Broward County's Hidden (b) Plan
Broward County's Hidden (b) Plan
Disclosing Broward County’s 403(b) and 457(b) Program
Over a year ago, 403bwise.org graded the Broward plan and gave it an F. The vendor list was made up of companies that are Red rated vendors. After searching the Broward website, we found no indication that these vendors offered different products than in other public school districts. Not long after, we were informed that Broward had gone through a Request For Proposal (RFP) process and should receive a higher grade. We decided to investigate; it took us over a year to develop this information.
We ended up upgrading the Broward plan to a B. However, given the difficulty in finding ANY information on this program, it should be lower.
Broward is one of the few public school employers who went through the complicated process of taking their plan out to bid. They did a pretty good job, but they don’t want anyone to know about it for some reason. This is baffling; it’s also a mistake.
Suppose I could talk to those who were involved in the RFP process. In that case, I’d tell them they did a great job. Still, it ultimately doesn’t matter if they don’t tell their employees about it and make the program’s details easily and publicly available.
I’m making the details available publicly here. This is our best effort to disclose the Broward (b) plans.
To receive a grade of B, the employer must have gone through a thoughtful RFP process. It’s always tricky to know if a well-defined RFP process was followed, but we can discern a lot from the outcome. We decided to rate each vendor’s products according to our traffic light system to see how they would fare. As a reminder, here are the minimum criteria for each; we decided for Broward’s purposes to exclude reputation issues from the criteria (otherwise, none would be Green):
Green Criteria
Combined investment fee and asset based fee is 0.60% or below with $ fee $60 or less and no surrender charge
Yellow Criteria
Combined investment fee and asset based fee is 0.60% and above with $ fee more than $60 and no surrender charge
Red Criteria
Higher fees than Yellow combined with surrender charges and the requirement of a salesperson attached to the account.
Broward chose three vendors for their plans. CoreBridge (formerly AIG, formerly VALIC), Equitable (formerly AXA) and Voya (formerly ING). Below is a summary of each and the traffic light rating they received. A full detailed fee disclosure and investment option list is available as a google spreadsheet here.
Equitable Yellow
While Equitable does not have an asset-based fee, the investment options offered are stuffed with revenue sharing costs and are all proprietary. Some of the underlying investment options are outside managers, but they are packaged in an Equitable wrapper.
Index funds:
EQ Equity 500 Index .55% S & P 500
EQ Common Stock Index .68% Russell 3000
EQ International Equity Index .79% Combination of indexes
All of these indexes are managed by Alliance Bernstein, a company owned by Equitable.
Diversified global equity index portfolio cost: .73% (55% domestic, 45% international)
Fixed account will be 1.50% starting 2023
Equitable manages these funds through one of their own companies and they lend the securities in the portfolio. There is no indication in the prospectus that the securities lending income is used to reduce the costs of these investments. Given the low cost of managing an index portfolio, the portfolio lending could potentially offset any internal management costs essentially making these portfolios zero cost to Equitable. This means the entire fee is likely available for gross income. In other words, they are charging .73% for index funds that cost less than .02% to operate.
Target date funds offered:
EQ Target 2015
EQ Target 2025
EQ Target 2035
EQ Target 2045
EQ Target 2055
These funds charge 1.10% annually.
Commentary:
Of the three vendors in Broward, Equitable was the most accommodating when asking for information. Equitable was the only vendor who was willing to provide information without going through hoops. The head of the program for Equitable in Broward called me to make sure I got what was needed and was very responsive through email. I was very impressed with the ease of communication.
Unfortunately, Equitable has paid less attention to the quality of the product offered.
There are too many investment options offered, a total of 94. In addition, Equitable makes their money in a non-transparent way (through undisclosed revenue sharing and agreements with affiliated companies). On a positive note there is no annual contract fee, which brings down the costs of the index funds (or any investment option) for new and small accounts.
It’s clear that Equitable is looking backward, not forward in regards to how they set an investment fund lineup.
Given how helpful the Equitable representative was (which has been rare in my experience), I’d like to be more forgiving, but this is not a great product. In the scheme of other Equitable products offered in school districts that have not gone through an RFP process, the Broward offering is pretty good and given it has no surrender charges, makes it one of the best Equitable offerings we’ve seen.
I did not inquire, but the business model of Equitable (and all vendors in Broward) is to sell ancillary products. Making money on this program is not the goal, it’s to build a relationship with the employee and sell them other, higher-cost financial products.
Voya Yellow, borderline Green
Voya has an asset-based fee of 0.55%. The investment options chosen do not have revenue share and there are no proprietary options except for the fixed account.
Index funds:
Vanguard 500 Index
Vanguard Mid Cap Index
Vanguard Small Cap Index
Vanguard Real Estate Index
There is no international index fund offered.
You cannot build a low-cost index based global equity portfolio.
Hybrid global equity portfolio cost: .78%
Target Date Funds
Vanguard Target Retirement Income
Vanguard Target Retirement 2025
Vanguard Target Retirement 2035
Vanguard Target Retirement 2045
Vanguard Target Retirement 2055
These funds charge .08%, for a total cost of .63%.
Commentary:
The Voya offering is probably the most institutional like of the three. While it does lack an international index fund, the fund companies chosen and the mutual funds offered are quite good (mainly Vanguard, DFA and the American Funds). While I’d prefer a short-term fixed income option separate from the Fixed Account, the current fixed income options are reasonable. While there are no surrender charges, the fixed account takes 4 years to get your money out of and there is no corresponding bump in the rate (though the rate was certainly reasonable at the beginning of 2022, it’s doubtful it will keep up in 2023).
The reps were not quick to respond, but they did respond without having to jump through hoops.
There is no revenue sharing mutual funds in the plan, which sets this offering apart from Equitable.
They should add an international index fund and a short-term bond fund.
AIG VALIC CoreBridge Green
Corebridge has an asset-based fee of 0.40%. The investment options chosen do not have revenue share and there are no proprietary options except for the fixed account.
Index funds:
Fidelity 500 Index
Fidelity Mid Cap Index
Fidelity Small Cap Index
Fidelity International Index
Fidelity Emerging Markets Index
Fidelity US Bond Index
Vanguard 500 Index
Vanguard Mid Cap Index
Vanguard Mid Cap Growth Index
Vanguard Small Cap Index
Vanguard Small Cap Growth Index
Vanguard Total International Stock Index
Vanguard Total Bond Market Index
Global equity index portfolio cost: .43%
Target Date funds:
Vanguard Target Retirement Income
Vanguard Target Retirement 2020
Vanguard Target Retirement 2025
Vanguard Target Retirement 2030
Vanguard Target Retirement 2035
Vanguard Target Retirement 2040
Vanguard Target Retirement 2045
Vanguard Target Retirement 2050
Vanguard Target Retirement 2055
Vanguard Target Retirement 2060
Vanguard Target Retirement 2065
These funds charge .08% annually for a total of .48%.
Commentary:
Corebridge (formerly known as AIG, AIG VALIC, AIG and VALIC) has the best pricing and the best investment option list of the three vendors, though it’s not without its oddities.
Corebridge has the lowest cost index funds of all vendors. The lineup is full of index funds and has good fixed income and cash options (there is a 90 day equity wash on the fixed account) as well as the lowest cost Target Date funds.
It’s a little odd to have both Fidelity and Vanguard index funds that essentially track the same stocks and it’s also odd to only have “Growth versions” of some index funds, but focusing on these items is a bit nit picky.
Corebridge was not easy to work with, in fact they were downright hostile. The representative did not make getting information easy, but once I had a school employee assisting me, the process went smoother. I’ve had a few people mention issues with AIG/VALIC/Corebridge with one deciding to move their money despite having to pay higher fees elsewhere.
On a pure fee basis, Corebridge is the best offering of the three. You will need to make sure you don’t allow the Corebridge reps to sell you on ancillary services. You just need access to the low-cost index offerings or the target date funds, nothing more.
Overall plan commentary:
Broward’s lack of transparency and inability to provide the most basic information about a plan that they’ve done a pretty good job at creating is disappointing. We’ve spent over a year working to get this plan disclosed and received no help from Broward. Broward couldn’t tell us the fees, investment options or even refer us to someone who could. While this is normal for multi-vendor plans it’s not normal for an employer who hired a consultant, went to bid and forced their vendors to compete. A normal outcome would be for Broward to be very vocal about the job they did (that most are not doing), instead they chose to minimize all this hard work and place the burden of finding out fees and costs on the employees themselves.