collateral materials for their newest product, the PenServ PenSelect. While it looked reasonable, it appeared that you had to use an advisor and pay 0.95% annually. An advisor who acts as a fiduciary at all times can be a valuable asset. However, I don't believe participants should be required to use an advisor as a condition of contributing to a 403(b). It appeared that the PenSelect product required the use of an advisor, so I was a little disappointed. This New Jersey teacher was stuck since she wasn't looking for an advisor.
I emailed PenServ to see if I could be the advisor and waive the advisor fee. To my surprise, they said yes. Problem solved! It would be a bit of work for me, but if this teacher could get access to a good product, why not.
After some initial issues, I got some exciting news. The fee is waived if an employee submits an application without an advisor referenced. Problem Solved.
We solved a problem for a teacher in New Jersey. It opened up a whole new product to education employees anywhere PenServ offers their PenSelect product. Let's dig into this new secret low-cost vendor.
The product charges a $50 annual custodial fee and a 0.30% annual asset-based fee. The program offers a list of institutional mutual funds and, more importantly, several Vanguard funds. They offer both the Vanguard Total Stock Market Index and Vanguard Total International Index (Admiral share class) mutual funds, which is all you need to build a diversified global equity portfolio. They also offer a stable value option with a competitive interest rate through Lincoln Financial Group.
If you are not interested in managing your own portfolio, the target-date offering is through the American funds. While we prefer a lower-cost, index-based target-date option, the American funds are one of the few good actively managed options in the asset management business. The American funds charge between 0.31 and 0.40% annually.
There are dozens of other funds available, but none are notable; we suggest you stick with the Vanguard index funds.
The product is meant to be offered alongside a financial advisor who charges an asset-based fee. The product, not the advisor, sets that fee, and it runs an additional .95%. I have been assured that using an advisor is not required; thus, this fee should not apply (they can change the terms whenever they desire) to those who submit an application without advisor information filled in.
I think PenSelect should be applauded for opening this product up to those who want to do it themselves. Several other product manufacturers have the option of doing this but don't.
PenSelect Other Fees
There are some other fees that you should know about. If you want paper statements, they will cost $1 (which I assume is monthly, but that isn't clear). There is a loan fee ($75). There is a fee for certain distributions ($50) and transfers/exchanges out ($70). All of these fees are generally within what we'd expect.
There are lower-cost options than PenSelect that you can purchase, but in those districts where those options aren't available, you might consider this very reasonable option offered by PenServ. If you would like to open an account with PenServe, the application is here (the application may change over time and this link may not have the most updated version).
As with any product that I review, I do not get paid for the review by the product manufacturer.