Current Pension Topics
More Teacher Annuity Options

By JOEL L. FRANK

The Teachers' Retirement Board (TRB) of the City of New York met on June 21 and announced the establishment of the following three additional Variable Annuity Program funds beginning on or after July 1, 2008: an international equity fund investing in a composite of passive and/or active international equity strategies; a socially responsive fund; and a fund investing in diversified, multi-asset class strategies designed to focus on long-term real or inflation-adjusted returns.

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

These three new investment options represent only the second expansion of the investment platform since the TRB established the Variable Annuity Program back in 1968. Currently there are three investment choices: Fixed Interest (8.25 percent), Variable Annuity A (common stock fund), and Variable Annuity B (stable value fund). The Variable Annuity Program is available to members of Tiers 1 and 2 of the TRS Qualified Pension Plan. Additionally, all members may contribute to the same Variable Annuity Program under a voluntary salary reduction agreement authorized under Section 403(b) of the Internal Revenue Code (Teachers' Retirement System Tax-Deferred Annuity Program).

As tens of thousands of you are aware, the Preamble of the New York State Statute establishing the Variable Annuity B fund directed the TRB to invest Variable Annuity B assets in "fixed income and equity securities." Since its inception on July 1, 1983, the TRB has purposefully ignored their statutory directive by managing the Variable Annuity B fund as a "stable value" fund. In 1997, Nager vs. TRB was filed in New York State Supreme Court. The complaint alleges gross mismanagement and fraud in the management of the Variable Annuity B fund. The question for the court to answer is: Does the wide discretionary authority granted to fiduciaries allow the TRB to ignore its specific legislative directive to invest Variable Annuity B contributions in "fixed income and equity securities"? We will soon find out. Why the new expansive investment menu? Could it be that the TRS TDA participation rates have plummeted in light of contributors recognizing just how hurtful the Variable Annuity Program is? If not for Mayor Bloomberg, the TRS TDA Program would be the only game in town for city Teachers who want to save for their retirement on a pre-tax basis. Thanks to the Mayor, Teachers have come to learn first-hand just how superior the city's Deferred Compensation 457(b)/401(k) Plan (DCP) is. In my view, the newly announced expansion of the investment menu is a futile attempt to get Teachers to return to the TRS TDA fold. It will not work, and the hemorrhaging will continue.

Regardless of the court's decision, we all know that Variable Annuity B should not be managed as a Stable Value fund because the Fixed-Interest fund has performed that task ever since the TRS began in 1917. Simply stated, over the last 24 years, the Teacher has had two stable value/fixed interest funds to invest in, one generating more interest than the other. Simply ridiculous! Moreover, why would anyone invest in a Variable Annuity under a rule that says you can only move your money from one investment fund to another over a term of a year in 12 monthly installments? This stupid rule guarantees massive losses during periods of time when common stock prices fall in value, which we all know tends to happen from time to time.

Of note: during the 38-month period ended on Feb. 28, 2003, the Variable Annuity A fund lost nearly 50 percent of its value. I implore you not to invest in the TRS TDA Program. I recommend its dissolution, not its expansion.

In its place, contribute all you can to one (just one) of the Pre-Arranged Portfolios managed by the Deferred Compensation 457(b)/401(k) Plans of the City of New York (DCP). If you can afford to do so, contribute to both plans. If you are still working and past age 59-1/2, roll over your entire TRS TDA balance to the special 401(k) Rollover Account managed by the DCP.

Upon retirement, I advise you to roll over your entire TRS TDA balance to the Special 401(k) Rollover Account managed by the DCP. Upon retirement, roll over any "excess" funds and final loan distribution to the Special 401(k) Rollover Account managed by the DCP. While employed and/or retired, establish a New York City Employee Individual Retirement Account (NYCE IRA) with the DCP. If you qualify to make tax-deferred contributions to it for 2007, please do so immediately; otherwise roll over all of your other IRAs to it, so you will benefit from the ease of having one consolidated IRA. Spouses of city employees are also invited to open up a NYCE IRA, even if the city employee does not.

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The following q. and a. comes from the New York City Employees' Retirement System Web site.

Question: Who decides how my pension is distributed when I retire?

Answer: You do! When you prepare for retirement, you need to answer several questions:

- Do you want to provide continuing retirement income to your spouse, partner or survivor(s) after your death?

- What is the cost of continuing this income?

- What is the effect on your retirement allowance? If you choose, you can provide for continuing income to your designated beneficiary by selecting an option. By selecting an option, you accept a reduced lifetime retirement allowance in exchange for the payment of a benefit to your designated beneficiary upon your death. For more information, please refer to the Options brochure for your tier.

Question: Do I have to elect an option?

Answer: No. You can also choose to receive the Maximum Retirement Allowance. The Maximum Retirement Allowance provides the greatest benefit payment to you while you are retired, for as long as you live. However, under the Maximum Retirement Allowance, no further payments will be made after your death. For more information, please refer to the Options brochure for your tier.

Question: How can I get an estimate of my benefits under various options?

Answer: If you are a registered member of our Web site, you can use the Retirement Calculator to estimate how the various options might affect your retirement benefit. If you enter the age of a beneficiary, the Retirement Calculator will provide you with an estimate of your retirement benefit under the following options: Maximum Allowance, 100 percent Joint and Survivor, and 50 percent Joint and Survivor. For more information, please refer to the Options brochure for your tier.