Click here to return to the main UFT web site

March 2007

Investment Choices for Tier I/II Members in QPP and All Tiers in TDA

April is the time for members of Tiers I and II — generally those who were regularly appointed before July 27, 1976 — to make changes in how they wish to invest the money in their Annuity Savings Fund (ASF), Increased-Take-Home-Pay (ITHP) fund, and in the Qualified Pension Plan (QPP).

Tax-deferred annuity (TDA) participants may change their investment elections quarterly. The next time for them to request a change is the month of May. Those changes will take effect July 1.

If you are not sure of how you have invested your funds, consult your latest Quarterly Account Statement (QAS).

Your decision on how to invest your money should reflect your financial goals (retirement is a long-term event) and risk tolerance. Even if you invest 100 percent of your QPP in a variable program only part of your retirement allowance will fluctuate. The largest portion of your retirement money, the city-funded pension, is a guaranteed benefit based on a percentage of your final average salary and your years of service. This portion of your retirement allowance is not affected by how you choose to invest your contributions.

There are currently three investment choices:

The Fixed Fund, currently pays an 8.25 percent crediting rate for in-service members. The state Legislature may raise this amount or lower it, but it cannot be lowered below 7 percent. Because this is the only investment choice with a guaranteed rate, it is the best one for investors who wish to take no investment risks. The 8.25 percent is guaranteed until June 2009.

Variable A is a broadly diversified stock program. Its primary goal is growth and its secondary goal is preserving capital.

Stock market investments, historically, have been the most volatile choices we have had. For the first time in history the Variable A program had losses three years in a row during 2000, 2001 and 2002. While it is not easy to see the value of our accounts go down, it must be noted that those of us who had been contributing to the fund purchased our shares at a lower — perhaps bargain — price. If history were to repeat itself, we said during those down years, then stock investments should certainly go up again. And in 2003, 2004, 2005 and 2006 they did just that. In 2003 the Variable A fund increased by 29.86 percent, in 2004 it increased by 13.13 percent, in 2005 it increased by 7.64 percent and in 2006 by 16.17 percent. We have recovered all of our losses. See the chart below to learn how Variable A and our other choices have done over longer periods of time.

If you decide to leave money in Variable A when you retire, your retirement allowance will rise if the stock market goes up and fall if the stock market goes down. In the past, the stock market has always recovered from any downturns, but there is no guarantee that future performance will repeat history.

Variable A is probably right for you if your primary investment goal is long-term growth and you understand the risks of such an investment.

Variable B invests in such instruments as guaranteed investment contracts with insurance companies and money market instruments. Variable B aims for positive current returns and security of principal. In 2006 it earned 3.93 percent.

Unlike the fixed investment choice, there is no guarantee in the Variable B program. Variable B is probably the right choice for you if you want to get current interest rates and are willing to tolerate a slight degree of risk, given that there is no built-in guarantee in this conservative investment choice. Because of the current low interest rate environment in the country, Variable B, while meeting its objective of providing current interest rates, is not currently earning as much as the fixed fund.

Or pick all three. You may divide your investments among all three of the funds — fixed, Variable A or Variable B — in 5 percent installments.

If you decide to change your investment selections, you must file the appropriate form with TRS by June 1 for the TDA (changes will commence July 1) and by May 1 (changes will commence July 1) for the QPP.

The following chart allows you to compare the investment results of TRS choices with one another and with the performance of other investment indicators. Several time periods are shown, all ending on Dec. 31, 2006. For periods longer than one year, the figures indicate average annual returns. Past performance is not a guarantee of future results.

Percent Gain or Loss
  1 Year 5 Years 10 Years
Variable A Annuity 16.17 8.22 8.67
Russell 3000 15.72 7.17 8.64
Standard & Poor’s 500 15.79 6.19 8.42
Morningstar All Equity
Funds Average		 15.27 9.44 8.77
 
Variable B Annuity 3.93 3.76 4.80
90-Day Treasury Bills 4.85 2.43 3.80
2-Year Treasury Notes 3.77 2.94 4.52
Fixed Dollar Annuity 8.25 8.25 8.25
Periods ending December 31, 2006