Wednesday, October 26, 2016
Our TDA Is Cost Efficient With Low Administrative Fees And That's Good News.
I have been getting calls and emails about contributing to our 403(b) (TDA) program after the New York Times published an article on the high fees charged to teachers in their 403(b) plans. According to the article far too many teachers have 403(b) plans that charge between 2% to 3% administrative fees and this does not include the underlying fees for the investment product that range from a minuscule 0.15% to over 1%. Worse, if the 403(b) is wrapped into a variable annuity, there could be a surrender fee of 6% or more, just to escape the 403(b). Even our State and National unions, NYSUT and NEA offer supplemental 403(b) plans that have high fees and back in 2006 NYSUT was actually taken to task for the high fees they charged.
Despite the nationwide horror stories about teacher 403(b) plans, the good news is that our 403(b) (TDA) plan is one of the most cost efficient 403(b) plans in the nation. Our administrative cost is only 0.15% and the underlying bond and stock funds have low cost fees as well. According to an article about New York City pensions, the underlying investment costs range from 0.08% for domestic stocks, 0.14% for bonds,.and 0.28% for international stocks. Since few teachers participate in the bond fund and the 40% of the teachers that invest in stocks funds usually invest in domestic stocks, the total TDA fee is probably close to 0.25%. By the way, there is no administrative or investment fee for the fixed income option in the TDA which consists of 60% of the total contributions .
There are some downsides to our TDA, like it does not allow for a Roth option and it takes three months to re-balance the portfolio to name just a couple. Otherwise, one of the best way to save and supplement your retirement is to contribute to your TDA as much as you can for a healthy and happy life after you leave the job market. If you have additional money to invest, think about the City's 457 plan or open up an IRA with no-load and low fee mutual funds or ETF's.