403b and 457 With Same Annuity Company?

Annegriet

Do you think it is a bad idea to have a 403b and a 457 with the same annuity company. It's one of the big ones. Brighthouse--used to be Metlife. Just wondering. Do you worry about the big companies going belly-up? Thanks!

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Elmer J Fudd

The investments are with underlying mutual funds, I presume? The company you mention is the administrator/trustee of the accounts, not the recipient of the investments.


If the administrator were Jack the Ripper, if the law is complied with, who it is has no personal access to the assets and the money is secure.

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Annegriet

Thanks Elmer. Does the "eggs in one basket" thing apply more to diversity of funds than the company itself? Also, what if the money is in a "guaranteed" fund that is like a glorified savings account? Is it equally protected? I really appreciate your answers.

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maifleur03

I have never worried about the company only about how the money was invested as in what types of mutual funds or other investments. Companies can and should use well established mutual funds from several companies. The one that I inherited from my husband uses 16 different funds from 9 different companies.

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Elmer J Fudd

Investment diversity is sometimes misunderstood.

It's mostly for protection of principal. Normally stocks and bonds move in opposite directions - one type goes up when the other goes down and vice versa. Small cap stocks are more volatile (go up more in up markets, go down more in down markets) than larger cap stocks. There are also differences between foreign and domestic market, and equity markets and things like REITs (think of them as real estate funds).

The benefit of diversity - a little bit here, a little bit there - is that the pieces of the portfolio are less likely to all go down at the same time. Also less likely to all go up at the same time. Mixing cold water with hot water to avoid getting burned by just hot water.

Most plan sponsors offer funds of different types so that a sprinkling of the account among the offerings achieves a measure of protection. But risk and reward also move in different directions. If you put all your assets into fixed return type accounts, the principal will be there but the investment return will be minimal and the inflation protection zilch.

Like other things, everything in moderation. Including moderation.

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Annegriet

Thanks Elmer and Maifleur. I have another brokerage account with money that is invested in stocks and bonds. I do a Roth IRA. So you think it's okay to have all your work money in Brighthouse as long as the funds are diversified between stocks and bonds, etc. Sorry to be so dense. I have a zoom phone with a financial planner on the calendar. However, I am reading/asking questions in preparation.

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maifleur03

Since Brighthouse was formed to sell annuities and life insurance products and other divisions of MetLife sell investment products the company should be well backed.

Annuities have never interested me but the question I would ask is what company backs the annuities if it is not MetLife. Some companies sell annuities for several companies but I do not know about this one. To simplify annuities you are basically purchasing a life insurance product that quarantines to pay you an amount and it is not a mutual fund. That amount may be a set figure that never increases to ones that can increase in amount but generally at a set percentage and time. There are many variations on that same theme. You should be looking at annuities to see if any of them fit. The company probably has the information of various products on line so you can see what is available along with ones that you know you do not want.

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jakkom

Companies set up subsidiaries to limit their liability. One should not assume Met or any other corporate entity will be responsible for any subsidiary's debt.

One thing to be aware of is that insurers (and banks) generally charge very high fees to manage investments - far higher than brokerages like Vanguard, Fidelity, or Schwab would do.

"Caveat emptor" is a very real issue in the financial services industry.

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Elmer J Fudd

"Companies set up subsidiaries to limit their liability. One should not assume Met or any other corporate entity will be responsible for any subsidiary's debt."

Not strictly correct, jakkom. Separate companies under a corporate parent are set up for many different reasons, especially in the financial services industry. Sometimes it's for federal and or state tax reasons. Sometimes it's for regulatory reasons - an example would be, an insurance company can't offer checking and savings accounts but a bank subsidiary can. Or vice versa. Or, an insurance company might want a captive reinsurance subsidiary and may do so abroad (or domestically) but may be required to use an entity that does only that. A broker-dealer can't manage mutual funds but a fund management subsidiary can. Or in other industries for other diverse reasons. Et cetera.

True bankruptcies are not common in this sector and many kinds of accounts are insured (not all) but yes, a sub's bankruptcy in any industry may not be covered by a parent unless the parent is a co-borrower. Which often is the case.

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chisue

Elmer -- What's the whole story behind banks closing branches? Can't make money on the float? Interest rates too low? Expecting more scrutiny from the new administration? Or just...nobody in the lobby during the pandemic?

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Elmer J Fudd

Very interesting, chisue. I didn't know this was happening. I did a Google search and found articles, many in the industry magazine American Banker, saying that branch closings have been a trend of the recent many years because of acquisitions/mergers (which give the possibility to close redundant locations) and a significant decrease in foot traffic as customers increasingly switch to remote/online banking.


In my case, I pay no attention to bank branches because I've been a very satisfied user of banks with no branches at all for a long time, certainly over 15 years. Notably USAA, a terrific bank. It has relationships with the system that puts ATMs in drug stores and grocery stores and permits use of any bank's ATM. And reimburses up to $15 a month in ATM fees when such are charged. Between that, bank and website initiated payments and checks, and depositing the few checks I get in the mail using my smartphone, I'm set. I know my kids never go into bank branches either, there's really no need. So I think these use patterns are the major reason. Same is true with savings accounts, I have a few also with branchless banks (notably American Express Savings Bank, which historically has paid higher interest rates than brick and mortar banks). It's simple to transfer money between banks online, even easier than doing so in person.


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