7% guaranteed TDA for NYC teachers

[BJC]

This was pretty exciting when I just found that my wife's job offers a 7% guaranteed TDA. Seems to good to be true,  but it is...
 So I...

• moved all her retirement money to fixed@7%
• maxed out future contributions at 37% of her salary

[tennisray]

It is a great deal.  I used to work there back in 2000.  It was 8.25%!  Everyone thought i was an idiot for putting my TDA $ in a fixed acct when they were making >20% in the market.  But guaranteed 8.25 (or 7%) was too good to pass up. I left in 2003, and they only allow you to keep it in their accounts for 5 years pass employment.  So, I had to roll it over.  Good idea you had to max it out!

[arebelspy]

Nice!  In today's environment, 7% guaranteed is amazing!

Wonder how sustainable it'll be (in regards to pension promises and such).

[JCfire]

Nice!  In today's environment, 7% guaranteed is amazing!

Wonder how sustainable it'll be (in regards to pension promises and such).

A TDA is an annuity.  Based on that fact, I would assume that the annuity was sold by an insurance company to the NY teachers' organisation.  The insurance company is on the hook for the 7% return guarantee, and in exchange they were given capital to invest (to try to earn a >7% investment return) plus some fee for writing the guarantee.  At the time that they write the guarantee, the insurance company builds an investment portfolio of assets and derivatives that they believe minimizes the risk of shortfall. 

Presumably the insurance company wrote the contract at a time when 7% return seemed reasonable to them.  Now it certainly seems quite high, so you'd hope (for their sake only) that the insurance company has made some big profit on the investments and hedges they made.  Of course, they are legally obligated to pay the 7% regardless, for the duration of the contract they agreed to.

When the contract expires, the NY teachers' org will need to buy a new annuity (or other "stable value" product) from an insurance company.  In current market conditions this would most assuredly be at a <7% rate.

[fiscalphile]

It is a great deal.  I used to work there back in 2000.  It was 8.25%!  Everyone thought i was an idiot for putting my TDA $ in a fixed acct when they were making >20% in the market.  But guaranteed 8.25 (or 7%) was too good to pass up. I left in 2003, and they only allow you to keep it in their accounts for 5 years pass employment.  So, I had to roll it over.  Good idea you had to max it out!

Hey tennisray,

Do you remember the process for rolling over the TDA? I'm also NYC DOE teacher and I'm wondering how that's going to work when I quit in my early 30s.  Thanks in advance!

[BJC]

The nice part is that it is guaranteed by the City of new York.  Things could always go wrong, but NYC is relatively stable.

[tennisray]

It is a great deal.  I used to work there back in 2000.  It was 8.25%!  Everyone thought i was an idiot for putting my TDA $ in a fixed acct when they were making >20% in the market.  But guaranteed 8.25 (or 7%) was too good to pass up. I left in 2003, and they only allow you to keep it in their accounts for 5 years pass employment.  So, I had to roll it over.  Good idea you had to max it out!

Hey tennisray,

Do you remember the process for rolling over the TDA? I'm also NYC DOE teacher and I'm wondering how that's going to work when I quit in my early 30s.  Thanks in advance!

It was a simple process once I decided to roll it over.  FYI-at the time, they let you keep your $ in 5 years post leaving the job.  So, I left my $ in there at 8.25%...easy decision.  Then, just contact etrade/brokerage and they help you fill out the paperwork to get it moved over.  Hopefully the NYC TDA is more automated now.