I’ve received information on the upcoming changes to the State of Missouri Deferred Compensation plan and it makes me nervous. Why is this change a good thing?
The purpose of the new plan design is to provide a more customer-focused deferred compensation plan with high quality, well diversified, cost conscious investment products that will work to the advantage of state employees and encourage them to save for their retirement years. These changes are causing some participants to worry and question why these changes are being made. It is important to understand these changes were developed by investment professionals after considerable research, including feedback from participants just like you.
So, how will these changes benefit participants? The new plan design:
- Has lower fees
- Is much simpler to understand
- Provides real choices.
Many participants don’t understand and some don’t even know there are expenses associated with their deferred compensation account. The target date funds available under the new plan design reflect fees at a fraction of the cost associated with the funds in the present lineup. Expenses erode the return of your portfolio as reflected in the following chart.
The present fund lineup offers 31 funds. In that lineup there are 11 different large cap funds. How would you choose which one to use? The target date funds under the new plan design eliminate that confusion. These funds cover all the bases so you don’t have to attempt to put together a diversified portfolio from a long list of fund options that actually don’t offer much in the way of diversification potential. The funds making up the target date arrangements come from State Street Global Advisors, Vanguard, and Barclay’s Global Investors, all reputable organizations.
Maybe you are a hands-on investor wanting the flexibility of choosing your own funds? If so, you don’t have to use the default target date auto-pilot approach. Instead you can work through the self-directed brokerage (SDB) window. The SDB gives you access to most individual stocks and bonds, and over 9,000 mutual funds. The SDB under the new plan design
- Has no annual fee (presently $50)
- Stock trade charges will decrease from $24.95 to $14.95
There are a number of resources available to participants to address their questions about these changes. First, you may want to review the
New Plan Brochure. It offers an overview of the changes with a brief explanation. If you are interested in learning more regarding why these changes were developed, the Message to Plan Participants is the place to go. For specific responses to frequently asked questions, check out this FAQ.A number of Plan Transition Meetings have been scheduled across the state for those wanting in person contact with a plan representative about these changes. Check out the Plan Transition Meeting Schedule and make plans to attend a meeting in your area. Of course you can always access information about the present and new plan by contacting a Participant Service Representative at 1-800-392-0925, Monday –Friday, 7:00 a.m. to 7 p.m. Central Time.
