Current Pension Topics
HHC's Piece of Rocky Plan

By JOEL L. FRANK

The Health and Hospitals Corporation (HHC) just doesn't get it or just doesn't care about the future financial well-being of its employees.

For more than a generation, HHC has offered a high-priced Tax Deferred Annuity (TDA) program. At the expense of its employees/investors, the HHC has decided to make Prudential and its cohorts richer.

The TDA is authorized under Section 403(b) of the Internal Revenue Code and is strictly a salary-reduction plan (no employer contributions) similar to the Deferred Compensation 457(b) and 401(k) Plans of the City of New York (DCP). While the DCP is keenly aware of the fact that the employee/investor pays 100 percent of the costs associated with maintaining the plans and all reduction in costs translates into larger participant account balances, the HHC would have a hard time proving to me that it has the same commitment to those employees who invest in the HHC TDA Plan.

After more than a year of "studying" its TDA Plan, HHC has decided to remove seven investments from its lineup and add six. It offers no "life cycle" or "prearranged" (Target Date) funds. It leaves it up to the employee/investor to design, on his or her own, an appropriate asset allocation program when all studies have shown that the individual does not adequately diversify his/her holdings over the basic asset classes of stocks, bonds and cash. It has 22 investment options on its menu, which is simply too many, because the individual is overwhelmed by the number of choices. Of the 22, 15 have expense ratios in excess of 0.6 of 1 percent. Of the 15, 11 have expense ratios in excess of 0.9 of 1 percent and of the 11, 7 have expense ratios in excess of 1 percent.

While it is true that Prudential has added a fourth on-site "Education Consultant" to "educate" the employee/investor on asset allocation, such "consultants" will naturally steer the investor towards the funds that have the higher expense ratios, because it is these higher-priced funds that pay commissions. Please note that a difference of one percent in fees works out to an extra $1,200 a month in retirement for a 30-year-old with $50,000 in his or her account and contributions of $250 per month. Can this $1,200 per month change your quality of life in retirement? You tell me.

The HHC could have used the super-successful DCP as a model plan. But it chose instead to continue with its high-cost plan. Shame on the HHC! The employees, however, remain in the catbird seat. They should simply eliminate entirely the HHC TDA Program from their financial lives. As soon as possible all account balances should be transferred tax-free under Revenue Ruling 90-24 to a no-load (no commission) investment provider like The Vanguard Group. Invest your entire balance in the appropriate Target Date fund offered by The Vanguard Group or any other no-load family of funds.

If you are retiring/severing employment or older than 59-1/2, I would advise you to roll over your TDA accumulation to the New York City Employee Individual Retirement Account (NYCE IRA) administered by the DCP. Similarly, invest your entire balance in the appropriate Target Date fund offered by the NYCE IRA. Now that you have removed all monies from the jaws of the shark, all future contributions should be made to the Deferred Compensation 457(b) Plan of the City of New York.

For 2007, the maximum contribution for those 49 or younger is $15,500, and $20,500 for those 50 or older. If you are financially able to contribute more than these maximum amounts to your 457(b) account, contribute all you can to the Deferred Compensation 401(k) Plan of the City of New York. No one should invest in the HHC TDA Plan.

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net.