February 26, 2009

403(b) Safety - Bank Nationalization

When it comes to research, I look for absolutely everything I can to make the most informed decision possible. Interestingly enough though, I had not thought about or researched the "nationalization" concerns of Citigroup in the context of 403(b) accounts - AIG, yes - but not Citigroup. Thankfully, a very nice educator from halfway across the country e-mailed me asking about Primerica - a division of Citigroup.

After reading everything I could find, and discussing the topic with numerous other individuals, I truthfully cannot see any issues with Primerica. That does not mean they are the greatest company or have fabulous investment ideas or people working them, but as far as your account just "vanishing," I cannot even fathom that possibility.

First, Primerica (much like VALIC within AIG) has had its own managers and CEO, so it is almost like a separate company. Also, insurance companies generally have a higher standard of regulatory requirements with cash reserves mandated by the states that they do business in (state regulated). Once again, this is much like VALIC under AIG.

Second, while "nationalization" has been a hot topic and Citigroup appears under more stress than any other financial institution (the government says it does not wish to nationalize any bank), it is hard to imagine any situation in which your assets would just disappear. The overhanging threat of a complete meltdown in the credit market has receded, and with AIG, if anything were in trouble in October, it was. Those AIG/VALIC accounts are still functioning, and the state regulators have probably burned up the phone lines verifying all of the information of Primerica.

Additionally, Primerica has now been made part of the new "Citi Holdings" division which is generally speaking the non-bank (non-core) businesses under the Citi name.

The following is an article written by Jim Connolly of the National Underwriter on January 21, 2009:

Primerica Placed in New Citi Division
By Jim Connolly
National Underwriter, January 21, 2009

Citigroup Inc. has put Primerica Financial Services Inc. in a new division that holds the company’s non-bank, “non-core” assets.

Citigroup, New York, is putting its core banking operations in a new Citicorp division. The other division, Citi Holdings, will hold Primerica, Duluth, Ga.

Citi Holdings also will hold other non-banking operations, such as Citigroup’s 49% stake in Morgan Stanley Smith Barney.

Citi Holdings managers “will seek to maximize the value of these [non-core] businesses by running them well, restructuring and managing them through this tough economic cycle, and taking advantage of value-enhancing disposition and combination opportunities as they emerge,” Citigroup says.

At Primerica, “there will not be a change in the way that business is done, because we have always operated as our own business and had our own CEO and management team,” says Peter Schneider, executive vice president of Primerica.

The shift into Citi Holdings will not lead to layoffs or additional employee attrition, Schneider says.

“Primerica has strong results and will continue to have strong results,” Schneider says. The unit is “extremely well capitalized,” he adds.

Although the life (insurance) market was difficult in 2008, the face amount of coverage issued held steady at $88 billion, and the number of applications fell just 1%, to 336,373, Schneider says.

The average face amount per policy increased slightly, to $299,200; from $296,400.

Don't just take my word for it. I would suggest that you pull out your December 31 statement and call the number on the statement. I would imagine that the company is ready with answers. Also, your account may have lost some value based on the mutual funds held within it, but the shares of the mutual funds are still there. If making that phone call will help you sleep at night, by all means, please call.

Finally, I would like to thank the nice educator again who e-mailed me to ask about Citigroup, and if anyone else has a question, please feel free to write me. I am sure that many people have the same questions.

February 24, 2009

How Do I Sign My Friends Up? Is This Service Really Free?

After my post on Sunday, I received a few e-mails from subscribers about telling their friends about the blog. I was obviously humbled by this. If you are an e-mail subscriber, simply forward the post e-mail with a link to the blog (http://www.theeducatorsretirement.com/), or you can sign up your family/friends straight from the blog website - top right hand corner to enter e-mail addresses.

Please remember that anyone that signs up will need to verify the subscription by clicking on the link within the e-mail they receive from confirmations@emailenfuego.net. This is something that they must do to receive the posts via e-mail. This is a measure to make sure that they are not being "spammed".

I have also received a few e-mails asking whether this is a free blog and e-mail service. The answer is emphatically YES! This is completely free! Also, any subscribers e-mail addresses have not and will not be sold for any reason. Spam is bad enough without any more additions.

With all of that hopefully cleared up, I hope that everyone has enjoyed and benefited from this blog somehow. It continues to be an interesting time right now, and I wish you all only continued success at your schools and in your classrooms.

If there are any questions that you or your colleagues would like answered, please let me know. Just like in your schools, 100 people may have the same question, but if I do not know what it is, I cannot answer it.

Best personal regards,

February 23, 2009

A New Day for School Reform - NYT Editorial

Below is an editorial from Saturday's New York Times. With everything else floating around about the stimulus plan, this is a take on how the new Secretary of Education, Arne Duncan, could be altering No Child Left Behind and other educational initiatives.

A New Day for School Reform
Published: February 21, 2009

Congress took a potentially transformative step when it devoted $100 billion in the stimulus package to education. Carefully targeted, this money could revive the reform efforts that began promisingly with President Bush’s No Child Left Behind Act of 2002 — but later languished when his administration buckled under to political pressures from state officials.

Arne Duncan, the new education secretary, will need to resist those pressures. The Bush administration allowed states to phony-up statistics on everything from graduation rates to student achievement to teacher training and state education standards. As a result, the country has yet to reach not only the goals that were clearly laid out in the law but also farsighted education reforms dating to the mid-1990s.

The stimulus package, including a $54 billion “stabilization” fund to protect schools against layoffs and budget cuts, is rightly framed to encourage compliance. States will need to create data collection systems that should ideally show how children perform year to year as well as how teachers affect student performance over time. States will also be required to improve academic standards as well as the notoriously weak tests now used to measure achievement — replacing, for instance, the pervasive fill-in-the-bubble tests with advanced assessments that better measure writing and thinking.

The No Child Left Behind law required the states to place “highly qualified teachers” in every classroom. But federal officials allowed states to game the system, which led inevitably to fakery. This time around, states that want federal money will rightly be required to improve teacher effectiveness and to end the odious practice of dumping the least qualified teachers into the neediest schools.

Mr. Duncan has also been given authority over a $5 billion grant program called the “Race to the Top Fund,” designed to encourage innovation. The secretary can set a new tone by rewarding states that work hard for reform and bypassing states that do not.

The bottom line is that the stimulus package has given the country a real chance to resuscitate school reform. Mr. Duncan will need to stay the course despite the pressures that will inevitably come from states that have resisted reform all along.

Source: The New York Times

February 22, 2009

Will You Miss Out on Social Security Benefits? - Your Retirement and the Windfall Elimination Provision

One of the biggest issues facing educators (at least in Georgia) is whether or not they have been contributing to Social Security. If they have not, then the Georgia Teachers Retirement System (TRS) pension they receive will be used in a calculation by the Social Security Administration (SSA) that can reduce any Social Security benefits that they receive. This comes as a great surprise to many that it effects.

It is such a shock because every single year we all receive those little Social Security statements that project a benefit for us. We see that projected benefit, and we think, "Well, at least I will have that..." But not so fast...

The SSA uses something called the "Windfall Elimination Provision" (WEP) to calculate your benefit since you paid into a pension plan and did not pay into social security. The formula used takes your monthly pension payment, all of the earnings over the year that you paid and did not pay into social security and recalculates your benefit. Since most educators will be employed and pay into the system for 30 years, this reduction could be somewhat dramatic.

Recently, I helped a client that is a former educator project her SSA benefit. Like most people, she thought that her SSA benefit statement was going to be her benefit. She was projected to have about $900 a month at her full retirement age (66 for her). After plugging the numbers in the WEP calculator on-line, her monthly benefit dropped to about $580 total. This is a reduction of $320 a month or $3,840 annually - a huge difference.

Survivor Benefits

This does not only affect your SSA benefit, but this could and most likely will greatly affect any benefit that you could possibly receive from your spouse's SSA benefit. The calculation on the spousal benefits are a bit difficult to explain, but even though that little statement your spouse receives may say that their surviving spouse could receive $X,XXX, it most likely will be quite a bit less and possibly nothing.

What Are Your Options?

Every employer (school system) is potentially different, so check with your human resources department to see what you have available.

All of the options below assume that you contribute to TRS.

1 - Do not contribute to SSA, do not contribute to any other pension

If you are employed by a county that does not pay into SSA, then you most likely have a higher net paycheck coming to you than if you did. If this is the case, then this is a great reason to use some of the extra 6.2% of your gross pay (what you would be paying into SSA) to start a 403(b). I have written about starting one many times, and this is a prime example as to why it is needed.

2 - Do not contribute to SSA, your system has an alternative system

In Gwinnett County, educators do not pay into SSA, but they do contribute 1% of their gross pay to the Gwinnett Retirement System (GRS). This is similar to SSA, but this is something that should be discussed directly with GRS. Additionally, since you have an extra 5.2% of your salary, it is a good idea to put some of that away in a 403(b) here too.

3 - Do not contribute to SSA, your system mandates a 403(b) contribution

My wife was previously an educator in Rockdale County, and over there, educators do not contribute to SSA, but they have a mandatory 2% employee contribution to a 403(b) account. The good thing about this plan is that employer also makes a mandatory 4% employer contribution for the employee to a 403(b) account (in the employee's name). All contributions from the employer and employee are 100% vested immediately, thus if the employee leaves the system, the accounts are theirs.

Final Thoughts

If you do not contribute to SSA, now is the time to understand what your options are and what you can do to help yourself. Call SSA and call human resources for your system.

When a financial planner sits down to evaluate a plan, we look at pensions, 401(k)s, 403(b)s, and social security. If one of those items is potentially reduced or nonexistent, that is a major change in evaluating your potential retirement income. Your TRS pension is a great foundation for your retirement, but you really need to know what other income sources you will have.

Take some time to research your situation, and then start looking to plan your retirement income. E-mail me with questions if needed.

February 19, 2009

Social Security's Windfall Elimination Provision

Over the weekend, I plan on writing a blog about Social Security's Windfall Elimination Provision (WEP) that can affect many teachers if they do not contribute to Social Security. I'll even include some examples. This is important when you are planning your retirement!

Dear Mr. President, Have the Guts to Be an Optimist

First, I have not been taking a break. I have quite literally poured through the stimulus bill looking for the goods and the bads. I went to Dallas last week for a very good conference discussing the market, economy, etc. Finally, I have been listening to the media, President Obama, his administration, the Democrats, and the Republicans absolutely slam the economy.

Last week, several of the speakers (former financial media correspondents, economists, and mutual fund managers) all said that the bashing of the economy by the media and politicians has created a complete lack of confidence just when we need confidence. I am not saying that everything is rosy, but this is not The Great Depression.

I understand and do feel the pain of all of those workers and their families that are unemployed and struggling, so please do not see me as being callous. What I am trying to say is that The Great Depression talk should end. The economy is more like that of the early 80's now and not the depression (I'll post some charts later showing this). Talking about a bad economy helped pass the stimulus bill, but it is now done. Start preaching to the masses about the recovery.

This has been a huge topic of conversation in my office, with my clients, neighbors, and friends. It affects all of us, and it is time to move forward.

Below read a really good blog post from Mark McKinnon of The Daily Beast. Mr. McKinnon is obviously a conservative, but his comments push towards the lifting of America and the economy. At my conference last week, both Democrats and Republicans alike had much of the same feelings.

Dear Mr. President, Have the Guts to Be an Optimist
by Mark McKinnon
Posted: February 18, 2009 - 10:15pm

As Obama prepares for his first major speech next week, he should take a page from FDR, Reagan, and his own campaign instead of constantly trying to manage expectations. It sure isn’t helping the stock market.

OK, Mr. President, enough with the doomsday talk already. We get it. Things suck. And they’re going to get worse before they get better.

And we get how it important it was for you to level-set expectations out of the gate, as they were stratospherically out of whack.

We are all in economic rehab now, clear eyed and sober. If we’re not out of work, we know friends and family who are. And those of us lucky enough to have jobs are being showered with resumes. Really good ones.

You were elected because you are a walking, talking hope machine. Plug that sucker back in and crank it up to ten.

So now we want to know that there is light at the end of this bleak, black tunnel.

It’s time for less mope and more hope. You were elected because you are a walking, talking hope machine. Plug that sucker back in and crank it up to ten.

There has been some debate in the opinion pages about whether the FDR or Ronald Reagan approach to a bad economy is the best remedy. Putting that aside, there is one thing they had in common: They were unblushing optimists. And they communicated their enthusiasm until their half-full cups ranneth over.

It’s time to cut the talk about similarities to the Great Depression. First, it sure as hell doesn’t help the markets. Second, it’s not true. Not yet anyway.

Bradley Schiller, an economics professor at the University of Nevada, straightens out the facts for us: “This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don’t come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate, Consider the job losses that Mr. Obama cites. In the last year, the U.S. economy shed 3.4 million jobs. That’s a grim statistic for sure, but represents just 2.2 percent of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost—fewer in number than today, but the labor force was smaller. So 1981-82 losses totaled 2.2 percent of the labor force, the same as now.

“Job losses in the Great Depression were on an entirely different magnitude…Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.

“This was reflected in the unemployment rates. The latest survey pegs U.S. unemployment at 7.6 percent. That’s more than three percentage points below the 1982 peak (10.8 percent) and not even of the a third of the peak in 1932 (25.2 percent). You simply can’t equate 7.6 percent unemployment with the Great Depression."

Auto production last year declined by roughly 25 percent. That looks good compared to 1932, when production shriveled by 90 percent. The failure of a couple of dozen banks in 2008 just doesn't compare to 10,000 bank failures in 1933. Stockholders can take some solace form the fact that the recent stock market debacle doesn't come close to the 90 percent devaluation of the early 1930s.

There now, don't you feel better.

George W. Bush was president through some of the darkest days of our history and yet his optimism never waned. He is optimistic by nature, but he also understood the importance of always communicating a sense that things will get better. And it’s in part why John Kerry lost in 2004. He painted a terrible picture of the future. And as Bush said, “You can’t say things are going to be awful, follow me and expect to turn around and see a crowd.”

So, Mr. President, you’ve got a big speech coming up. Turn the heat up and the lights back on.

Source: The Daily Beast

February 9, 2009

Education Is All in Your Mind

I have been busy reading, rereading, trying to comprehend, trying to figure out the changes, etc., etc. all on this little bitty thing called a stimulus bill. Heard of it? It will use between $800 billion and $1 trillion of our tax dollars in various ways to "stimulate" the economy.

In all of my readings, I have seen items about the banks, foreclosures, infrastructure, and of course, education. This is something that is obviously of great importance to all of us, and for those readers of this blog, could very well affect your job.

In Sunday's New York Times, Professor Richard Nisbett of the University of Michigan wrote an interesting Op-Ed column. We have all heard about all of the money that is being "thrown" in the stimulus bill, but what happens when education actually receives this money? How will it be spent? More importantly, is it being spent wisely? I have included his Op-Ed below for everyone to ponder some of these questions.

One quick note, I will write later this week about investing and pensions, but with the talk of hundreds of billions of dollars going to various programs including education, this is just a bit more timely. I enjoy the questions and the comments from everyone, and I hope you enjoy the Op-Ed below.

Education Is All in Your Mind
By Richard E. Nisbett
February 8, 2009
Ann Arbor, Mich.

AS Department of Education officials consider how best to spend billions from the economic stimulus plan, they would be wise to pay attention to which programs actually help children’s achievement — and keep in mind that sometimes very small influences in children’s lives can have very big effects.

Consider, for example, what the social psychologists Claude Steele and Joshua Aronson have described as “stereotype threat,” which hampers the performance of African-American students. Simply reminding blacks of their race before they take an exam leads them to perform worse, their research shows.

Fortunately, stereotype threat for blacks and other minorities can be reduced in many ways. Just telling students that their intelligence is under their own control improves their effort on school work and performance. In two separate studies, Mr. Aronson and others taught black and Hispanic junior high school students how the brain works, explaining that the students possessed the ability, if they worked hard, to make themselves smarter. This erased up to half of the difference between minority and white achievement levels.

Black students also perform better on an exam when it is presented as a puzzle rather than as a test of academic achievement or ability, another study has shown. These are small interventions that have big effects.

Here’s another example: Daphna Oyserman, a social psychologist at the University of Michigan, asked inner-city junior-high children in Detroit what kind of future they would like to have, what difficulties they anticipated along the way, how they might deal with them and which of their friends would be most helpful in coping. After only a few such exercises in life planning, the children improved their performance on standardized academic tests, and the number who were required to repeat a grade dropped by more than half.

Geoffrey Cohen, a psychologist at the University of Colorado, found still another way to improve black students’ test performance. He asked teachers at a suburban middle school, at the beginning of a school year, to give their seventh graders a series of assignments to write about their most important values. Afterward, the black students did well enough in all their courses to obliterate 30 percent of the difference that had existed between black and white students’ grades in previous years.

Small interventions can make a big difference even as late as the college years. Dr. Cohen and another psychologist, Gregory Walton, who is now at Stanford, hypothesized that worries about social acceptance — which are common among all college students — would be especially great among black students on majority-white campuses.

So the researchers gave a group of students at a Northeastern university a detailed report of a survey showing that most upperclassmen had once worried about feeling accepted but had ultimately come to feel at home on campus. Black students who were given this information reported that they worked harder on their schoolwork than others did, and contacted their professors more. The payoff in grade-point average erased most of the usual difference between blacks and whites at the university.

These experiments may help explain the “Obama effect” on the test performance of African-Americans. Adult subjects in a study (still unpublished) answered comprehension questions from the verbal sections of the Graduate Record Examinations before and just after the presidential election. The black participants who were tested before the vote performed worse than whites; those tested immediately afterward scored almost as well as whites.

If simple interventions can have big effects, one might assume that bigger interventions would always be even better. But the truth is that some big interventions in education have had only minimal effects. Head Start, which places 3- and 4-year-olds in supposedly enriched classroom settings, and Early Head Start, which works with 1- to 3-year-olds, for example, have been found to have only modest effects on the children’s academic achievement, and these often fade by early elementary school. Likewise, “whole-school interventions,” in which teams of education engineers descend on a school and change its curriculum, introduce new textbooks and train teachers — often at great expense — typically produce little in the way of educational gain.

Some bigger programs have worked well, however. The Perry Preschool, which was set up in Ypsilanti, Mich., in the early 1960s, is a good example. In this school, highly trained and motivated teachers worked with groups of only six black preschoolers in educationally intensive sessions intended to help the severely disadvantaged children develop both cognitively and socially, and the teachers visited the children’s families for 90 minutes every week.

By the time these students reached high school, almost half of them scored above the 10th percentile on the California Achievement Test, compared with only 14 percent of students in a control group. Almost two-thirds of the students who had been in the program graduated from high school, compared with only 43 percent of control students. And by age 27, one-third of the Perry children owned their own home; only 11 percent of the control students did.

James Heckman, a Nobel Prize-winning economist at the University of Chicago, has estimated that for every dollar spent on a prekindergarten like Perry, $8 has been gained in higher incomes for participants and in savings on the costs of extra schooling, crime and welfare.

Similarly, a program called KIPP (for Knowledge Is Power Program) is having remarkable success with poor minority children in middle schools. KIPP students attend school from 7:30 a.m. to 5 p.m., their term is three weeks longer than normal, and every other Saturday they have classes for half a day. The curriculum includes sports, visits to museums and instruction in dance, art, music, theater and photography. During one academic year, the percentage of fifth-graders at KIPP schools in the San Francisco Bay Area who scored at or above the national average on the reading portion of the Stanford Achievement Test rose to 44 percent from 25 percent. And while only 37 percent started the year at or above the national average in math, 65 percent reached that level by spring.

Such creative programs must be tested to ensure that they work as they are meant to. The United States Department of Education’s What Works Clearinghouse, which was established by the Bush administration, has the job of making public all significant evaluations of educational interventions. The Obama administration should heed the Clearinghouse’s reports. Stimulus money should be spent only on programs that work well — and on creating new programs, which in turn should be properly tested for effectiveness.

President Obama is in a position to not only inspire black youngsters by his example, but also make an enormous difference in their schooling — as long as he supports successful educational interventions, from the smallest to the most ambitious.

Richard E. Nisbett, a professor of psychology at the University of Michigan, is the author of “Intelligence and How to Get It: Why Schools and Cultures Count.”

Source: The New York Times