Current Pension Topics
Transfer Deadline Coming Fast

By JOEL L. FRANK

ALERT: Revenue Ruling 90-24 will expire Sept. 24. After that you will no longer be able to transfer your current, high-priced and inferior 403(b) investment to a no-load and low-cost mutual fund of your own choosing. If the receiving investment provider receives your written instructions by next Monday, you are safe.

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

Under the newly-issued Final 403(b) Regulations, should you do such a transfer with your current 403(b) after Sept. 24 but before Jan. 1, 2009, your employer and new investment provider must enter into a written agreement before Jan 1, 2009 agreeing to share information about your account. This agreement is voluntary. If this written agreement is not in place before Jan. 1, 2009 and you have satisfied a distributable event, the distribution will be taxable, assuming you have not rolled it over to an eligible plan (another 403(b), 457(b), 401(k) or IRA). If you have not satisfied a distributable event, then the distribution will be considered a taxable conversion to a non-qualified section 403(c) annuity contract. So please, play it safe and use Revenue Ruling 90-24 before it expires on Sept. 24.

Assume you have one of the high-cost 403(b) investment accounts based on prior employment. Insofar as you have terminated employment with that former employer, you have until Jan. 1, 2009 to roll over (not transfer) that account to an eligible retirement plan (another 403(b), 457(b), 401(k) or IRA). I recommend the Deferred Compensation Plan for rollover of these 403(b) accounts. If you do not effectuate such a rollover before Jan. 1. 2009 the account will be deemed a taxable conversion to a non-qualified section 403(c) annuity contract. Don't put this off. Do it now.

Q.: I am a city Teacher with about eight to 10 years to go before I retire. I have $400,000 in my voluntary/supplemental TRS 403(b) Investment Plan account. About $100,000 is in the Fixed Annuity Fund, earning 8.25 percent. The balance of $300,000 is in the Variable Annuity common stock fund. Except for the 8.25-percent interest rate guarantee, it is quite evident that the Citywide Deferred Comp plan is, by far, the superior plan, especially when one considers the fact that it takes 12 months to move your money from the Variable Annuity common stock fund to the Fixed Annuity Fund and vice versa. What are your recommendations?

A.S.

A.: I would stop my contributions to my TRS 403(b) Investment Plan account and start contributing as much as I can to the Deferred Compensation 457(b) Plan of the City of New York. If I could afford to contribute more than the per-plan maximum of $15,500 for 2007, I would contribute as much as possible to the Deferred Compensation 401(k) Plan. I would use the appropriate Target Date or Pre-Arranged Portfolio for the investment of these contributions.

Having said that, I would not touch the $100,000 balance you have in the Fixed Annuity Fund of the TRS 403(b) Investment Plan. As you say, the 8.25-percent rate is just too good to pass up. On the other hand, the greater-than-normal investment market risk heaped upon you by that cruel and irrational 12-month transfer rule has to get you out of the TRS 403(b) Investment Plan with all of the $300,000 that is in the Variable Annuity common stock fund. Until the TRS Trustees get rid of this hurtful rule, no one should invest in the Variable Annuity common stock fund. If you have not attained age 59-1/2, I would effectuate a Revenue Ruling 90-24 Capital Transfer (not a rollover) of the $300,000 to The Vanguard Group and invest the entire sum in the appropriate Target Date fund, taking into consideration that $100,000, or 25 percent of your nest egg, remains with the TRS 403(b) Investment Plan, earning a guaranteed 8.25 percent. If you have attained age 59-1/2, I would effectuate a direct rollover contribution (not a transfer) of the $300,000 to the Deferred Compensation Plan of the City of New York and invest it all in the appropriate Pre-Arranged Portfolio.

Of note: The Deferred Compensation Board of the City of New York is at it again. It has just added a Roth feature to its New York City Employee IRA Plan. More on this next week.