Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

NYSDCP

NY State Deferred Comp updates log-in process

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The NY State Deferred Compensation program has recently begun changing the way participants can log in to their retirement account online.
There are TWO important changes.

  1. Many (but not all) participants are being asked to update their username.  This is especially true if any personally identifiable information (like a social security number or date of birth alone) has been used as your username or password.
  2. Additionally, NYSDCP is asking participants to verify their email address.  Participants are also required to pick four security questions and answers.  These security questions and answers will ONLY be used when a username or password is changed in the future.

Although you may not be planning on changing your log-in credentials any time soon, verifying your email and the security Q&A’s are required now.
When you change your log-in credentials, you need to let us know!
Otherwise we cannot monitor your holdings.

You can log into your NYSDCP account here: www.nysdcp.com

 

 

Retirement Plan Statement Games

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The Retirement Plan Statement Games are on. One of the retirement plans where I have several clients recently changed their statements. Again.

This is the second major change in their statement reporting in the past six months.
As a result, this set off a tizzy of “urgent” phone calls.

So, let’s go through an example (these are not YOUR numbers):
Suppose you had:
– 1st Quarter 2012 results, again, only for example, up 12%
– And suppose 2nd Quarter 2012 results where we gave back (lost) 8%
– Third quarter and fourth quarter were flat (gains/losses off set)

And, let’s also say the first quarter THIS year we saw a gain of 8%.

This plan administrator has now changed their statements to reflect performance over “the past 12 months.”
So, your “end of the first quarter” statement will show activity from: 2nd quarter, 3rd quarter, 4th quarter of LAST year and 1st quarter of this year, right?

If the 2nd quarter 2012 was DOWN 8%
And 1st quarter 2013 was UP 8%
And the 3rd and 4th quarter offset, what kind of return would you show?

You will show only a small return for the “past twelve months.”
Incidentally, if a mutual fund returns 7% in this most recent quarter, and the return for twelve months was 9%, what was the return in the previous three quarters?
About two percent. It’s just math.

And this is not the first time this plan administrator has played retirement plan statement games.
This plan administrator also neglects to include any gains or losses from the self-directed brokerage accounts at Schwab, where we have posted some serious gains. Gains which were far more than the choices available in the core part of the plan. In fact, there are many participants who made more at Schwab (with just 30 to 40% of their balance) than they made in the entire Core part of the plan. And, this is AFTER we’ve deducted the quarterly fees for the entire account, over at Schwab!

Want more Retirement Plan Statement Games? I also reminded callers this was the same plan administrator who included “participant loans” as assets on their statements last year, instead of separating them. Think about that: as you paid down your loan throughout the year, it showed this “asset” dropping in value. Wow.

But these phone calls led to another twist.
Many folks who called in to speak with me added “I want to be MUCH more aggressive than that!” Wait, do they really mean that? Because if they want to be more aggressive, we will be taking on even more risk. More risk brings more potential for gain, but also invites more potential for loss.

Again, do they really mean that?

As I have explained to every new client, there will ALWAYS be someone who beats my returns in a given year. We will (very likely) not get out at the top of the market, nor will we get in at the exact bottom, either. My job is to have you participating when the market is on offense and climbing. And it is also my job to get you out of harms way when the market flips to defense, and when the risk is high.

New York State Deferred Comp Plan: Taking a Loan Podcast Transcription

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This is a transcription of the October 17, 2012 Mullooly Asset Management podcast about taking a loan from the New York State Deferred Compensation plan

Brendan: Welcome to the Mullooly Asset Management podcast for Wednesday, October 17, 2012. This is Brendan from Mullooly Asset Management and today we’re going to speak with Tom regarding the New York State Deferred Compensation Program.

Tom, you manage investments for over 300 different individuals who are participants in the New York State Deferred Comp Program. What are some of the hot button issues that you hear a lot?

Tom: Well, unfortunately there’s a lot of people looking to take loans from their deferred comp accounts.

Brendan: That doesn’t really sound good.

Tom: You’re right, and I guess if you have to borrow from somewhere, this is better than borrowing from a credit card.

Brendan: Right. Can you walk us through some of the pros and cons of taking a loan from your deferred comp account?

Tom: Okay, sure. Some of the pros are there’s no credit check. A lot of people have found over the last few years that when they go to apply for a mortgage or for a car loan or for any kind of consolidation loan, they needed a lot of information and it really was a tough process. With this, you’re actually borrowing your own money, so there is no credit check, it’s a pretty painless process to apply, and that’s all good.

You’re paying a rate on this money, the interest rate is less than what you’re going to find at most banks. Right now the rate is set at the prime rate plus 1%. Now, the prime rate at the moment, in October 2012, is 3-1/4%. So your loan is 4-1/4%, and the rate of the loan is set at the time the loan is issued, it doesn’t change. So it’s not a variable, it’s a fixed rate.

And you do pay yourself back this money, but, you know, some people say, “Gee, this is a really good thing, you know, you’re paying yourself your own money and you’re paying 4-1/4%.” But understand that you’re paying this loan back in after-tax dollars. So you earn the money, you pay the tax on it, and then you’ve got to pay this back. So that is a benefit, but it’s not that great.

The other benefit that I think people need to know is that there’s no pre-payment penalty. You can pay this loan off at any time in the future before the final maturity, before the end of the loan.

Brendan: Okay. So what are some of the cons?

Tom: Yeah, we got to cover that. The first thing and the most important thing is that the statements are really confusing. What I’ve found is with the folks that have loans against their deferred comp plans, you really need to check your statements, because your loan is included as an asset. Look on your quarterly statement, look on page two. It’s really deceptive, in my—and it’s very confusing. Let me give you an example.

I have a client who made $15,000 in one quarter this year in a three-month period, but in the same quarter he also paid down $6,000 of his loan. So his asset, the loan, went down by $6,000. He also made $15,000 in the stock market. But on the statement, if you just look at the bottom line, it looks like he only made $9,000. They really ought to separate the balance that’s owed on the loan in a separate category on a statement, but it’s not.

So be very careful when you’re reviewing the statements. If you have a loan against your deferred comp, it really does mess up your numbers, so be very careful about that.

The other thing is that’s kind of a negative is if you’re borrowing money as a first-time home buyer, you can pay that loan over 15 years, and that’s great. But for every other person who’s taking a loan from deferred comp, the loan has to be paid back in 5 years, that’s 60 equal payments.

So let me paint another picture for you. Suppose you were looking to consolidate loans, you have some of these credit cards where you’re getting charged 22% or 26%, and you go to pay this back. Remember that your minimum payments on your credit cards are going to be a lot lower than what you’re going to owe because credit cards, they calculate the minimum payment over a 30-year span, some of them even longer. However, the loan has to be paid back in five years, so your payments are going to be higher than you would have with a credit card and, you know, if you run into a pickle some month and you can only pay the minimum on a credit card, you can get away with that for a month or two, no problem. But once you get locked into a loan with a 5-year schedule, 60 equal payments, you can’t miss that, because here’s the problem. Once you fall behind on your loan with deferred comp, if you fall behind for 90 days, the entire unpaid balance of the loan is going to be considered in default. And a loan in default is taxable income to you. So it’s going to be a distribution from your plan. You don’t ever want to get in a situation like that.

So be very, very careful, you know, you can only have one loan at a time, so you want to make sure that this loan is going to cover you for the next couple of years. It’s not like you can go back next year and say, “Hey, I need to borrow more.” You’ve got to finish that loan before you can take out another loan.

There is something else, too. The payments for the loan don’t come out of your paycheck. They don’t come through payroll, they have to be from an outside source, so the money for your monthly payment for the loan has to come from a bank account, from Excel, from some other credit union, some other account that’s outside, and it has to be paid back in. And you do set that up at the time of the loan, but it is something that you need to know, it’s not going to be coming out of your paycheck.

And there’s lots of other things that you need to know with these loans. The most important thing is if you’re thinking about it, you should really give us a call and we’ll be able to answer a lot of your questions.

So while we didn’t mention any specific securities in this podcast, you need to know that none of the securities that we mention in any of our podcasts and any of our videos, they don’t represent a past specific investment of Mullooly Asset Management. And so we usually like to close by reminding everybody that none of the securities or actions that we mention in this podcast should be considered investment advice. And quite frankly, if you’re relying on a podcast for investment advice, I want to tell you, I think you might be making a huge mistake. We strongly urge all of our listeners to consult with their investment advisor before they make decisions that involve financial planning or to buy or sell any investment.

Now, if you don’t have an investment advisor, we’d be happy to answer whatever questions you have, there’s no obligation. You can call us at 732-223-9000, or you can find us on the web at Mullooly.net, that’s spelled M-u-l-l-o-o-l-y.net.

So, Brendan, we do get a lot of questions from folks looking to borrow money from their deferred comp accounts and there’s always lots of questions, and these were some of the major topics.

So we’ll look for more of your questions and see everybody back next week on the podcast.

You can download this week’s podcast about taking a loan from your New York State Deferred Compensation plan on iTunes for free!

New York State Deferred Compensation Plan: Taking a Loan

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This week’s Mullooly Asset Management podcast focuses on the New York State Deferred Compensation plan. Tom Mullooly manages investments for over 300 different individuals who are participants in the New York State Deferred Compensation program, and he knows what some of the most frequent questions about the plan are.

Many people are looking to take loans from their New York State Deferred Compensation plan, and taking that action has many implications. Tom goes over the pro’s and the con’s of taking a loan from your New York State Deferred Compensation program in this week’s podcast so tune in. If you have any specific questions about your NYSDCP after listening to the podcast feel free to contact Tom.

If you are thinking about taking a loan from your New York State Deferred Compensation plan you should listen to this podcast first!

Now, if you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here be considered specific investment advice.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

You can download this week’s podcast about taking a loan from your New York State Deferred Compensation program on iTunes for free.

New York State Deferred Compensation Plan offers Roth Option

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The New York State Deferred Compensation Plan (NYSDCP) Roth Option

The NYSDCP (New York State Deferred Compensation Plan) Roth Option is a new retirement savings option available as of August 1, 2012 to all Port Authority and PATH employees. What this new feature allows you to do is make contributions to a Roth Account that sits inside your deferred comp plan. This Roth Option will show up online — just like a part of your New York State Deferred Compensation core account.

Here is what matters most: (1)
All contributions to Roth accounts are made AFTER-TAX.
Which means, way down the road in retirement, there will not be any taxes owed when you take this money OUT. That is, unless the tax laws change!

Here is what matters most: (2)
You can still only contribute $17000 in 2012 (or $22,000 if you are over 50 years old). The special catch-up amount still stays at $34000. It simply does not matter whether the money goes into a Roth account or not. So if you are “maxing” your contributions each year (and you should!), you cannot contribute MORE than $17,000 per year ($22,000 if you are over age 50).

So you can choose:

  • Pay income taxes NOW and deposit all of your money into a Roth account (may be good if you are young).
  • Leave it the way it is — all contributions go tax free into your “core” account at deferred comp (may be good if you are at or near retirement).
  • Split the contributions: a portion into deferred compensation, a portion (taxed) into a Roth.

The main thing is we all need to save more money for retirement. No one has saved enough!

A few other points:

  • You cannot borrow from this account. (but it IS included when calculating the amount you can take in a loan against deferred comp)
  • If you take money OUT of a Roth account (or Roth IRA), and the account has not been open for at least five years — part of the distribution (the gain) will be taxable.
  • A Roth Account in your Deferred Comp is *NOT* the same as a Roth IRA. Some folks put money for their kids’ college in a Roth IRA. Call me to discuss.

Oh, you can Click Here for a pretty brochure the friendly folks at New York State Deferred Compensation have whipped up for you!

By the way, do you know about the “Special 457 Catch-up Provision?”
This could be a VERY big deal for you!
Participants who have not contributed the maximum limit under IRS law, in previous years, may now contribute an amount less than or equal to the maximum limit (essentially, up to double the maximum) in the three years prior to the individual’s normal retirement age.

So, what is your normal retirement age?

Retirement Accounts: Selecting the Right Investments

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Just because a particular segment of the market is doing well, we should not just act blindly. You should always look to improve your 401(k) account, or other retirement accounts. If (for example) large cap funds happen to be doing well, it is not enough to simply buy ANY large cap mutual fund for your 401(k) or 403b annuity. What we do at Mullooly Asset Management is find the funds that display positive trends, along with good relative strength.

New York State Deferred Compensation

As an example, in the New York State Deferred Compensation plan, there are 33 mutual funds to choose from:

  • 22 of these funds are large cap funds
  • 11 of the 22 are on relative strength buy signals as of February 24, 2012.
  • Only ONE of the 11 funds is actually moving UP on its’ relative strength chart in a column of X’s.

So, out of eleven possible choices, there is only one clear winner, which we discuss on the podcast.

Why is this important?
Based on the data from Dorsey Wright & Associates, this one fund is up over eight percent in the previous thirty days, while all the other funds in the peer group were up — but only up between two percent and five percent.

Charts with relative strength BUY signals tend to outperform the markets (but not always) on the way up, and these charts also tend to (again, but not always!) pull-back a little less than their peers.

This becomes VERY important when we expect markets to pull back (as we are expecting in late February 2012). I would also add the following:

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.

If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.