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JOEL L. FRANK PO Box 148 6 Trotter Place Marlboro, New Jersey 07746-0148 732-536-9472 This e-mail address is being protected from spambots. You need JavaScript enabled to view it OUTCH!---THOSE BASIS POINTS! February 2010 A basis point is one hundredth of one percent (0.0001). This is how the fees charged by your investment manager are expressed. The lower your basis points the more money in your account when you retire. The Federal Thrift Savings Plan charges 3 basis points or 0.0003 percent to manage the retirement savings of federal employees. This equates to a $3.00 fee for each $10,000 of account value (0.0003 X $10,000). Do you have any idea how high fees impact the growth of your investment? Example: For 40 years Bob and Rob contribute to the New Jersey State Employees Deferred Compensation Plan (NJSEDCP). Their first year salary is $30,000 with annual increases of 3 percent. 10 percent of their salary is invested in the Plan each year. They each earn 8 percent on their Plan investment. At the end of 40 years Bob's account is worth $1.1 million while Rob's account is worth $700,000. Why? Bob invested his money with the 4 State-managed funds at a cost of 8 basis points or $8.00 per $10,000 while Rob invested his money with Prudential Financial at a cost of 220 basis points or $220.00 per $10,000. For the first 25 years of its existence, the New Jersey Deferred Compensation Board got it all right by offering only de minimis cost investment funds. This all changed about 4 years ago when Prudential Financial, with its commissioned-based investment product menu, replaced the New Jersey Division of Pensions and Benefits as Plan Administrator. Increasing the number of investment funds in this manner works to the severe detriment of plan participants because the Prudential Sales Representatives are compensated by selling the 23 Prudential Financial funds, not the 4 State-managed ones. There is no longer a level playing field as there was during the first 25 years of the Plan’s operation. It is shocking that at a time when the fees paid by the employee/investor are under intense scrutiny the Deferred Compensation Board would add commissioned based products to the de minimis cost investment line-up which served the Plan’s participants so well for so long. Why? In my view the Deferred Compensation Board, by adding high cost investment alternatives, has breached its fiduciary responsibilities to Plan participants. If the Board’s objective was to offer more than the 4 State-managed investment funds all of the 23 additional choices could have been of the de minimis cost variety. No? =============================================================== Recommendation 1.: The New Jersey State Employees Deferred Compensation Plan, the Alternate Benefit Program and the Defined Contribution Retirement Program should offer only de minimis cost investment funds. See the Deferred Compensation Plans administered by the State and City of New York. Recommendation 2.: Eligibility to participate in the New Jersey State Employees Deferred Compensation Plan should be expanded to include county and local government employees including school districts. Just like there is a single State-administered Defined Benefit retirement system for all of the State’s public employees there should be a single State-administered Deferred Compensation 457(b) Plan. It is utter non-sense for 21 counties and nearly 600 local governments and their school districts to administer their own 457(b) plan. Recommendation 3.: The 403(b) Supplemental Annuity Collective Trust (SACT) must offer a 21st century investment line-up. Just like there is a single State-administered Defined Benefit retirement system for all of the State’s public school employees there should be a single 403(b) Plan. It is utter non-sense for nearly 600 local school districts to administer their own 403(b) plan. The 403(b) SACT began in 1963 with just one investment choice, a common stock fund. After nearly 50 years of operation it still offers just one investment, the same common stock fund. This is clearly a breach of fiduciary responsibility on behalf of the SACT Trustees. Notwithstanding the fact that it comes at de minimis cost to the employee/investor, the lack of a diversified investment menu makes the SACT a Plan to stay clear of. Is it any wonder why the 403(b) school district market in New Jersey has been so enormously profitable for the commissioned based mutual fund/variable annuity industry? Note: Public school employees are allowed to contribute to a 457(b) plan and a 403(b) plan.