Secure Your Future
What should members be doing with their retirement savings?
Sep 25, 2008 5:12 PM
A day does not go by without some grim new economic news. The cost of oil and food is escalating. General inflation as represented by the consumer price index (CPI) is reaching 5 percent, much higher than the 3.5 percent average for the past five years, and 2.94 percent for the past 10 years. The number of jobs in America is decreasing, unemployment is growing and for those working, salary increases have not been able to keep up with inflation. The federal government had to take over Freddie Mac and Fannie Mae and take control of American International Group (AIG). Markets continue to be turbulent.
Despite this, our Pension Fund remains secure. All of the affected securities make up a small percentage of the portfolio. Our portfolio is a broadly diversified portfolio of thousands of domestic and international stocks, publicly traded Real Estate Investment Trusts (REITS), fixed income securities (which include Enhanced Yield and Treasury Inflation Protection Securities (TIPS), private equity and private real estate, as well as cash. This broadly diversified portfolio is managed by highly regarded institutional investment firms and is regularly monitored by consultants. Pension benefits are protected by the constitution of the State of New York.
With this in mind, what should members be doing with their retirement savings?
Most experts tell us that since you cannot predict the future by even one second, you should not attempt to time the securities markets by making short-term changes in your investments. They tell us that over the long term, people who have guaranteed defined benefit pension plans can take greater risks with their supplemental investments, like our TDA program, than those who had no such plan. Those who are younger should also, over time, be rewarded for taking advantage of riskier investments.
Members of TRS have six investment choices available to them in the TDA program, as described below. All of these investments are also in the hands of highly regarded institutional investment companies and are carefully monitored by TRS consultants. These funds may be subject to the volatility of the securities market.
Passport Funds
The TRS has recently added to the investment choices available to Tier I and II members (ASF and ITHP accounts) as well as all participants in the TDA.
Each investment choice offered provides members with a broadly diversified portfolio designed to meet the stated objective of the fund. Let us take a look at the six funds available to TRS members and what their objectives are. BERS members can only invest in the fixed fund and Variable A.
Fixed Return Fund (Fixed Account) — The most consistent of the funds. It offers a guaranteed rate of return set by the New York State Legislature. The current 8.25 percent annual rate is guaranteed through June 30, 2009, and is further guaranteed to never fall below 7 percent after that date.
Diversified Equity Fund (Variable A) — Invests primarily in U.S. equities (stocks). It also invests in equities of companies that are domiciled in the developed countries of the world, as well as in other investments that are defensive in nature. The objective of this fund is to achieve a rate of return comparable to the return of the broad equity market.
Stable-Value Fund (Variable B) — Invests in guaranteed investment contracts (GICs), non-volatile fixed-income securities and other stable-fixed income investment vehicles. The objectives of this fund are to preserve principal and to provide a steady rate of return. This fund has earned about 4 percent per year for the past several years.
International Equity Fund — Primarily invests in companies traded on the stock exchanges of developed countries of the world. The objectives of this fund are to provide long-term capital growth and to achieve a rate of return comparable to the return of the non-U.S. developed equity market over the long term.
Inflation Protected Fund — Invests in mutual funds and/or directly in assets that may include commodities, real estate securities, inflation-linked bonds, and other assets that are expected to earn more than inflation. The objective of this fund is to provide, over the long term, a positive real rate of return that exceeds inflation.
Socially Responsive Equity Fund — Primarily invests in mutual funds and/or directly in U.S. equities. The fund attempts to avoid companies that receive a significant portion of their revenue from alcohol, tobacco, gambling, nuclear power or weapons. The objectives of this fund are to achieve positive long-term capital growth and to earn a rate of return comparable to the return of the broader equity market while reflecting social priorities.
Every member has his/her own “thermostat of volatility” and will pick his/her own investments from the choices available. Rest assured that each of the choices are invested in appropriate broadly diversified portfolios using experienced institutional investment managers and consultants. Performance is measured monthly and eliminates the day-to-day volatility that sometimes is so scary. There may be negative performance from time to time in some of these funds and all but the Fixed Fund have a variable monthly return.
The health of the global economy is paramount to the security of your retirement. The economy is also one of the most important issues in the upcoming presidential election.
Fund Transfers
You may make investment election changes on a quarterly basis. Changes take effect in April, July, October or January. You may convert your current investments over three, six, nine or 12 months.
Most experts advise that you set up an investment program in line with your long-term goals and that once you set up an asset allocation, you do not make changes except if your goals change or your asset allocation becomes unbalanced because of investment market activity. They then recommend rebalancing once a year to bring your allocation back in line with your goals. This rebalancing means you take your winnings off the table and invest them in assets which you want to own which have become relatively better values.
The Alliance for Retired Americans (ARA) — the labor movement’s retiree advocate organization — recently reported that while fewer Americans under age 55 are facing bankruptcy, filing rates for older workers and retirees are skyrocketing. Can this be because defined benefit pension plans and health insurance for retirees are disappearing while people cannot save enough during their lifetimes to provide sufficient retirement income and health care coverage?
Our members are not part of this sad story because the UFT protects our defined benefit pensions and our health insurance.
Do you have an up-to-date designation of beneficiaries form on file? Next issue we will go into detail as to why you should.
“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877), www.trs.nyc.ny.us.
