Current Pension Topics: Why No Balanced Fund on Bigger TRS Menu?
By JOEL FRANK
A new Retirement Estimator from Social Security produces estimates that are based on your actual Social Security earnings record. Of course, retirement estimates will vary slightly from the actual benefit you may receive in the future because your Social Security earnings record is constantly being updated; calculators use different parameters and assumptions; and your actual future benefit will be adjusted for inflation. You can use the Retirement Estimator if you are not currently receiving benefits on your own Social Security record; you have enough Social Security credits to qualify for benefits; and you are not eligible for a pension based on work not covered by Social Security. There is also a useful chart for retirement benefits by year of birth, which lists age 62 reduction amounts and includes examples based on an estimated monthly benefit of $1,000 at full retirement age. Check it out at http://www. socialsecurity.gov/estimator.

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

Q.: I am shocked and very disappointed, now that the Teachers' Retirement System has doubled its investment choices from three to six, that not one of them is a balanced fund. As you know, a balanced fund is a mainstay of the investment world. Do you have any thoughts on this?

F.G.

A.: I sure do! You are so right that a balanced fund is a mainstay of the investment world. An excellent example of a balanced fund is the fixed annuity portfolio of the TRS. About 65-70 percent of this portfolio is invested in equities with 30-35 percent in fixed-income securities. In order to assure that TRS will meet its monthly pension payroll, the city must contribute hundreds of millions of dollars annually to this balanced-investment fund.

Having said that, the TRS Variable Annuity Program began in 1968 with just two investment choices: A Fixed Return Fund and a Common Stock Fund (Variable A Annuity). In 1982, TRS/UFT trustees lobbied Albany for the establishment of a third investment choice. This investment option was given the name Variable B Annuity. The legislative directive to the TRS/UFT trustees was to invest Variable B Annuity contributions in fixed income and equities. The clear legislative objective was to offer three distinctly different investment options, reflecting the various personal investment objectives/goals of the active and retired membership of the TRS: The Fixed Return Fund (100-percent no-risk), the Variable A Annuity Fund (100-percent stock-market risk) and the Variable B Annuity Fund (moderate stock- and bond-market risk).

As you know, this legislative objective has never been achieved. In clear defiance of its directive over the past quarter century, the trustees have managed the Variable B Annuity fund as a "stable-value" portfolio. In order to reflect this fact, the trustees recently changed the name of the fund from Variable Annuity B to "Stable-Value Fund". This official name change makes crystal clear that the TRS/UFT trustees have, for the past 25 years, purposefully ignored their legislative directive to invest the assets of Variable Annuity B in fixed income and equities.

Having said all this, of the six funds, two guarantee a stated rate of interest plus guarantee against loss of principal: The Fixed Return Fund has guaranteed 8.25-percent interest over the last 10 years, while the Stable-Value Fund has guaranteed 4.56 percent. If you're looking for a guaranteed return of interest and principal, which one would you pick? Are you sure? Would you like some more time to think it over? Can someone please tell us the necessity for having two guaranteed interest funds on the investment menu? Maybe one, or more, of the seven TRS/UFT trustees can help us out. What say you, Randi Weingarten?

The 1982 legislative directive to the trustees, to invest in fixed income and equities, has not changed one iota. Therefore, before we can assert that the "new" Stable-Value Fund is operating pursuant to law, the 1982 legislative directive must be changed. Why hasn't it been? Could it be that the TRS/UFT trustees do not want to shine a spotlight on the obvious: For 25 years, in clear violation of the law, the trustees invested Variable B Annuity contributions in a stable value portfolio when the law specifically directed them to invest in a balanced portfolio of fixed income and equities.

OF NOTE: The Class Action lawsuit: Arnold H. Nager, individually and on behalf of all others similarly situated, -against- Trustees of Teachers' Retirement System of the City of New York, alleging the trustees violated their 1982 legislative directive will soon be decided by the state Court of Appeals. A decision could be handed down at any time. You can keep abreast of this vital decision by logging onto: http://www.courts.state.ny,ab.us/ctapps/. Click: Latest Court Decisions.