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2015 April 29

UC messes with 403B plans

Filed under: Uncategorized — gasstationwithoutpumps @ 21:21
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This week I got a letter from the University of California Retirement Savings Program saying

If you take no action: After 1 p.m., Pacific Time, on Thursday, July 2, 2015, your existing balances in any affected funds, and any future contributions currently set to be directed to any of the affected funds, will be directed to the UC Pathway Fund 2015.

What they are saying is that unless I stop them, they will take all the money that I carefully allocated in my 403B fund and dump into an untested new fund that they are creating.  The alternatives provided are to transfer the money to other UC funds, or to start paying Fidelity for a BrokerageLink account.

Why?  Well, they claim

UC is streamlining the fund menu to help RSP participants make better investment choices by reducing overlap between options and simplifying the fund-selection process. For those participants who desire more choice, the BrokerageLink® option will still be available.

Also the smaller menu allows for more efficient monitoring so that we can continue to offer high-quality funds in a range of asset classes, with expenses that are generally lower than many similar publicly traded investment options.

Quite frankly, I don’t believe them.  Not that many people are currently using the wide range of options that are available, and those of us who are chose to do so despite hassles in setting up the accounts this way.  Only those who already believed that they could make better choices than the UC managers are affected by the changes.  So it isn’t to help us make better choices—it is to take choices away from us.  So why?

  • One possibility is that the current deal they have with Fidelity to manage funds and provide access to many non-Fidelity funds was not being lucrative enough for Fidelity, and Fidelity wanted to start charging brokerage fees. That is plausible (though not very), but if this were just a matter of charging fees, then the University would have informed people with the accounts that were affected that Fidelity was about to start charging fees, but people could avoid those fees by transferring the money to UC-managed funds, rather than sweeping up the money if they weren’t stopped.  In fact, BrokerageLink® isn’t going to charge fees for Fidelity funds (beyond the management fees built into the funds), so this isn’t a bid by Fidelity to get more fees (though it is possible for them to collect rather large fees if people choose funds unwisely and it may cost me more to keep the Calvert accounts if I do it through BrokerageLink®).
  • Another possibility is that the University wanted to terminate the Fidelity deal and keep as much money in UC funds as possible.  But Fidelity is still in the loop so they aren’t terminating a Fidelity deal (though perhaps the terms have changed—neither UCOP nor Fidelity talks about the details of the arrangements they make with each other).
  • What seems most likely is that UC has recently hired a new manager for the retirement program, and randomly changing policies with no thought to the consequences is what new managers do. Sort of like dogs pissing on fire hydrants—it isn’t for the benefit of the hydrant.

Because of the botched way that they implemented this reduction in investment options (from hundreds of plans to 15 UC-managed plans) with this stop-us-if-you-can fund snatch, I’ve lost all faith in the UC Office of the Chief Investment Officer of the Regents (the official title they claim in the letter).  I no longer believe that they are investing retirement funds on my behalf, but are only interested in playing games with my money.

I suppose I should call up Fidelity Retirement Services and find out how much it would cost me (in time and in fees) to “do nothing”—that is, to set up a BrokerageLink® account with my funds in exactly the same allocation as currently and with future 403(b) contributions allocated exactly as now.  That is what UC should have done as their default option, not sweeping all funds not on their short list into one of the UC Pathway funds.

Luckily, I’m over 59.5 years old, so I can roll all my 403(b) money into traditional IRAs, and that is currently what I plan to do—not only with the plans that they are trying to shut me out of, but all the 403(b) money, including that in UC-managed funds. But I don’t know what I can do about the “defined contribution” plan (401(a))—I believe that can also be rolled over into a traditional IRA.

Switching to an IRA means that I’ll have to find some mutual funds that I trust to move the money to.  I’ll be looking for socially responsible investment funds (two of the funds they are shutting out are Calvert funds that I’d chosen years ago for socially responsible investing), for a more general stock fund (I have some money in Fidelity Magellan), and for corporate bonds (taking my money out UC bonds, because of my lack of trust in UC’s new fund manager). For socially responsible investing, I’ll probably start by looking at, which provides statistics from Bloomberg on various socially responsible funds—then digging a bit into what the funds claim their principles are.

I don’t really have time to deal with all this hassle this quarter—I’m sure they counted on most faculty and staff not having time to think about the investment and just follow the manager’s default choice.  I wish they had made the “change nothing” choice the default, even if it meant that some of us would have been charged some fees.


  1. I would have been very upset at an option that started charging me fees by default, so I’m guessing individuals mileage will vary on their opinions about these kinds of changes. I think having enough time to make the transition would be the best option for me.

    I’m also generally disposed to believe that fewer options are better for most investors. You allude to a group of individuals who believe that they’ve invested their funds more appropriately, not those who actually have, by some quantifiable metric, though the addition of “socially responsible” funds would make the metric difficult to define. But I do think the trend towards money management is to believe that employees will be better off, financially, on average, in the long run, if their choices are limited, preventing them from making less optimal investment decisions.

    I would be wary of something called the UC Pathways Fund, though, especially if it is actually managed by the UC’s. I’ve decided I don’t trust non-independent entities in money management (i.e. workplaces, of which Enron was the most well known disaster). Especially in government entities, these funds sometimes get locked down during government-created emergencies (like government shut downs, not raising enough revenue, . . . )

    Comment by bj — 2015 April 30 @ 09:27 | Reply

  2. I have my money on your option #3: A new manager looking to mark his territory.

    Comment by CCPhysicist — 2015 April 30 @ 21:14 | Reply

  3. I appreciate your addressing this issue. I was baffled and annoyed by the recent announcement of the “menu change,” and really concerned for UC retirees older and more addled than me (I’m 59 1/2) having to cope with this latest change. I remember when UC fired the woman who was doing a fine job managing our 403 b’s in favor of handing them over to Fidelity and asking us to select from a “menu” of dozens and dozens of Fidelity funds. Not having the time or expertise to make such a high-stakes selection, I was outraged then. Thank God I found someone I trusted to help me figure it out, but, again, I worried about those retirees who didn’t have such a person. I am hard of hearing and live outside California now, so it’s very difficult for me to talk on the phone about high-stakes financial issues. I don’t want a conservative UC Pathways fund at my time of life. I need more aggressive investment, and my soon-to-be eliminated funds were doing great. So this morning I called the number on my “personalized fund statement” and talked to a nice grown-up who helped me with the transfers to the (more costly) retail versions of my Fidelity funds. What I object most to is the constant changes for no apparent reason and the unconvincing explanations for those changes. I agree that new administrations within UC seem to need to make a big show of immediate impact in order to earn their humongous salaries. The new guy seems smart, but the case he makes for change isn’t strong enough to justify the hassle and possible harm to all of us old duffers. Hope he sticks around a while and isn’t working on his resume for his next job already.

    Comment by J. Sheldon — 2015 June 22 @ 08:26 | Reply

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