Current Pension Topics
City Plans Top TRS's, HHC's

By JOEL L. FRANK

"Secure Your Future" is a column written by the three Teacher-Trustees of the Teachers' Retirement System of the City of New York. The column is a regular feature of the New York Teacher, the house organ of the United Federation of Teachers. In the Oct. 23, 2006 issue of "Secure Your Future" the Teacher-Trustees address UFT members as follows:

"For members who wish to save more money for retirement than is permissible in the TDA program, or for members who wish to have more investment choices than the three available in the TDA program, the City of New York makes available another tax-favored retirement savings program under Section 457 of the Internal Revenue Code. For information on the City of New York's deferred compensation plan, call 1-212-306-7760 or log on to www.nyc.gov/deferredcomp."

The Trustees fail to disclose that pre-age 59-1/2 withdrawals (including hardship withdrawals) from the TDA are subject to a 10-percent penalty tax, while the tax does not apply at all to 457(b) plans. For most experts, this makes the 457(b) plan the plan of choice, especially when the vastly superior investment line-up (including Pre-Arranged Portfolios) of the 457(b) plan is taken into consideration. Moreover, the Trustees fail to disclose that, in addition to the 457(b) plan, the Deferred Compensation Board also administers a 401(k) plan (an innocent oversight?). So, if one contributes the annual maximum to the 457(b) Plan and desires to save more money for retirement, he/she needs to decide which is the superior second plan; the TRS TDA program or the city's 401(k) plan. In my view, the superior investment line-up (including the Pre-Arranged Portfolios) makes the 401(k) plan superior to the TRS TDA program. As I see it, of the three plans, the TRS TDA Program is clearly the inferior plan and should be avoided.

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Over the last couple of weeks I have received numerous calls from participants in the Health and Hospitals Corporation's TDA Program (HHC TDA). These callers want to know what they should do with their TDA balance once they have stopped making contributions to the HHC TDA Program. Here are my suggestions: If you are younger than 59-1/2 and still working for the city, I advise you to use Revenue Ruling 90-24, which authorizes you to transfer (not roll over) your HHC TDA balance to another Section 403(b) investment. For this purpose I recommend the Vanguard Group of mutual funds. Contact Vanguard at 800-662-CREW and tell the representative you want to effectuate a Revenue Ruling 90-24 Transfer to the Vanguard Group. Tell the rep you want the transferred funds to be invested by Vanguard in their appropriate Target Date fund. The Vanguard representative will guide you accordingly.

If you are older than 59-1/2 or separated from service, I advise you to roll over (not transfer) your TDA balance to the New York City Employee IRA (NYCE IRA). Call them at 212-306-7313 and tell the representative that you are older than 59-1/2 (or separated from service) and want to roll over your HHC TDA balance to the NYCE IRA. The representative will guide you accordingly.

The rollover funds should be invested in the appropriate Pre-Arranged Portfolio offered by the NYCE IRA. Regardless of age, all future payroll contributions should be made to the Deferred Compensation 457(b) Plan and invested in the appropriate Pre-Arranged Portfolio.

The maximum 457(b) contribution for 2007 is $15,500 if younger than age 50, and $20,500 if older than age 50. If you wish to save more than these maximums, contribute to the city's 401(k) plan where the same maximums apply. No one should contribute or have any money with the HHC TDA Program.

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 .