Apr 10, 2008 11:54 AM
The following changes in the TRS investment program are of great importance to retirees so I have asked our three teacher trustees to the Teachers’ Retirement System to explain the changes.
— Chapter Leader Tom Pappas
Annualized investment performance for existing portfolios | ||||
| | One Year | 5 Years | 10 Years | 20 Years |
| Variable A | 5.55 % | 14.16 % | 10.24 % | 10.26 % |
| Variable B | 4.35 % | 3.79 % | 4.61 % | 5.94 % |
| Fixed | 8.25 % | 8.25 % | 8.25 % | 8.25 % |
In the first major change in the program since 1983, the TRS has added three new investment choices and enhanced your flexibility.
All of the investment funds in the enhanced program will have new names. The three existing funds will be renamed, but for a period of time the old names of the existing funds will be bracketed after the new name. Together, existing funds and new funds will be called collectively the TRS Passport Funds.
Now, retirees of Tiers I/II will be able move their ASF and ITHP accounts, and all retirees with annuitized TDA accounts will be able to move their money more rapidly by making investment changes quarterly instead of only once a year. All changes will be effective beginning July 1. Retirees with deferred TDA accounts will continue to be able to make quarterly changes in their investments.
The existing funds have been renamed as follows:
The Fixed Return Fund — formerly the Fixed Dollar Account — offers a guaranteed rate of return set by the New York State Legislature. The current 81/4 percent rate is guaranteed through June 30, 2009, when the rate will be reviewed. Under the current Constitutional guarantee, the rate cannot be lower than 7 percent.
The Diversified Equity Fund — formerly the Variable A fund — will continue to be a broadly diversified stock program invested mostly in domestic stocks with a 15 percent allocation to international stocks in developed countries, and a protective segment to dampen volatility.
The Stable-Value Fund — formerly The Variable Annuity B fund — invests in fixed income securities with low volatility such as GICs, short-term bonds and cash. The fund goal is preservation of capital while returning current interest rates.
The three new funds are:
The Socially Responsive Fund invests in U.S. stocks but attempts to avoid companies receiving a significant portion of revenue from alcohol, tobacco, nuclear power, firearms, poor labor relations and harming the environment.
The International Equity Fund invests in non-U.S. companies listed on a variety of stock exchanges in developed countries of the world. It does not invest in the stocks of companies in emerging markets. The fund’s objectives are to provide long-term capital growth and to achieve a rate of return comparable to that of the non-U.S. developed stock market over a full market cycle. The fund will be invested in the same manner as the international component of the Diversified Equity Fund (Variable A).
The Inflation Protection Fund invests in funds that may include (but are not limited to) commodities, real estate securities and inflation-linked bonds to provide a positive real rate of return that exceeds inflation over a full market cycle. This fund was added to protect our retirement savings against inflation which has stealthily eroded the living standards of retirees. This investment is designed to combat inflation over time.
While there is merit to the goals of all three of these new funds, there is no guarantee that those goals will be reached and past performance is no guarantee of future returns.
So the question for retirees is whether to make any investment changes or to sit tight with your present choices. Before you decide, think about the following:
Making investment changes should be done for sound financial reasons and not to try to guess the direction of the financial markets.
The chart above shows the deferred TDA returns for retirees.
Retirees in Tiers I and II and those receiving a second check because they have annuitized their TDA should make the changes in their choice of investments by May 1 — 60 days before the quarter begins. Retirees who have deferred renewal of their lump-sum TDA account may make the changes in their investments by June 1 — 30 days before the quarter begins.
This TRS enhancement of the investment program is a permanent change, a permanent improvement, so you do not need to act precipitously. Take your time. If you do not act now, remember you will have another chance to make changes in three months, six months, nine months or a year.
The TRS has begun sending kits informing retirees of the changes in the program. The kit includes brochures describing the plan, a cover letter and forms. If you do not receive the mailings, the TRS may not have an up-to-date address for you. Contact TRS right away with your correct address.
If you need some help understanding the changes or if you have questions about the new plan, you can reach a UFT pension consultant at 1-212-598-9536. TRS staff may be reached at 1-888-8NYCTRS.