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Current Pension Topics: N.J. Solves Half Its Problem Current Pension Topics N.J. Solves Half Its Problem By JOEL
L. FRANK
Stock market investing even by large pooled investment funds like the SACT can hardly be referred to as "conservative." The SACT lost 64.2 percent of its value during the three-year period ending on Dec. 31, 2004. Having said that, New Jersey might have been the first state in the nation to offer its Teachers an Internal Revenue Code (IRC) section 403(b) salary-reduction investment program when in 1963 it established the SACT. From the start, the two major defects of the trust have been a contribution limit of 10 percent of salary and but one option to invest in - an all common stock fund. Even though all investment/operating expenses of the trust are paid for by the state, most educational employees have used commercial carriers for their 403(b) investing, notwithstanding the fact that such carriers charge them 2 percent or more in plan operating expenses. And this is how it remained until Jan. 4, 2006, when the 10 percent of salary contribution limit was repealed in favor of using the maximum amount allowed by the IRC. Well, as the saying goes, better late than never. SACT participants for the first time in 42 years now have the opportunity to contribute more than 10 percent of their salary. For 2006 the limitation is $15,000, or $20,000 if you are 50 or older. The SACT, however, will never become number one in New Jersey in the eyes of its Teachers until its second defect is eliminated. The trustees of SACT should put a call in over the river to the trustees of the Deferred Compensation Plans of the City of New York to see how a great supplemental retirement savings program operates. The hard-working public employees of New Jersey deserve nothing less. * * * Q.: I am a great believer in investing for the long term in a broad-based common-stock fund. I am a Teacher and thus can contribute to both the Teachers' Retirement System Tax-Deferred Annuity (403(b)) Plan and the city's 457(b) and/or 401(k) plans. Which plan should I use for my stated objective? P.H. A.: All three plans offer a common stock fund that mirrors the broad-based equities market. The city's 457(b)/401(k) plans offer the "Equities Index Fund," while the TRS TDA (403(b)) Plan offers the "Variable Annuity A" fund. Insofar as they are the same type of fund, I would invest in the one with the lowest expense ratio. The TRS charges 0.18 per cent ($18 per $10,000 invested) for its Variable Annuity A fund, while the city's 457(b)/401(k) plans charge 0.06 per cent ($6 per $10,000 invested) for its Equities Index Fund. Additionally, the TRS TDA plan does not allow you to switch your Variable Annuity A fund balance to their Fixed fund more rapidly than 1/12 of the account balance per month, so that it takes an entire year to complete the transfer. With the city's 457(b)/401(k) plans, you can switch your entire balance in the Equities Index Fund to the Stable Income Fund in a lump sum. This can be executed on the telephone or on the plans' Web site. Additionally, the 457(b)/401(k) plans offer five more investment funds and nine Time-Based Pre-Arranged Portfolios (Life Cycle Funds). The TRS, on the other hand, offers but two viable investment funds. * * * Q.: I am a retired city Police Captain. My son recently retired on a line-of-duty disability. He was told that his children may attend SUNY-CUNY for free. Is this true? J.O. A.: I don't know. I suggest that you write to the admissions office at these two institutions and ask them. Please let me know what they say. Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, by fax at (732) 536-7373, or via e-mail at rollover@optonline.net. |
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