Current Pension Topics
City Comp Plan Wise Choice

By JOEL L. FRANK

Now that tax season is over, you may want to sit down and review your savings goals for the balance of 2007. The City of New York, through its Deferred Compensation Board, has designed a retirement savings program for its employees and former employees, along with their spouses, that is the best in the nation. Are you taking full advantage of all of the offerings? You may contribute pre-tax dollars to a 457(b) account and at the same time contribute to a 401(k) account. These two offerings alone would make the Deferred Compensation Plan (DCP) simply superb. The plan, however, also offers you an after-tax Roth 401(k) account and a pre-tax IRA. The plan will shortly offer an after-tax Roth IRA. For the vast majority of city workers and former city workers, along with their respective spouses, there is no reason at all to use an outside (profit-making) investment management firm to manage your money. Their costs are much too high. Please check out the DCP at: http://www.nyc.gov/html/olr/html/deferred/dcphome.shtml .

The following is re-produced from the plan's Web site. Please direct your questions to the plan on-line or by phone, or to me at: rollover@optonline.net or 732-536-9472. You have been greatly empowered. Invest all you can in the DCP. I strongly encourage you to ask your questions.

The Deferred Compensation Plan/NYCE IRA offers three different strategies for investing your money: (1) investing in one of the Pre-Arranged Portfolios, (2) creating your own portfolio using a combination of the core investment funds, and (3) investing through the Self-Directed Brokerage Option available through TD Ameritrade.

It is recommended that participants choose to invest in either one of the pre-arranged portfolios or create their own portfolio from the core investment funds offered. Selection of investment options depends on many factors and should be considered carefully. It is advisable that participants consult an independent professional financial planner and/or investment advisor before making investment decisions.

(1) Pre-Arranged Portfolios

On May 18, 2007, the plan will be adjusting the investment allocations of the Pre-Arranged Portfolios.

Because we are living longer, we will need our savings to last longer. To accommodate these longer payout periods, and in keeping with industry best practices, the plan will be making changes to the structure of the Pre-Arranged Portfolios. Effective May 18, 2007, the equity allocation portion of each portfolio will be increased so that the portfolio can roll down over a longer period of time, all the way until age 85.

On May 18, 2007, the plan is:

- Rebalancing the portfolios by raising the equity allocations of each of the current portfolios;

- Changing the name of the "Target Fund" to the "2005 Fund;"

- Adding three additional portfolios below the Required Minimum Distribution (RMD) line; and

- Allowing the portfolios to roll down until age 85.

What Do You Need to Do?

Review that you have chosen your portfolio using your age or when you want your payout to begin as a guide.

Compare your current portfolio to the new equity exposure of that portfolio after May 18, 2007.

Decide whether to remain in the same portfolio or switch to a different portfolio.

If you wish to switch to a different portfolio, you can accomplish your transfer and/or allocation change by accessing your account online or through the telephone by calling KeyTalk at (212) 306-7760. You will need your PIN in order to access your account. If you do not remember your PIN, you can request a reminder PIN through the Web site or KeyTalk. The PIN will be mailed to you via regular mail.

The Pre-Arranged Portfolios have the following advantages:

Portfolio Diversification - The pre-arranged portfolios are made up of varying percentages of the plan's core investment options and are appropriately diversified for the time horizon specified. Studies show that most participants' portfolios are significantly under diversified. These funds offer the simplicity of a single investment vehicle with the benefit of exposure to different asset classes and efficient allocations.

Risk Management - The pre-arranged portfolios are designed to meet certain expected rate of return requirements over time horizons, and balance the rate of return needs with the appropriate amount of risk.

Portfolio Rebalancing - The pre-arranged portfolios are automatically rebalanced to their target allocations quarterly.

How do the Pre-Arranged Portfolios work?

On a quarterly basis, the asset allocation of each pre-arranged portfolio will be adjusted, shifting to a slightly more conservative mix. This increases the likelihood that your account will last longer so that it can serve you throughout your retirement years.

When a portfolio reaches its horizon, it will roll into the Static Allocation Fund, where it will remain for the duration of your payout.

View the Portfolio Fact Sheet (PDF) for information about the investment allocation of each portfolio and their expenses.

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 .