Oct 19, 2006 12:06 PM
A recent article in the Boston Globe pointed out why great literature is great literature. We all read Charles Dickens’ novel “David Copperfield” but it took columnist Scott Burns to show a side of the novel you probably never thought of. The character Wilkens Micawber described how to retire happily:
“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result, misery.”
Translated from Dickensian English to modern English: Contribute to a tax-deferred annuity so that you save some of your income before you can spend it. We have not said it as elegantly as Charles Dickens, but we have urged members to participate in the TDA program, and the vast majority has done so. UFT members do not wind up in the poor house.
Hopefully, you will start contributing to the TDA or are already doing so. Now you have to decide how to invest your contributions:
The TDA has three investment choices available. They are the Fixed Annuity Program, the Variable Annuity A Program and the Variable Annuity B Program. These programs have different characteristics and you should review them to see how you wish to have your TDA invested.
You may make your future contributions in increments of 5 percent into one, two, or all three investments. You may invest your accumulated account balance in one, two, or all three investments. These choices are independent of one another and can be changed quarterly. Investment choice changes for the calendar quarter beginning Jan. 1 must be made by Dec. 1. You may make the changes on the TRS’ Web site, www.trs.nyc.ny.us, if you have full access, or by filing a “TDA Investment Election Change Form” (TD45).
Fixed Annuity — This program offers contributors a guaranteed crediting rate of 8.25 percent per annum. The contributions are commingled with the money in the pension fund, which is the fund used to pay members’ pensions. These funds are diversified using stocks, bonds, real estate and alternative investments.
The 8.25 percent is guaranteed until June 30, 2009. At that time, the state Legislature will decide whether to keep the same rate, raise it or lower it. The rate cannot be reduced to less than 7 percent because of New York State’s constitutional provision which prohibits pension benefits from being diminished or impaired.
For members who want to eliminate volatility in their investment returns, the Fixed Annuity, which guarantees the principal and pays a statutory rate of return, is an excellent investment.
Variable A — In this program, contributors participate in a fund composed mainly of common stocks. The fund is very widely diversified, investing in large, medium and small domestic companies as well as in companies in the developed countries of the world. The main goal of this fund is growth of capital over the long term while attempting to control short-term volatility. It is the most volatile of the three choices available. There is no guaranteed rate of return. The rate of return is dependent on the performance of the segments of the stock market in which the fund is invested.
Variable B — In this program, contributors participate in a fund that invests in stable, fixed-income investments aimed at generating income at current interest rates, such as Guaranteed Investment Contracts (GICs) and related instruments. A primary goal for variable B is the preservation of capital. These investment vehicles are generally more conservative and less volatile than stocks and bonds. As you know, interest rates are rather low at this time and if interest rates continue to remain low, Variable B will not earn as great a return as the Fixed Annuity.
While each member should make investment decisions based on his or her individual circumstances and tolerance for risk, it may be of interest to see a snapshot of how members invested their funds in the TDA as of June 30. A total of $13.1 billion was invested in the program. Of that amount, 57.1 percent ($7.5 billion) was invested in Variable A, 40.9 percent ($5.4 billion) in the Fixed Annuity and 2 percent ($260 million) in Variable B.
No one can predict the future, so we cannot offer any specific advice. Investment experts tell us that a well-diversified portfolio of stocks and fixed-income investments is an appropriate method for members to invest their retirement funds.
For more information on the TDA, review the article in the Oct. 5 issue of the New York Teacher, read PensioNews, check the TDA section on the Teachers’ Retirement System Web site, or call your UFT borough office or TRS.New appointees pension deductions
The required pension deductions for all newly hired employees of the Department of Education have been initiated. This mandatory deduction of 3 percent of salary, which should be indicated on pay stubs, will be forwarded to the TRS and will continue until the employee has completed 10 years of credited service or membership in the system.
A TRS welcome kit is slated to be sent to each new member by the end of November. This kit will contain forms and a Summary Plan Description of the Pension Plan.
When you receive the kit, file the required forms as quickly as possible. These forms include an enrollment application, a form to apply for credit for any work previously done as a public employee in New York State and a Designation of Beneficiary Form for the Qualified Pension Plan (QPP) and one for the TDA. TRS must receive these forms to set up your pension accounts.
For members who wish to save more money for retirement than is permissible in the TDA program, or for members who wish to have more investment choices than the three available in the TDA program, the City of New York makes available another tax-favored retirement savings program under Section 457 of the Internal Revenue Code. For information on the City of New York’s deferred compensation plan, call 1-212-306-7760 or log on to www.nyc.gov/defferedcomp.
Many members have asked the UFT for recommendations of a qualified financial planning service. The UFT, through its state affiliate, NYSUT, has arranged to make available to members a professional financial counseling service through Ernst & Young, a large financial service firm. Financial counseling is provided on a fee-for-service basis. The firm does not sell financial products.
The Financial Counseling Program includes
For information on this UFT benefit, call NYSUT Member Benefits at 1-800-626-8101.TRS tidbits
Are you receiving all of your important TRS reports in a timely fashion? Some members aren’t because they forgot to report to TRS that they moved. This is a good time to notify TRS of any recent address change.
You may use “Member’s Change of Address Form” (DM13). This form must be notarized. Or you may update your permanent address by accessing the “Change of Address” feature in the “My TRS Account” section of the TRS’ Web site, www.trs.nyc.ny.us. To use this feature of the Web site you must establish full access to the site.
You should have received, or will soon receive, your Annual Benefit Statement for the period ending June 30. The ABS was sent to your home address — if the TRS has your current home address (see above). The statement summarizes your Total Service Credit and account balances. It also reports on your eligibility for benefits and lists your designated beneficiaries. For certain members who are eligible to retire, the ABS includes benefit estimates and projections.
The ABS also provides information about your TDA contribution rate, such as your 2006 rate, your maximum rate for 2007 and your rate under automatic re-enrollment. Use this information to plan your 2007 TDA participation. If you believe any of the information in the ABS is incorrect contact TRS immediately.
“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.