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.
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.
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.
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.
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