Wednesday, June 07, 2006

Our TDA (403b) Plan & It's Many Faults

In my decade of employment as a teacher I have been a willing participant in the New York City Teachers Retirement System and its 403b plan. Hereafter known as the Teachers Defined Annuity Plan or TDA. First, let me make this clear, I am not criticizing the pension, which is quite good but the TDA which, to be kind, is found to be inflexible, limited, and costly, relative to the New York City's 457b/401k plans. I believe it is time to enlighten the New York City teachers on why the TDA needs to be upgraded and improved.

Selection Limitations:

The TDA is limited to three selections. Fixed, Variable "A" (stocks), and Variable "B" (bonds). By contrast the city plans have five investment funds and nine life cycle funds. The city plans allow for more diversity in investment selections and allows the participant to be aggressive, cautious, or safe and increases the chances of a large payoff at the time of retirement.

Administrative Fees:

You would think that the TDA would have low administrative fees to manage such an old and large fund. However, believe it or not it cost each TDA participant $18 per $10,000 invested in administrative overhead for the Variable options. By contrast in cost $6 per $10,000 invested in the city plans. In other words the TDA charges three times more in administrative fees than the city plans!

Limited Transfer of Funds

The TDA does not allow more than 1/12 of the investors total Variable "A" to be transferred monthly. In other words to get out of Variable A (stocks), it would take one calander year to completely leave stocks. Not good when the stock market is going down. In fact this is down right criminal! To my knowledge, no other 403b plan limits such transfers as the TRS TDA does.

Fund Performance

The only true attractive fund is the Fixed Option. Over the last ten years the Fixed Option has returned an eye popping 8.25% and is never to fall below 7% which is backed by the State. A very good option for the very cautious investor.

The Variable "A" option is basically composed of common stocks and has had a mediocore return of 9% for the last 10 years. Many similar funds averaged 10-12% in the same time period. While the Variable "A" option is not bad, it's certainly not good. Of course, try taking your money out of Variable "A", it takes a year!

The real turkey is the Variable "B" option that is composed of bonds and other fixed-income instruments. Over the last ten years it has returned less than 5% while similar bond funds averaged 6-7%. The Variable "B" fund is a poor performer. In fact a lawsuit has been brought by investors on the poor performance of the Variable "B" option.

Financial Planner Joel L. Frank who writes for the civil service newspaper, The Chief, has stated that it would be best to terminate the TRS TDA and replace it with a more competitive & flexibile plan. I agree and request that the UFT demand significant changes to the TDA or opt out to a more competitive and flexible plan.

15 comments:

NYC Educator said...

Thoughtful and well-presented argument.

I have everything in variable A and have given it very little thought. I'm a little disappointed you're now making me think about it.

Chaz said...

I'm glad that this article has opened your eyes. Too bad others are keeping their eyes closed.

You would be surprised how many CL's are clueless about the TDA and they are the ones that give advice to the teachers.

Knowledgeable guy said...

Dear Chaz,

Some of your points are valid but of course there is always a tradeoff. Getting a guaranteed return of 8.25% is absolutely amazing and if the current 403B is altered it is absolutely sure to be taken away. This is one of the things that new teachers continue to have and that non teachers would love to have. In addition if tis became general knowledge there would be absolute outrage about it. If you don't like the TDA aas it is just continue contributing to the other one and you have all the choice you want. The administrative costs you seem to think are so high are still incredibly low compared to any private plan.

Chaz said...

knowledgeable guy:

Sorry to burst your bubbble but the "Fixed Option" is not attached to the other options and any changes in the TDA in the Variable options does not need or should affect the "Fixed Option".

Granted the administration fees are relatively low but why aren't they as low as the City plans?

I guess your happy with the the full year transfer provisions of Variable "A"?

My article was to bring improvements to the TDA that would make it a superior plan. Knowledeable people should be fighting for the best TDA that there is, not defending the undefendable.

Askinstoo said...

Hi, i was looking over your blog and didn't
quite find what I was looking for. I'm looking for
different ways to earn money... I did find this though...
a place where you can make some nice extra cash secret shopping. Just go to the site below
and put in your zip to see what's available in your area.
I made over $900 last month having fun!
make extra money

Askinstoo said...

Hi, i was looking over your blog and didn't
quite find what I was looking for. I'm looking for
different ways to earn money... I did find this though...
a place where you can make some nice extra cash secret shopping. Just go to the site below
and put in your zip to see what's available in your area.
I made over $900 last month having fun!
make extra money

geezhubby@flushinghigh said...

Good insights, and overall I agree.

What also irritates me is that many 403b7 plans allow longer repayment periods for the purchase of a first home. I mean the down payment option using borrowed TDA funds is a good one, but the payments are killers if you gotta repay them in 5 years with today's high downpayment requirements.

People should also know that they can contribute up to 30k and beyond in some cases (>50, catch up) if they first do 15k to the 457, then the other 15k to either the TDA or the 401k.

Also, transfers out of the TDA into another equally restrictive plan can be done. I know, I have done this already, but you would have needed to have one already, which means you must have taught somewhere else....or have been lucky enough to get into the Prudential TDA offered by NYC employees who are not appointed pedagogues, as was the case with me.

But then again, nowadays all new hires are appointed, which excludes them right away, and sadly for them, the Prudential run TDA not only gives many more options like TRowe Price funds, but also allows borrowing for 30 years for the purchase of a primary home.

Geezhubby@flushinghigh said...

Actually, you don't need to do the 457 FIRST, just concurrently. So it can be 457 + 403b7 (TDA), or 457 +401k, but not 403b7 +401k. My unmarried cheap friend is doing this, and managed to plow away 30k in one year.

Pretty impressive, even if the eventual site is the lower perfoming Variable A.

Elizabeth said...

I am a new teacher, I was wondering if I enrolled in the wrong program, I recently signed up for the 457 plan through the city and was wondering if I should have signed up for the TDA instead? any insight as to which is better?

Anonymous said...

Hi !.
You may , perhaps very interested to know how one can make real money .
There is no initial capital needed You may begin earning with as small sum of money as 20-100 dollars.

AimTrust is what you haven`t ever dreamt of such a chance to become rich
The company represents an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

Its head office is in Panama with structures everywhere: In USA, Canada, Cyprus.
Do you want to become an affluent person?
That`s your choice That`s what you wish in the long run!

I feel good, I began to get income with the help of this company,
and I invite you to do the same. If it gets down to select a proper partner who uses your money in a right way - that`s AimTrust!.
I take now up to 2G every day, and my first investment was 500 dollars only!
It`s easy to start , just click this link http://yvikytuj.s-enterprize.com/ipykexi.html
and lucky you`re! Let`s take our chance together to get rid of nastiness of the life

Anonymous said...

Good day !.
might , perhaps curious to know how one can collect a huge starting capital .
There is no need to invest much at first. You may start to get income with as small sum of money as 20-100 dollars.

AimTrust is what you thought of all the time
AimTrust represents an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

It is based in Panama with affiliates everywhere: In USA, Canada, Cyprus.
Do you want to become really rich in short time?
That`s your chance That`s what you desire!

I`m happy and lucky, I began to get real money with the help of this company,
and I invite you to do the same. If it gets down to choose a proper partner utilizes your savings in a right way - that`s the AimTrust!.
I make 2G daily, and what I started with was a funny sum of 500 bucks!
It`s easy to join , just click this link http://dunejamuwu.freewebsitehosting.com/bekodubo.html
and go! Let`s take our chance together to feel the smell of real money

Anonymous said...

Good day, sun shines!
There have were times of hardship when I felt unhappy missing knowledge about opportunities of getting high yields on investments. I was a dump and downright pessimistic person.
I have never imagined that there weren't any need in big starting capital.
Now, I'm happy and lucky , I begin to get real income.
It gets down to choose a proper partner who uses your funds in a right way - that is incorporate it in real business, and shares the income with me.

You can get interested, if there are such firms? I have to answer the truth, YES, there are. Please be informed of one of them:
http://theinvestblog.com [url=http://theinvestblog.com]Online Investment Blog[/url]

Anonymous said...

Dear Chaz.. Thank you so very, very much for posting. EYE OPENER for sure. How has Varaible A performed in your opinion since 2006?

GratefulEM

Anonymous said...

Dear Chaz.. Thank you so very, very much for posting. EYE OPENER for sure. How has Varaible A performed in your opinion since 2006?

GratefulEM

Anonymous said...

Chaz,
Who manages our TRS/TDA investments? Who is our portfolio manager? Who decides where and when to invest? Your insights are wonderful thank you for posting. I appreciate this information.