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Guest Joel L Frank

Bleeding In New Jersey

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Guest Joel L Frank

JOEL L. FRANK

Pension Columnist, The Chief-Civil Service Leader
277 Broadway, Suite 1506
New York, NY 10007

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PO Box 148
Marlboro, NJ 07746
732-536-9472
_________________________________________________________________________


August, 2012

403(b) RETIREMENT HEIST IN NEW JERSEY


Do you have any idea how the costs associated with investing impacts the growth of your TSA/403(b) investment account? Consider the examples of Teachers A and B.

Assumptions: First year salary of $30,000 with annual increases of 3 percent. 10 percent of salary is invested each year. The investments are made for 40 years and earn 8 percent a year.

Teacher A invests with the State-administered TSA/403(b) Plan labeled the Supplemental Annuity Collective Trust (SACT). http://www.state.nj.us/treasury/pensions/sact.shtml After 40 years the account is worth $1.1 million.

Teacher B invests with one of the high commission-based investment providers found on the website of the Department of Community Affairs--Division of Local Government Services at: http://www.state.nj.us/dca/lgs/defcomp/dc_approved_providers.pdf.
After 40 years the account is worth $700,000.

Why the massive difference in accumulations? With the SACT, Teacher A's account is credited with the entire 8 percent return because the State pays all costs associated with maintaining the account. Teacher B, on the other hand, invested with one of the TSA sharks that charge about 2.2 percent a year. The 8 percent return, therefore, is reduced to 5.8 percent. The difference after 40 years of investing is $400,000.

Since its inception in 1963 the SACT has offered just one investment option, a common stock fund. It’s hard to comprehend how such glaring negligence can continue, unchecked, for almost half a century. Such flagrant breach of fiduciary responsibility on the part of the SACT Trustees is the only reason why each of the 590 school districts have farmed out their own, high pressured, commission-based TSA plan to insurance companies and mutual funds.

Having said that, if it is sound public policy for all teachers to belong to a single, State-administered, Defined Benefit Pension Plan labeled the Teachers' Pension and Annuity Fund, why do we have 590 school districts farming out their own high pressured, commission-based TSA/403(b) plan to insurance companies and mutual funds when there is a State-administered TSA/403(b) Plan? For nearly 50 years the SACT, with its solitary investment option, has been the commission based TSA/403(b) sales shark’s most cherished and reliable ally.

While it’s utter nonsense for each of the 590 school districts to sponsor their own TSA plan, until the SACT Trustees adopt a diversified investment lineup teachers will continue to avoid the SACT. Unfortunately, they will also continue to be severely mauled by the high pressured, commission-based TSA/403(b) investment companies that have been, since 1963, sanctioned by their employing school districts. 590 high pressured, commission-based TSA plans when a cost-free State-administered TSA Plan has been available for nearly half a century. A colossal breach of fiduciary duty.

The SACT must offer more than a solitary common stock fund. See: Deferred Compensation Plan of the City of New York at: http://www.nyc.gov/html/olr/html/deferred/dcphome.shtml

For nearly 50 years New Jersey has been the national poster-child for the sale of
high pressured, commission-based investment funds to its public school teachers.

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Guest Joel L Frank

I get the impression that SACT is available in all NJ school districts even the ones that don't officially list it. Anyone know if this is true?

 

 

Finally, after more than a month and more than 140 views we get the first comment.

 

FROM THE NJ DIVISION OF PENSIONS AND BENEFITS WEBSITE: "Eligibility for the SACT-Tax-Sheltered Plan requires membership in a State-administered retirement system. In addition, you must be employed by a public educational institution."

 

By law the SACT must be offered by the public educational institution; i.e. public school districts and the public institutions of higher education.

 

The entire public education community in the state has about $12 billion in 403(b)investment holdings, spread among various carriers.

The SACT has about one percent of this total---about $120 million! WHAT A COLOSSAL BREACH OF FIDUCIARY RESPONSIBILITY ON THE PART OF THE STATE OF NEW JERSEY.

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I had read this awhile ago when you posted it. I was under the impression that SACT would be offering better choices as of last July like TIAA-CREFF which I believe you said. But, at that time, I started on the powers that be at my school to give us Vanguard which finally succeeded last year.

 

Assuming you are right about the state being the culprit, not having any power personally and a union that is on the ropes for their survival, I don't see too much hope in getting compensated. The attorney fees would be huge if someone sues.

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Guest Joel L Frank

Yes, the tax-deferred SACT will be improving its investment menu for all the k-12 school districts in the state. When that happens your district will be offering Vanguard and the ACTS carriers, one of which is T/C.

 

Having said that, your District is a template for what happens when a no-load offering like Vanguard is johnny-come-lately to the investment menu. The sharks have been entrenched for decades and people are set in their ways even if their ways include a continuation of shooting themselves in the foot every pay day for 30+ years and into retirement for many more years. If I were a member of your school board I would advocate for just a no-load investment menu. There has never been legal action taken against a 403(b) plan sponsor (employer) for not offering commission based investments. This is why we all find this issue so frustrating!

 

Joel

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Guest Joel L Frank

The problem is not local but statewide. The situation in your district is common to all the 600 school districts in the state of New Jersey. Your situation is somewhat better inasmuch as you can elect The Vanguard Group. Once the pre-tax SACT is transitioned into the ACTS program every school district will be afforded the ACTS menu which, as you know, includes T/C. At that point I see no reason why T/C does not assume the lion's share of the k-12 403(b) market, recognizing that T/C is the major 403(b) carrier at the NJ public institutions of higher education and has been for nearly 50 years.

 

That being said, we must now direct our energy to clean out the 457(b) shark from the 600 school districts. The 457(b) is more egregious than the 403(b), if that is possible.

 

Only state employees can participate in the statewide 457(b). This Plan is run by a shark called Prudential. An RFP will be issued shortly. If a no-load firm is chosen we must lobby Governor Christie to change the particpation rules to allow NJ local governments, including school districts, to opt in.

 

You may want to contact the NJEA and see if they would like to step up to the plate and demand the obvious---a no-load 457(b) for every type of public employee in the State of New Jersey. New York and Connecticut has used the no-load model for years.

 

Joel

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Regarding Greenwich3-Congratulations on getting Vanguard in your district. A group of us tried to get Vanguard into our district but we were s down by the board of education lawyer. He recommended that the board not use Vanguard. I am continuing to invest in a Roth IRA through Vanguard. I was hoping that TIAA CREF would be available by now to public school teachers.

 

Interesting point I want to add-this is according to my sister in law who works in Pennsylvania- PSEA lobbied to get Vanguard back into their school districts by working out an agreement with a 3rd party administrator that works for many Pennsylvania school districts. Our third party administrator in my NJ district? One of the insurance companies-they are working for "free" while overseeing the 403 (b) plans.

 

I wish NJEA would do more to advocate for us!

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While trying to get vanguard, I was told over and over that because vanguard was self directed and does not send an "advisor" to our school, they were afraid they would be sued by an employee who would sue because they lost money in their account and the board would be responsible for using a company that didn't supply someone to advise us. I kept reminding them that the advisor is just a salesman who wants commissions and the employees would profit by not paying them. I have to assume someone on the BOE understands why this was good thing and gave it to us as it doesn't cost them anything.

 

I have a lot of issues with NJEA on all this. They do not help teachers understand finances such as buying back years that are available when a teacher takes time off for let's say a pregnancy leave. They find out years later and it costs them thousands. Finances should be a high priority for them, but teachers also have an obligation to help themselves and not waste 30 years as I did.

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Greenwich3-In our district, the lawyer and the board of ed had a problem with Vanguard because Vanguard would not sign an agreement with the district that stated Vanguard would be responsible for any mistakes made by payroll and would agree to pay any fines or penalties if the district made a mistake.

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Guest Joel L Frank

May I suggest that an individual member of the NJEA distribute: "403(b) Retirement Heist in New Jersey" at the next monthly meeting of the NJEA Delegate Assembly.

 

It appears to me that this is a logical first step to take in lighting a fire in the Executive Offices of the NJEA.

 

How many free copies should I send to you at my expense?

 

Joel

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