Investment Re-balancing – Part One

As I hopefully get closer to being able to retire, I began taking a deeper look at where and how my retirement funds are invested.

I have been with the same employer for 43 years and over that time period, the company has used different vendors to administer the 403B plan (a 403B is the non-profit version of a 401K).  The oldest portion of my accounts was invested in a fixed annuity account with Plan Sponsor One. Plan Sponsor Two’s contributions were divided between several mutual funds (Large Cap, Mid Cap, Bond and International) and a fixed income account.  Plan Sponsor Three is the current company that 403B funds are being managed by and are currently invested in several mutual funds (5oo Index, Growth, Mid Cap, and International).  Because all of the funds were not in one location, I started getting messages from Sponsors Two and Three that my portfolio needed to be adjusted or re-balanced based on being too aggressively invested for my age approaching retirement.

Some background on my investments – when my company first offered the 403B plan, they were generous enough to bring in a financial planner who offered in-house classes (and a textbook) on personal finance (budgeting, insurance) and investing basics including portfolio diversification.  There were three takeaways that really had an an impact on me.   The first was to pay yourself first – set aside a portion of your paycheck (start out with splitting an amount like $25-50 preferably off the direct deposit) into a savings  account so you don’t get used to seeing the money and won’t miss it. The second was take advantage of “free” money.  If your company will match a certain portion of your contributions to its retirement plan – make sure you contribute the funds to get the match.  My company matches 50% on the first 6% of salary deposited into the 403B.  The third was the time value of money.  The “Rule of 72” gives a rough estimate of the number of years to double an investment by dividing 72 by the expected annual rate of return.  An example is that money invested with an annual return of 8% would be expected to double in approximately 9 years.  Using a blend of the pay yourself first and the time/value of money – assuming an annual interest rate or investment return of 5% and an amount of $25 deposited every 2 weeks, the following amounts can be calculated (table does not factor in taxes which may not apply in a tax sheltered account):

The current plan sponsor offers a lot of online tools just as many of the retirement account sponsors do.  I don’t know if the following is offered to all clients or because my employer is part of a large system, but the opportunity to meet face to face with an advisor to analyze investments and make a plan is offered.  It took most of the allotted hour just to enter the information from my personal investments, my retirement accounts, and my husband’s retirement accounts.  I have a couple of Traditional IRA accounts and my husband has a small Roth IRA account as well as a 401K account.  I have over the years adapted the philosophy of diversifying and “not putting all of your eggs in one basket”, hence not consolidating the multiple accounts.

Beginning in January of this year, I printed out statements for my 403B providers and called each plan sponsor to confirm the steps I needed to take to consolidate all of the accounts under the current plan sponsor.  I learned that since all three of the accounts were technically the same plan holder, the transfers would be considered a contract exchange instead of a rollover.  I completed the Transfer/Rollover Exchange Form to initiate the process with the current plan sponsor for a trustee to trustee contract exchange.  Plan sponsor Two indicated that I would need to complete an Asset Consolidation/Tranfers of Assets form in addition to receiving the Letter of Acceptance trustee form from current sponsor.   Sponsor Three would need to confirm the ERISA status of the current plan and would facilitate the trustee to trustee transfer once they received the Letter of Acceptance trustee form.  The Trustee letters were sent out to Sponsors One and Two mid-February and the proceeds from Sponsor One were transferred at the beginning of March.

Unfortunately things have not gone smoothly with the transfer from Sponsor Two.  Once they received the Trustee Transfer Authorization, I was contacted mid-February to complete a Distribution Request Form to upload.  When I followed up at the beginning of March, I was informed that they had to contact my employer to get my termination date for the rollover transfer.  When I explained to the customer service rep that this was not an IRA rollover, it was a 403B contract exchange for a trustee to trustee transfer and that information was highlighted on the form and that I am still employed by my company, I was told that the paperwork would be reviewed again and that I would be contacted is anything else was needed.  At the end of March, I followed up again to see why the funds had not been transferred and was informed that the contract exchange had been approved by my employer but that I would have to resubmit the Distribution Request Form with my husband’s notarized signature also to authorize the transfer even though I was not taking possession of the proceeds.  If and when the proceeds from Sponsor Two are transferred, I will post an update on the next steps I take to re-balance the retirement portfolio.