ERIC ED413975: TJCTA Messenger, 1995-1996.

109 Pages·1996·3.2 MB·English

by  ERIC

DOCUMENT RESUME
JC 980 033
ED 413 975
TJCTA Messenger, 1995-1996.
TITLE
Texas Community Coll. Teachers Association.
INSTITUTION
ISSN-8750-9644
ISSN
1996-00-00
PUB DATE
110p.; Name changes to "TCCTA Messenger" with the April 1996
NOTE
issue.
Serials (022)
Collected Works
PUB TYPE
TJCTA Messenger; v27 n1-4 Sep 1995-Apr 1996
JOURNAL CIT
MF01/PC05 Plus Postage.
EDRS PRICE
*College Faculty; *Community Colleges; Conferences;
DESCRIPTORS
Enrollment; Faculty Organizations; Merit Pay; *Part Time
Faculty; Participative Decision Making; State Legislation;
Tax Rates; *Teacher Employment Benefits; Teacher Retirement;
*Teacher Salaries; Two Year Colleges
*Texas
IDENTIFIERS
ABSTRACT
Published four times a year by the Texas Community College
(formerly the Texas Junior College Teachers
Teachers Association (TCCTA),
Association (TJCTA)), this newsletter discusses events affecting Texas junior
colleges and their faculty, chronicles the efforts and activities of the
TJCTA, and provides a forum for discussion of topics related to community
college education. The September 1995 issue presents a discussion of 1995
state legislative actions affecting two-year colleges and an analysis of
investment options under Texas' Optional Retirement Program/Tax Deferred
Account. The December 1995 issue provides a discussion of Texas two-year
faculty salaries and inflation; "The Faculty Role in College
Decision-Making," by Marc A. Nigliazzo; a table showing 1995-96 base salaries
for Texas faculty by college and years of service; "Coping with Conflict in
the Workplace," by Charles Burnside; and data for 1994-95 and 1995-96 on
compensation and utilization of part-time instructors in Texas by college.
The January 1996 issue provides the program for the TJCTA's annual
convention, focusing on the theme, "Sharing the Vision," and presents
information on TJCTA elections and voting procedures. Finally, the April 1996
issue reviews major issues considered by Texas state legislative committees;
presents "Is There 'Merit' in Merit Pay?" by Charles Burnside; and provides
data on Texas community, junior, and technical college fall headcount
enrollments for 1976-95 and tax rates and assessed valuations for 1994-95 and
1995-96.
(BCY)
********************************************************************************
*
Reproductions supplied by EDRS are the best that can be made
*
*
from the original document.
*
********************************************************************************
TJCTA Messenger
September 1995-April 1996
Texas Junior College Teachers Association
U.S. DEPARTMENT OF
EDUCATION
Office of Educational
Research and Improvement
"PERMISSION TO REPRODUCE THIS
EDUCATIONAL RESOURCES
INFORMATION
BY
CENTER (ERIC)
MATERIAL HAS BEEN GRANTED
This document has
444
been reproduced as
received from the
person or organization
originating it.
Minor changes have
been made to
improve reproduction
quality.
Points of view or opinions
stated in this
document do not necessarily
TO THE EDUCATIONAL RESOURCES
represent
official OERI position
or policy.
INFORMATION CENTER (ERIC)."
2
10,1101t
A
S.
.
:
:
:
I I
II
1995, Texas Junior College Teachers Association. All rights reserved. Permission is granted to reprint articles provided they are reprinted in their entirety and appropriate credit
is
Copyright
the source.
given to the author and to the TJCTA Messenger. Brief quotations and statistical data may be reproduced provided that the TJCTA Messenger is cited as
NUMBER 1
VOLUME XXVII
SEPTEMBER 1995
LEGISLATIVE ACTIONS AFFECT TWO-YEAR COLLEGES
Several major actions taken by the Texas
Brazosport College, Dallas County Commu-
Texas Community College, in McAllen.
Legislature in its 1995 regular session will
nity College, Del Mar College, Howard Col-
Retirement and Insurance
affect the state's two-year colleges.
lege, Kilgore College, McLennan Commu-
State contributions to both the Teacher
nity College, Odessa College, San Jacinto
State appropriations to Texas community
Retirement System and the Optional Retire-
College, Tarrant County Junior College,
colleges for the biennium beginning Sept. 1,
ment Program were reduced to the constitu-
Texarkana College, Tyler Junior College,
1995, were increased by almost 4 percent
tional minimum of 6 percent of salary for the
and Vernon Regional Junior College.
over the preceding two-year period. While
next two years. However, a separate appro-
"Start-Up" Funding
that increase translates into additional state
priation entrusted to the Higher Education
The Legislature made a special appro-
funds for the majority of community college
Coordinating Board for disbursement to
priation of $13,744,133 from 1993-95 funds
districts, some colleges will actually face
colleges will allow the total state ORP con-
to provide for "start-up" costs at four new
reductions in state funding. Legislative appro-
tribution rate to continue at the previous 7.31
campuses: Preston Ridge Campus of Collin
priations are based on a "contact-hour" for-
percent level for employees hired prior to
County Community College, Montgomery
mula, so schools which experienced enroll-
1995. Additionally, language was
Sept.
I,
College in the North Harris Montgomery
ment increases during the 1994-95 base
included in the general appropriations bill
Community College District, the Southeast
period over the corresponding period in I 992-
allowing colleges to use local or other funds to
Campus of Tarrant County Junior College,
93 will receive higher state funding. Thirteen
supplement the state contribution by 1.19
and the Bryan Campus of Blinn College.
community college districts where enroll-
percent, bringing the total employer contribu-
An additional $2.3 million was appro-
ments declined will receive lower state ap-
tion to 8.5 percent for participants employed
priated for continued "infrastructure devel-
propriations during the next two years than
before Sept. 1. New employees electing to
they received during the biennium ending
opment, student support services, the physical
enter the Optional Retirement Program will
plant, and instructional costs" at the state's
August 31. Colleges experiencing reduced
newest community college district, South
(Continued on page 3)
state funding are: Alvin Community College,
CONFERENCE PLANNED FOR FACULTY LEADERS
7.7
7a-
..1.
Charles Burnside
Dianne White Delisi
John M. Rogers
Marc A. Nigliazzo
Frank W. Hill
Dennie M. Feldman
"Current Legal Issues in Higher Educa-
now includes the representation of private and
The sixteenth annual TJCTA Conference
public sector employers in all forms of labor
tion" will be the focus of Saturday's opening
for Faculty Leaders will be held Friday and
Saturday, Sept. 29-30, at the Wyndham
session. Panel members for this discussion
and employment disputes; the representation
of school districts in both employment,
will include Dennie M. Feldman, attorney
hotel, in Austin.
special education, and general school law
with the firm of Feldman & Associates, in
The conference will begin with an informal
matters; and general litigation. She has
Houston, and Frank W. Hill and John M.
reception at 6:30 p.m., Friday. At 7:30 p.m.,
developed particular expertise in equal
Rogers, attorneys with the firm of Hill,
Charles Burnside, Executive Director of the
employment opportunity matters and the
Gilstrap, Moorhead, White, Bodoin &
Texas Junior College Teachers Association,
defense of employment discrimination and
Webster, in Arlington and Chicago.
will address conference participants on the
related tort cases, including sexual harrass-
Ms. Feldman received the Bachelor of
topic "Coping With Conflict in the Work-
ment cases, in both state and federal courts.
Science degree and Doctor of Jurisprudence
place."
Mr. Hill holds the Bachelor of Arts
from the University of Houston. She worked
Saturday activities will begin at 8:30 a.m.,
degree in English, with honors, from the
as an associate with Vinson & Elkins law firm
with registration and refreshments. Adjourn-
(Continued on page 3)
in Houston from 1990 to 1993. Her practice
ment is scheduled for 2:30 p.m., Saturday.
3
Second, the organization is fair in its
NOMINATING COMMITTEE
PRESIDENT'S MESSAGE
dealings with its members and the public.
SEEKS RECOMMENDATIONS
What a fantastic summer it has been! My
Third, TJCTA works hard toward build-
Lancaster, Western Texas
Marilyn J.
husband and I were able to arrange a home
ing goodwill and making friends.
College, chairperson of the TJCTA Nominating
exchange through Rotary International in
Committee, has announced that the committee
beautiful Comox Valley on Vancouver,
Fourth, it is beneficial to its members. I
is inviting recommendations of individuals for
consider membership in TJCTA a privi-
British Columbia, Canada. We were ex-
consideration as nominees for offices of the
lege. We can't promise you a trip to para-
tremely lucky with this
,
Association for 1996-97.
exchange to be able to
dise, but we can prom-
Recommendations should be submitted
ise an organization
spend five lovely days
in order to be considered by the
immediately
i
on the island. We
that represents its
Nominating Committee in its November 4
members where it
thought we had died
meeting.
and gone to heaven.
counts! We are not an
Recommendations should be sent to:
international organi-
The weather was fabu-
Marilyn J. Lancaster, Chairperson
lous in contrast to the zation, but we are the
TJCTA Nominating Committee
heat back home in
Texas Junior College Teachers
largest organization of
Association
Temple. God turned
our kind in the world.
901 South MoPac Expressway
on the air conditioner and left it on the entire
Your membership in TJCTA is impor-
Building One, Suite 410
time we were on "holiday," as the Canadi-
tant! You are important! Enjoy the school
Austin, Texas 78746
ans would say.
year and soar like an eagle.
Our summer home had a waterfront view
EDITORIAL POLICY
overlooking the Strait of Georgia. We gazed
I. The TJCTA Messenger provides a forum for TJCTA
at cruise ships sailing, the ferry coming and
members to address professional issues and subjects of
interest to educators in the two-year college.
Prospective
going, but most impressive were the eagles
authors are invited to submit articles dealing with the theory,
flying daily. We strolled beaches on the
practice, history, and politics of two-year colleges in Texas.
Topics should be of general interest to members and not
east and west sides of the island, climbed
Articles normally
limited to a single teaching discipline.
mountains, hiked through temperate rain
should be six to ten typed, double-spaced pages.
forests, and went whale watching. We didn't
2. Longer articles may be published when their substance
RESOLUTIONS COMMITTEE
and likely reader-interest justify greater length.
Shorter
fish for salmon, but we met a fisherman
INVITES SUGGESTIONS
pieces of one to two pages intended as guest editorials, letters
who provided a nice catch for our dinner.
to the editor, or personal perspectives on problems, issues, or
The TJCTA Resolutions Committee in-
concepts related to the two-year college are also accepted.
We had an opportunity to meet many won-
No excerpts from grant proposals, dissertations, theses, or
vites individual members and campus faculty
derful people in Comox Valley and share
research papers written for course work should be submitted.
organizations to submit ideas and suggestions
3. Submissions should be original (not previously pub-
some splendid time with them. It was diffi-
for proposed resolutions to be considered at
lished or being considered for publication). Authors should
cult to leave paradise.
the 1996 convention at the Hyatt Regency
limit the use of specialized terminology. Authors' names and
titles of key sources should be included within the text, with
hotel, in Houston.
We returned refreshed and revitalized,
page numbers in parentheses. The editor reserves the right to
edit submissions so that their usage conforms with the
with lots of photos and video footage in
Suggestions should be received by Feb. 1,
editorial practices of the Messenger. Publicity accorded to a
hand and marvelous memories to share,
1996, so that the Resolutions Committee can
particular point of view does not imply endorsement by
give ample consideration to the proposals
TJCTA, except in announcement of policy, when such en-
ready to face a new school year.
dorsement is specified clearly.
prior to the annual convention. In the meeting
Back at home I find myself reminiscing
4. Submissions are reviewed by an editorial review board,
of the Resolutions Committee set for Feb. 22,
though the editor maintains responsibility for final selection.
the awesome view of the eagles soaring
1996, priority consideration will be given to
An author should send a high-contrast original of the manu-
with majesty. This brings me back to other
script with the author's name only on a separate cover sheet.
proposals submitted in advance of the meet-
fond memories of the many students who
5. Articles published in the Messenger may be repro-
ing.
duced provided they are reprinted in their entirety and that
soar like eagles in growth and achievement
Proposed resolutions should be sent to:
appropriate credit is given to the author and to the TJCTA
in our classes and campus activities. It also
Brief quotations and statistical data may be
Messenger.
Ronald D. Presley, Chairperson
reproduced provided that the TJCTA Messenger is cited as
brought to mind the many wonderful op-
TJCTA Resolutions Committee
the source.
portunities that we as teachers have with
South Plains College
6. Manuscripts should be sent to: Chairperson, TJCTA
Publications Committee. 901 South MoPac Expressway,
our students. We touch lives in so many
1401 College Avenue
Building 1. Suite 410, Austin, Texas, 78746-5747. Authors
ways to help them create their vision for the
Levelland, Texas 79336
should retain copies of their manuscripts for their files.
future and soar to greater goals.
Rotary International has a "Four Way
MESSENGER
Test" for everything it or its members do.
The test asks, Is it the truth? Is it fair to all
concerned? Will it build goodwill and bet-
A Publication of the TEXAS JUNIOR COLLEGE TEACHERS ASSOCIATION
ter friendships? Will it be beneficial to all
Austin, Texas 78746-5747
Barton Oaks Plaza I, Suite 410
901 MoPac Expressway South
In Austin [phone]
Toll-Free 1-800-288-6850
Fax [phone]
concerned?
SEPTEMBER 1995
NUMBER 1
VOLUME XXVII
What does this have to do with TJCTA,
TJCTA Messenger (ISSN 8750-9644) is published four times annually, in September, December, January,
you ask? I feel strongly it has everything to
and April, by the TEXAS JUNIOR COLLEGE TEACHERS ASSOCIATION, 901 MoPac Expressway
do with our organization. The premise that
South, Barton Oaks Plaza I, Suite 410, Austin, Texas 78746-5747. Annual dues $35, $5 of which is for
Rotary International sets for its members is
subscription to TJCTA Messenger. TJCTA Messenger is abstracted and indexed in the ERIC monthly
abstract journal, Resources in Education. Second-class postage paid at Austin, Texas. POSTMASTER:
one we all should follow in both our per-
Send address changes to TJCTA Messenger, 901 MoPac Expressway South, Barton Oaks Plaza I, Suite
sonal and professional lives.
410, Austin, Texas 78746-5747.
I believe that these ideas apply well to
RICHARD MOORE
CHARLES BURNSIDE
PATRICIA A. SMITH
TJCTA. First, it is the truth that TJCTA
Associate Executive Director
Executive Director
President
works hard for its members.
TJCTA Messenger
2
with investments of more than $1 million to
LEGISLATIVE ACTIONS
CONFERENCE PLANNED
adopt an investment strategy. Odessa College
FOR FACULTY LEADERS
(Continued from Page I)
has been especially hard hit by the devastating
receive state contributions of 6 percent, and
(Continued from Page /)
effects of the investment of virtually its entire
the law requires that new ORP enrollees be
portfolio in very risky derivatives.
University of Texas at Arlington. He re-
informed that future contributions "may fluc-
ceived his law degree, also with honors,
New legislation requires each college to
tuate over time." Clearly, the intent is that for
from Southern Methodist University. Found-
describe its investment objectives, with spe-
new college employees there will be a uniform
ed in 1972, the firm of which he is the senior
cific consideration given to suitability of the
retirement contribution rate, set in the biennial
partner now includes 30 practicing attorneys,
investment to the college's financial require-
appropriations bill, for both TRS and ORP.
several of whom are recognized as special-
ments, safety of principal, liquidity, market-
The legislature appropriated almost $134
ists in legal matters involving rights of
ability, diversification, and yield. Also, each
million for the community college employ-
teachers. Mr. Rogers received his bachelor's
college must submit a quarterly investment
ees' group insurance program during the I 995-
degree from Baylor University and his law
report stating the carrying value, the market
97 biennium. That amount, college representa-
degree from the University of Arkansas.
value, and the maturity date of each individual
tives said, will maintain the present level of
investment, as well as the specific account or
Speaker for the conference luncheon
insurance coverage for the next two years.
fund which was the source of the money for
session will be Marc A. Nigliazzo, president
Changes in TASP
each investment.
of Temple Junior College. Dr. Nigliazzo
There was a serious effort during the leg-
held numerous teaching and administrative
College Service Areas
islative session effectively to eliminate the
positions before being named president of
A measure intended to clarify specific
Texas Academic Skills Program. Opponents
Galveston College in 1991. He was selected
"service areas" for the state's 50 community
of the program argued that it restricts access
this year to be president of Temple Junior
college districts was passed into law. The bill
to higher education opportunities. After the
College. Dr. Nigliazzo has made numerous
covers more than 95 percent of the state
House of Representatives passed a bill that
presentations at professional meetings and
containing 98 percent of the population and
would virtually eliminate requirements for
has conducted workshops on the teaching
specifically delineates the areas to be served
assessment and remediation, intense lobbying
and improvement of writing. He has
by each college. State Sen. Bill Ratliff (R-
efforts by college and university faculty lead-
published several articles and co-authored a
ers and instructional administrators and
Mount Pleasant), the bill's author, commented
textbook. In his conference remarks on "The
on the legislation: "With the limited state
strong pressure from business and industrial
Faculty Role in College Decision-Making,"
resources available for higher education, it is
leaders kept the measure from being debated
Dr. Nigliazzo will discuss a president's per-
imperative that funds allocated forcommunity
in the Senate.
spective on the realities of participatory
colleges be spent as efficiently as possible...
Legislation was passed to exempt from
decision-making in higher education.
[This measure] will virtually eliminate over-
TASP students over 55 years old not pursuing
The afternoon discussion, entitled "Legis-
lapping of services between community col-
degrees. Also, students enrolled in certificate
lative Issues Affecting Higher Education," will
leges, thus contributing to a more efficient
programs of less than one year were exempted
feature State Rep. Dianne White Delisi (R-
delivery of higher education opportunities
from TASP; and students diagnosed as having
Temple). Rep. Delisi presently serves as vice
for the people of Texas."
dyslexia or a related disorder also were ex-
chair of the powerful House Committee on
empted.
The House sponsor of the bill, State Rep.
Appropriations and is a member of the House
Investment Strategy
Tom Craddick (R-Midland) said, "Whereas in
Committee on Public Health. Rep. Delisi is
In an effort designed to avert high-risk
the past the boundaries of colleges' service
widely recognized as an effective advocate for
investments of community college funds,
areas were virtually imaginary, this firms up
higher education in Texas.
and lays out exactly what those areas are."*
legislation was enacted to require each college
TJCTA State President Pat Smith has sent
letters to leaders of faculty organizations in-
COMMITTEE REAFFIRMS POSITION ON GRADING
viting them to participate in this year's con-
ference. In her letter Dr. Smith said, "The
The TJCTA Executive Committee last
tion statement on academic integrity adop-
major purpose of the annual conference is to
May adopted a statement reaffirming the ted by the Association in its March 1981
contribute to an improvement in the effec-
convention. That statement declared the
Association's long-held position regarding
tiveness of local faculty organizations at
Association's commitment to the princi-
grading practices in Texas community col-
ples of academic integrity, accepting the
two-year colleges in Texas. We believe every
leges. The action came in response to "un-
faculty group can benefit from having its
settling reports" concerning policies and
responsibility of college teachers to estab-
leaders attend the meeting."
practices in some colleges, according to
lish and maintain standards of excellence,
TJCTA officials.
recognizing the need for fairness and con-
While designed primarily for leaders of
sistency in evaluation of student perform-
Following is the text of the statement
local faculty organizations, the conference is
ance, recognizing the need for public confi-
approved by the organization's Executive
open to all interested TJCTA members and
dence in the integrity of our colleges, and
faculty leaders. Conference registration
Committee:
strongly affirming the need to strengthen
should be completed by Sept. 26, through the
Evaluating and grading students is
and preserve credible measures for evalu-
TJCTA State Office, 901 South MoPac Ex-
the teacher's responsibility. Inter-
ating student performance.
pressway, Building One, Suite 410, Austin,
ference in this process threatens the
78746 (or call toll-free, 1-800-288-6850).
principle of academic integrity. In
The 1981 TJCTA statement also de-
Hotel accommodations, at a flat rate of $72
matters of unresolved disputes over
clared that "each institution should estab-
for single or double occupancy, may be re-
grades, students should have the right
lish and vigorously uphold reasonable and
served by contacting the Wyndham hotel di-
to appeal to an impartial committee.
responsible standards of academic per-
rectly, at 1-800-443-2241. Reservations are
Colleges without such policies should
formance by students and teachers" and
subject to availability. A $30 registration fee,
adopt and publish them accordingly.
called on colleges to "adopt adequate pro-
payable on arrival at the conference, will
According to TJCTA State President
cedural safeguards for grade appeal which
cover the Friday evening reception and lunch
are explicitly stated and appropriately
Patricia A. Smith, the Executive Commit-
and refreshment breaks on Saturday.
tee action is intended to amplify the posi-
published."
TJCTA Messenger
3
MEMBERS NAMED TO
TOP STATE OFFICIALS CALL FOR BETTER
TECHNICAL STANDARDS
COORDINATION OF HIGHER EDUCATION PLANNING
ADVISORY COMMITTEE
In action widely thought directed at
committees and research agencies that the
stemming the tide of ill-conceived and ill-
changes would not benefit the state's higher
education system. Powerful local business
advised expansion and reorganization of the
and political leaders have been instrumental in
Texas system of higher education, Governor
bringing about expansions and reorganiza-
George Bush, Lt. Governor Bob Bullock, and
tions of institutions and systems, frequently
House SpeakerJames E. "Pete" Laney issued
bypassing the Coordinating Board entirely.
a joint statement in June declaring that future
changes in the state's higher education sys-
In their joint statement, the three top
tem must be considered by the Texas Higher
officials said, "Decisions about our institu-
Education Coordinating Board. The statement
tions of higher education must be based on
declared that the Coordinating Board "must
sound public policy and the best interests of
Mark Workman
Patricia Smith
become the venue to consider any changes or
Texas. These changes must no longer be
In the January 1995 meeting of the Texas
improvements to the state's higher education
considered in a piecemeal fashion, but must
Higher Education Coordinating Board, the
system."
be carefully reviewed in the context of their
board voted to consider adoption of mini-
impact on our entire higher education sys-
"To ensure sound planning and careful
mum educational technology standards that
tem." Noting that the mission of the
analysis, all ideas for new programs, consoli-
would apply to Texas public universities and
Coordinating Board is to provide compre-
dation of college campuses, or changes in the
two-year colleges. An 11-member advisory
hensive planning to "ensure both quality and
governance of our higher education institu-
committee was appointed by Commissioner
access" in the state's higher education system,
tions should be presented to the Coordinating
Kenneth H. Ashworth to formulate recom-
the leaders called on legislators to work
Board for review," the statement said. "The
mended standards for consideration. Among
through the Coordinating Board and dis-
best interests of Texas demand that we should
members of the committee are two leaders in
couraged them from considering legislation
no longer consider any consolidations, new
the Texas Junior College Teachers Associa-
that "circumvents the letter and the spirit of
programs, or changes in our system of higher
tion: State President Patricia Smith, Temple
education unless they are approved by the
the Coordinating Board functions."
Junior College, and Mark Workman, Frank
agency charged with strategic planning for
TJCTA leaders hailed the joint statement,
Phillips College, chair of the TJCTA Mem-
higher education, the Texas Higher Education
pointing out that Association representatives
bership Services Committee.
Coordinating Board," the three leaders said.
for years consistently have argued against the
In its preliminary meeting, the advisory
The last several sessions of the Texas
"downward expansion" of upper-level univer-
panel agreed to develop recommendations in
sities in the absence of Coordinating Board
Legislature have seen major changes mandat-
the areas of educational technology planning,
findings that the expansions would serve the
educational media, student computer/
ed by lawmakers despite findings by the Co-
best interests of the state.
ordinating Board and various "blue ribbon"
telecommunications access, distance edu-
cation, network access, and library.
COORDINATING BOARD
Chair of the advisory panel is W. A. (Bill)
NEWEST COLLEGE GETS
Baker, Vice President for Academic Affairs
NAMES TWO TO FORMULA
VOTER APPROVAL
at the University of Texas at Tyler. Other
ADVISORY COMMITTEE
Voters in Hidalgo and Starr Counties on
committee members include Robert Rose,
the Texas-Mexico border overwhelmingly
Vice President and Dean of Instruction,
approved the creation of the state's fiftieth
Galveston College; Angie Runnels, Vice
public community college district in an elec-
President for Instruction, North Lake College;
tion held August 12. The college was estab-
John Dinkel, Associate Provost for Com-
lished by an unusual action of the Legislature
puting and Information Services, Texas A&M
in 1993, transferring the McAllen campus of
University; Jesse Rogers, Vice President for
c.
the Texas State Technical College to a new
Academic Affairs, Midwestern University;
community college.
Tom Burnett, Apple Computers, Austin;
Harrison Coleman, GTE Telephone Opera-
Under the law voters of the bi-county area
tions, Irving; and Clyde Poole, senior stan-
were required by the year 2000 to ratify
Brian Dille
Scott Nelson
dards analyst for the Texas Department of
establishment of the district and the manner
Information Resources, Austin.
Two past state presidents of the Texas
of election of trustees, otherwise the college
Junior College Teachers Association have
would be abolished. Additionally, voters were
Dr. Dille and Dr. Nelson are the only
required to give taxing authority to the new
been appointed to the Public Community and
faculty members on the panel. The committee
Technical College Formula Advisory
college district in order to continue receiving
also includes two lay members, Edward B.
Committee of the Texas Higher Education
state appropriations.
Adams, of the IBM Corporation in Austin,
Coordinating Board. Brian Dille, Odessa Col-
After a well-organized campaign mobi-
and Lydia Santibanez, of Coldwell Banker
lege, and Scott Nelson, Kingwood College,
lizing faculty and staff, students, and other
LRS Properties, Inc., Temple. Eleven college
were named to the 15-member committee.
college supporters in the two counties, voters
officials serving on the committee are Cheryl
Dr. Dille served as TJCTA state president in
approved creation of the college district by
Sparks, president of Howard College, who
1993-94, and Dr. Nelson held that office in
more than a two-to-one margin. A tax rate of
serves as committee chair; Elaine P. Adams,
1994-95. Kenneth H. Ashworth, Texas Com-
2 cents for debt service was also approved;
Houston Community College; Robert
missioner of Higher Education, appointed
and a maintenance and operation tax rate of 8
Aguero, Eastfield College; John H. Anthony,
Dr. Dille for a term ending in 1996; Dr.
cents was authorized by a vote of 8,483 to
Collin County Community College; Adriana
Nelson's term extends to December 31, 1998.
5,002. All three propositions were approved
Barrera, El Paso Community College; Gilbert
by voters in both counties.
Leal, Texas State Technical College
The advisory committee was created by the
Coordinating Board, as directed by the
Harlingen; Steve Maradian, Lamar Univer-
South Texas Community College opened
Legislature, to recommend formula rates in
with 1,055 students in September 1993.
sity; Bill Segura, Austin Community College;
Preliminary headcount enrollment for the
Buddy Venters, Del Mar College; and Jimmy
the appropriations process for community and
Goodson, The Victoria College.
technical colleges for the 1997-1999 biennium.
Fall 1995 term is 3,368.
6
TJCTA Messenger
4
TEXAS JUNIOR COLLEGE
TEXAS ASSOCIATION
TEACHERS ASSOCIATION
OF COLLEGE TEACHERS
1995 Analysis of Possibilities
for ORP/TDA
The IRS has adopted certain guidelines and restric-
The Texas Optional Retirement Program (ORP) is
tions that affect ORP and TDA accounts. Whether one
designed for full-time faculty at state supported institu-
is a new employee or a veteran faculty member, there
tions of higher education. Created by the Texas Legis-
are three important dates to consider when analyzing
lature in 1967, it is offered as an alternative to partici-
pation in the Teacher Retirement System of Texas
retirement. First, the Tax Reform Act of 1986 added
(TRS). Upon employment at an institution, an em-
required minimum distributions beginning at the age
of 70'/2 for all contributions made after 1986, including
ployee is given 90 days to choose whether to invest his
or her retirement fund in ORP or TRS. This choice is
the earnings on the Dec. 31, 1986 balance. There is one
exception to this rule. A faculty member still employed
irrevocable. If a decision is not made within 90 days, an
in the college system past age 701/2 need not begin
employee will be enrolled in TRS by default.
distributions until the earlier of age 75 or actual retire-
More often than not, new faculty members partici-
ment. Distributions on pre-1987 values are required at
pate in ORP. Why? While there are many reasons, the
age 75 also.
following are a few of the most important. First, there
The 1986 law also added withdrawal restrictions to
is a contribution of up to 15.15 percent of salary placed
Editor's Note: For the
TDA annuities (mutual funds have always been re-
into a retirement plan. This is the sum of the employee's
twenty-first consecutive
year, this Analysis has
contribution (6.65 percent of gross salary) and the
stricted) and a ten percent penalty for premature distri-
been made available to
butions. The ten percent premature distribution penalty
state's contribution (from 6.0 to 8.5 percent of salary).
members of the Texas As-
was effective Jan. 1, 1987, while withdrawal restric-
Second, the retirement savings plan is self-directed,
of College
sociation
tions were effective Jan. 1, 1989. Those restrictions
and the vesting period is one year and one day. If an
Teachers and the Texas
mean that money cannot be withdrawn before age 591/2
employee does not vest, the state's monies are returned.
Junior College Teachers
except in the event of death, disability, hardship (lim-
The retirement benefit or monthly income is based on
Association to assist in
ited to contributions only) or separation from service.
contributions and earnings on those contributions.
their retirement planning.
The ten percent penalty applies before age 59'/2 unless
The staff of the two asso-
The Teacher Retirement System is for all persons
the employee separates from service at age 55 or later,
ciations who compiled this
who opt not to be in ORP or are not eligible for ORP.
has a medical hardship, disability, Qualified Domestic
year's Analysis are grate-
TRS is a defined benefit program, in which the
Resolution Order, or dies. The Dec. 31, 1988 account
ful for the efforts of Frank
employee's retirement benefit is two percent of aver-
value for annuities is "grandfathered" so that with-
L. Wright, who managed
age salary in the highest three years, multiplied by the
the Analysis for most of its
drawals can be made for any reason; however, the ten
number of years of participation in the program. The
history, Marjorie Collings-
percent penalty will still apply.
current vesting period for TRS is five years.
Diehl, who introduced a
Most companies have incorporated TDA loan pro-
new format last year, and
Whether the choice is ORP or TRS, most employees
visions into their policies or custodial agreements un-
the many professionals of
are eligible to place additional pre-tax contributions
der the Tax Equity and Fiscal Responsibility Act of
the ORP/TDA companies
into a Tax Deferred Account (TDA). A TDA is a
1982. The IRS and each firm will have certain guide-
who cooperated in making
supplemental investment that may be made in addition
this service possible.
lines and criteria that must be followed. If the IRS rules
to the mandatory program. TDAs receive no state
are not followed, the loan could be considered a with-
No investment decision
contribution. While similar to an Individual Retire-
drawal or premature distribution and subject to tax and
should be based solely on
ment Account (IRA) in that it is self-directed, TDAs
the data reported in this
ten percent penalties. For specific information, the
differ from IRAs in several respects. First, the TDA
Analysis. Investment needs
investor should contact representatives of the com-
usually allows an employee to contribute more pre-tax
vary, and, as we all know,
pany.
dollars than an IRA. Second, there is a calculation
"Past performance does
Another date that will affect ORP and TDA ac-
required by the IRS to determine the additional amount
not guarantee future suc-
counts is Dec. 31, 1995. The Revenue Reconciliation
that may be saved. The calculation is called a Maxi-
cess."
Act of 1993 places further restrictions on the amount
mum Exclusion Allowance (MEA). While the calcula-
that can be contributed on a pre-tax basis. Effective
tion is complicated, the additional amount that can be
Dec. 31, 1995, the maximum salary on which ORP
deferred usually ranges from four to eight percent of
contributions may be made is $150,000.
salary.
7
the rate for dollars that are annuitized at
Additionally, when dollars are withdrawn
interest rate, which is normally higher than
the contractual minimum. This rate may
for retirement purposes, a 15 percent excise
retirement, and credits less interest to those
tax is added to any normal taxes due on
change daily, monthly, quarterly, or annu-
wishing a cash option. Annuity contracts
amounts above $150,000 in any one year.
ally. The current rate of interest is derived
have two phases, accumulation and distribu-
from the company's earnings, and is set by
The Revenue Reconciliation Act of 1993 has
tion. Annuitization is a distribution phase. By
another far-reaching effect. Under the law,
the board of directors. The actual formula for
utilizing this distribution process, a partici-
the IRS determines an individual's life ex-
the current interest rate varies from firm to
pant can buy an "income stream." The insur-
pectancy using mortality tables, then sub-
firm. It is largely an unknown and discretion-
ance company will guarantee, according to
tracts the actual age at death to determine
ary formula, subject to change.
the contract choice made, to provide an in-
how many fewer years of retirement the per-
come the annuitant cannot outlive. Other
Other types of fixed accounts offer more
son had than expected. This number is multi-
options can include: receiving money for a
specific information regarding their yields.
plied by $150,000 then subtracted from the
set period of time, or even an income stream
They may offer a rate based upon a pool of
cumulative remaining balance in the ORP
for the spouse upon the annuitant's death
specific underlying assets such as govern-
and TDA accounts. A 15 percent excise tax is
(known as joint and last survivor option) or
ment bonds, treasuries, or other securities.
due on that amount.
any other mutually-agreed combination. The
These are sometimes called Market Value
loss of flexibility and liquidity for the dollars
For example, an employee retires at age
Adjusted accounts. Only when a firm will
annuitized is assured, since the purchase of
65 with total accumulations (ORP and TDA)
disclose and contractually guarantee the for-
an income for life guarantees the accumula-
of $2.4 million. According to the mortality
mula can investors be assured of the interest
tion in the account to be with the insurance
tables, the employee is expected to live to age
crediting method for their contract. While
company for a very long time.
85. The employee dies at age 75, and the total
most insurance companies work on an old
account remaining is $2 million. According
When comparing interest rates, be careful
banking principle, paying policyholders two
to the mortality table, the employee died 10
of the manipulations that companies may
percent less than the company earns on its
years sooner than expected. These ten years,
provide to "enhance" their contracts. The
investments, the choice of formulas is still at
multiplied by $150,000 equals $1.5 million.
highest interest rate is not necessarily the best
the discretion of the company's board.
This amount is then subtracted from the re-
bargain. Since interest rates have declined in
Insurance companies credit or pay inter-
maining account value of $2 million, leaving
the last ten years, a number of companies will
est in many different methods. The most
$500,000, which is considered excess sav-
pay a first-year bonus thereby enticing a
widely used method is to "band" interest
move to that company. However, the en-
ings and is taxed an additional 15 percent, or
rates. As money is received by the company
$75,000. This does not include income or
hanced first-year rate can be at the expense of
the current interest rate is applied. The cur-
estate taxes.
the renewal rate.
rent interest rate can be guaranteed for any
Not all enhancements to contracts are
Caution should be exercised, with special
period of time. However, as the rate changes,
attention given to many charges companies
negative. Some bonus contracts truly provide
monies received from that point forward
can assess. All performance figures quoted in
a positive enhancement to earning potential.
would be considered a new band and credited
this study are net of all administrative or
Annuitization is necessary to some people's
at the new rate. The old money, or band, may
management fees for the specific years men-
financial planning, but is typically not rec-
continue to earn the former rate of interest for
tioned. Net performance is a good starting
ommended for all accumulations. Keep in
the specified period of time. Once that time
place for comparison. Neither low nor high
mind, the firms currently available for ORP
has elapsed, a new rate may be applied to that
expenses and charges assure the best invest-
band. Over time, the con-
ment. Is an investment that has a gain of ten
tract may have many
1995 Legislative Changes to ORP Funding
percent and charges only one percent per year
bands of different rates.
(nine percent net) better than an investment
Some firms band for a
The 74th Texas Legislature made several decisions
that has a gain of 30 percent and charges three
year and then the dollars
regarding the Optional Retirement Program which may
percent per year (27 percent net)? Historical
drop into a pool or port-
affect the planning decisions of ORP participants and po-
investment performance does not and cannot
folio. The current rate
tential participants. The rationale begins with the Teacher
guarantee future results. However, many in-
paid on the pool or portfo-
Retirement System. The TRS Fund was termed "robust,"
dividuals will use past performance to assist
lio may be higher than
permitting the Legislature to reduce state funding from 7.31
in the decision process. Flexibility and port-
the initial band. If the
percent to 6.0 percent of salary, while allowing an unprec-
ability should also be considered.
edented benefits increase to retired TRS participants (insig-
rates are quoted on a port-
folio basis, the dollars
nificant enhancements were adopted for future retirees).
As an investor, it is important to analyze
earn the stated interest
front end charges (which reduce the amount
Next, as the logic continued, ORP participants should not
rate when deposited.
of money that goes to work immediately),
receive greater state contributions to their retirement plans
and contingent deferral charges (which tend
than do TRS participants, so the ORP level was correspond-
To attract new partici-
to limit flexibility and the portability of the
ingly reduced to 6.0 percent. Then, recognizing the public
pants, many companies
policy benefit of ORP and an implied agreement with ORP
investments). In order to maximize potential
will increase or enhance
participants, the drafters of the budget added enough money
gains in the future through new products or
third quarter current rate
in a special appropriation to the institutions to supplement
innovations, flexibility and the allowance of
declarations, when com-
the 6.0 percent with 1.31 percent to total 7.31 percentthe
change are important factors.
panies receive the lowest
appropriated level for the past four years. Finally, ORP
Fixed Accounts
contributions of the year.
participants must remain hopeful that institutions can find an
Not all companies engage
Fixed accounts are traditionally invest-
additional 1.19 percent to reach an 8.5 percent non-partici-
in this practice; however,
ments in the "general accounts" of an insur-
pant match, as all universities and most two-year colleges
one should be aware that
ance company. These accounts function in a
have provided for the past 15 years.
this strategy is used to
fashion very similar to a bank's Certificate of
For new ORP participants hired after Sept. 1, 1995, the
entice participation in
Deposit. The dollars on deposit are "lent" to
legislative intent is different. Riders to the Appropriations bill
certain programs.
the insurance company. The insurance com-
stipulate that the ORP contribution shall be the same as the
pany agrees to repay both principal and a
Another tool to entice
TRS rate (with no supplement provided) and that new
contractually-guaranteed minimum interest
participation is the "two-
ORP
participants be clearly advised that the
contribution
tier" crediting process.
rate, presently ranging between 3 percent and
rate is subject to change.
This process enhances
4'h percent. Most companies pay the current
A2
ORP/TDA Analysis
funds can be composed
and TDA are focused upon creating competi-
r
Company Rankings
Table 1
of one or more of the
tive products for accumulations. At retire-
ment, shopping for the best annuitization rate
following: Treasury bills,
Company
I) & P Moody's
S & P
AM Best
is a very prudent decision. In addition to
certificates of deposit,
Allmerica Financial/SMA Life
A+
A
nr
Aa3
checking with one's current firms, there are
American Express Financial Adv.
commercial paper, Euro-
A+
n/a
AAA
Aa2
American United Life
A+
AA-
AA+
A
dollar CDs, and notes.
several companies that specialize in the dis-
Century Life of America
A+
nr
nr
AA-
tribution phase (annuitization). At retirement,
The objective is to main-
College Life Insurance
BBBq
A
nr
nr
tain a constant share
all accumulations in both ORP and TDA
Delta Life and Annuity BBq
A+
AA-
nr
Diversified Investment Advisors
AA+
AA+
A
Aa3
value while producing a
accounts become 403(b)s. (403(b) is the sec-
The Equitable Life Assurance
A+ A+
A2
A
return slightly above
tion of the Internal Revenue Code that allows
Fidelity and Guaranty Life
BBB+
AI
A-
Baa3
bank money market
for these retirement programs. Therefore, all
Fidelity Standard Life
AA
nr nr
A
dollars could be comingled. By placing a
Franklin Life Insurance
AA+
A+
AA
funds.
Aa3
Great American Life (GALIC)
BBBq
A+
Baa3
A
larger sum on deposit, one could purchase a
2. Bond Funds can
Great Southern Life
BBBq nr
nr
A
higher income stream, but do not forget to
Jackson National Life
AA
nr
A
AA
come in many varieties,
shop because it is a lifelong decision.
Kemper Investors Life
Baal
nr
A+
A-
including a government
nr
AA-
nr
Life Insurance Co. of the Southwest
A
bond fund, a corporate
Most fixed contracts, like CDs, will have
Lincoln National Life
A+
AA-
AAA
Aa3
bond fund, high yield
Loyalty Life
nr nr
B+
BBq
a penalty for early withdrawal. The term for
Massachusetts Mutual Life
A++ AAA AAA
Aa I
bond fund, or others.
this is surrender or withdrawal penalty. This
MetLife
AA+
A+
AAA
Aa I
Typically, the investment
charge is usually assessed on payments made
Mutual of America
AA+
AA+
Aa3
Ai-
to the contract that have not been "on-de-
criterion requires that any
National Western Life
nr
A+
nr
A-
Nationwide Life insurance
A+
AAA
nr
Aa I
holding purchased be a
posit" for a specified period of time.
New York Life Insurance
Aaa
A++ AAA AAA
bond.
North American Security Life
nr
Baal
A-
A
Finally, it is important to consider ratings
Northern Life Insurance
A+ AA-
AA
A I
3. Stock Funds can be
of firms if the dollars are invested in the fixed
The Pioneer Group
A+
AA Aa
A
side of any contract. Since the money is
classified in three catego-
SAFECO Life
nr
A+
AA
Aa2
Equity-Income
ries.
Security Benefit
A+
guaranteed by the insurance company, sol-
AA-
AA-
nr
Security First Life
nr
AA nr
A
Funds focus on income,
vency of the firm should be a factor for
Southwestern Life Insurance
B+ B+
B2
B
with capital appreciation
consideration. When placing assets in a fixed
State Farm Life
A++ AAA nr
Aaa
as a secondary concern.
account, utilizing two or even three different
TIAA
A++ AAA
Aaa
AAA
Growth and Income
Transamerica Life Insurance
AA+
A+
AA+ Aa3
rating services is considered prudent. (See
Travelers Insurance Company
A+
A+
A2
A
Funds attempt to produce
Table 1.) Each rating service (such as A.M.
Union Central
A+
nr
A+
A
both capital appreciation
Best, Standard and Poor's, Duff and Phelps,
United Investors
A+
AAA nr
nr
and current income.
UNUM Life Insurance
A++ nr
AA Aa2
and Moody's) has a different area of exper-
USAA Life Insurance A++
AAA
nr
Aa I
Growth Funds seek capi-
tise and specific evaluation criteria. Some of
VALIC
A++ AAA
AAA Aa2
tal appreciation first
those areas include solvency and claims-
Western National Life
AA-
A+
A2
A
while current income is a
paying ability. However, be advised that even
Each mutual fund comes with a prospec-
distant secondary concern.
these rating services are not infallible. In the
tus, which must be provided to the investor
past, several companies have been placed
4. Balanced Funds are also called "total
before purchase. This prospectus will pro-
into "receivership" despite having high rat-
return" funds. The objective is to provide
vide information such as the name and cre-
ings by these services. Texas does have a
total returns through growth and income. The
dentials of the fund manager, the goals and
guarantee program. This program offers pro-
fund typically purchases stocks, bonds, and
objectives of the specific fund, and informa-
tection of up to $100,000 of account value
convertible securities. Weighting of each as-
tion regarding fees and other expenses. It will
with each company.
set class will depend upon the manager's
also describe the limitations placed on the
perception of the market, interest rates, and
Mutual Funds
manager. All funds instruct the investor to
risk levels.
"read the prospectus carefully before invest-
Mutual funds are available for ORP and
ing or sending any money." Unfortunately,
5. International (Global) Equity Funds
TDA deposits. An investment company or a
the prospectus is written in such technical
consist of two types. International or Foreign
mutual fund is either a corporation or a trust
terminology, most people would have diffi-
Funds may only invest in stocks of foreign
in which investors pool their funds and invest
culty interpreting its contents.
companies. Global Funds can invest in both
them in a wide variety of securities. An
foreign and U.S. stocks. The objective of
All mutual funds have fees, including so-
investment company or mutual fund is en-
called "no-load" funds. Who has not read
either category is growth of capital.
gaged in the business of investing in securi-
beautiful, glossy brochures that funds use to
ties, managing funds for people more effec-
6. Aggressive Growth (Small Company)
market their products? Who pays for the
tively than they ordinarily could for them-
Funds are mutual funds that focus strictly on
marketing, research, administrative support,
selves. A fund operates as a single large
appreciation, with no concern about generat-
reports, fund managers, and other costs? The
account that is owned by many shareholders.
ing income.
investor pays these expenses. Accepting the
Today, there are more mutual fund choices
7. Special Funds are grouped in two cat-
fact that there is "no free lunch," what charges
available than companies listed on the New
egories: Metal Funds and Non-Diversified
should one review before investing?
York Stock Exchange. As the world economy
Funds. A metal fund purchases metals in one
The investment advisor or advisors, mak-
continues to grow, opportunities for invest-
or more ways: bullion, gold stocks, and min-
ing the daily decisionsto buy, sell, or hold
ing beyond our shores become increasingly
ing stocks. Non-Diversified Funds are de-
the investments of the fundmust be paid.
viable options. Additionally, most funds are
fined by the Securities and Exchange Com-
The research and overhead costs for adminis-
now grouped in "families" that offer a broad
mission as holding more than five percent of
tering the fund must be paid. These are usu-
array of funds within one package or com-
the funds' total holdings in the security of one
ally described as "investment advisory ex-
pany.
company. These funds can also be industry
penses" or "management fees." Always find
Here is a brief description of the kinds of
specific.
out what the management fees are. They
investments available.
The above definitions have been modified
range from 0.17% for Money Market Funds
1. Money Market Funds invest in securi-
from those found in the Certified Fund Spe-
to 5% for International Funds. Does the fee
ties that mature in less than one year. These
cialists guide.
amount affect the performance of the fund?
A3
ORP/TDA Analysis
Table 2 - Contract Expenses
Contract
Total
Expense
Excess
Annual
Transfer Fees
Ratios
Admin. Exp.
Contract ID
Company
M &E
Policy Fee
0.42 - 1.50 $25 over 6
0.000
Allmerica Financial/SMA Life
30.00
1.45
Exec Annuity Plus
0.64 0.89
na
0.000
American Express Financial Adv.
Flexible Annuity
30.00
1.00
0.28
0.005
na
American United Life TDA Multiple Fund
30.00
1.25 1.05
0.250
na
0.00 0.29 0.42
CREF
none
RA, SRA (n1), GSRA
0.10- 1.02
0.000
na
0.90
Diversified Investment Advisors
Fixed Accts - ORP
30.00
0.10 - 1.02
0.90
0.000
na
Diversified Investment Advisors
Fixed Accts - TDA
24.00
0.78
na
1.34 - 1.49
0.000
none 0.38
The Equitable Life Assurance
EQU1- VEST
0.27
$10 - currently waived
0.000
0.80
Fidelity Standard Life
FLS224
27.50
1.35
na
0.300
0.93
Advantage III
Kemper Investors Life
0.53
25.00
1.00
Multi-Fund ORP
0.37 - 1.26
na
0.000
Lincoln National Life
none
1.00
0.000
0.37
Multi-Fund - TDA
na
Lincoln National Life
25.00
1.26
1.00
na
0.150
Massachusetts Mutual Life
0.39
Flex Extra Annuity
35.00
0.91
1.15
0.500
0.32
Preference Plus
0.75
na
0.00
MetLife
1.04
0.50 0.083
0.13
na
Mutual of America TDA-3300
24.00
1.08
na
0.050
0.25
Best of America IV
Nationwide Life Insurance
12.00
1.70
1.25
0.10 0.20%
0.47 - 0.97
$30 over 12/yr
New York Life Insurance
30.00
1.30
NVA
0.150
0.57
na
30.00
North American Security
Venture
1.25
1.25
$10 over I2/yr
0.64
0.000
SAFECO Life
Resource B
1.20
30.00
1.25
0.000
na
30.00
Security Benefit
1.34
0.61
1.20
Vari fl ex
0.27 - 1.30
0.000
24.00
na
Security First Life
SFL228
1.35
Must move over 10 yrs
0.250
none
RA, SRA (nl), GSRA
TIAA 0.00
na
na
0.32
Universal Annuity 0.000
30.00
Travelers Insurance Company
1.25
1.25
0.56 - 1.08 $10 over 6/yr
0.250
Union Central 30.00
1.20
VA
None, only 12 allowed
0.90
0.000
0.62
50.00
United Investors
1.26
Advantage 11
na
0.40
25.00 0.000
Variable Annuity III
UNUM Life Insurance
1.20
1.05
0.05 0.33%
1.00-1.25
na
Portfolio Director
none 0.38
1.02
VALIC
Total M &E- Mortality and Expense Risk Expense Ratio-the range of sub-accounts for 1994
as a fixed only contract. Variable annuities
with an investor in the design of an invest-
Yes, it does. While one does not want to make
ment plan. The professional will be paid
are by design variable investments.
this an overriding concern, an investor needs
to be comfortable and understand the fees
based upon the amount invested and the per-
The variable annuity is a product that is
formance of the account. If applicable, this
assessed. Generally, net performance, not
constantly evolving. The horizontal integra-
internal cost, is the important factor to con-
fee will be found in the prospectus.
tion of these contracts is an innovation that
sider when investing.
It has long been the subject of much dis-
seems to be growing. Previously, all pro-
cussion whether paying an up front charge is
grams were vertically integrated. Manage-
There are three pricing strategies for mu-
best or if it is preferable to have a contingent
tual funds. A-share mutual funds are front-
ment, marketing, administration, and sales
charge. One position holds that if the invest-
loaded funds. The cost to invest will usually
were all performed by the same company. In
ment is for the long term (ten years) it will be
range from zero percent for Money Market
the late 1980s, several firms began adding
better to pay up front charges, since this will
external fund managers to the proprietary
Funds to eight percent for International Funds.
make the annual management or investment
The load immediately reduces the amount
funds offered in the contract. Today, an in-
charge significantly lower. This argument is
going to work. These funds will typically be
vestor can even cross fund families in one
true. However, it does not take into consider-
presented by a salesperson who will receive
contract.
ation personal, economic, or product changes.
a commission to represent that company.
Remembering that the variable annuity
The original investment chosen today may
B-share mutual funds are sometimes
contract is offered by an insurance company
not be the best investment for an individual in
known as no-load with a contingent deferred
may assist an investor with the following
the future.
sales charge. These shares have an early
discussion regarding fees. The expense risk
Variable Annuities
withdrawal penalty if the amount does not
and mortality charge are fees assessed in
remain on deposit for a specified period of
most variable annuities. The expense charge
Variable annuities can be described as a
time. These funds typically have higher man-
guarantees from the date a contract is signed
combination of fixed annuities and mutual
agement fees than the A-shares and are often
that the charges for management and annual
funds with a twist. Variable annuity contracts
clones of an A-share fund.
contractual charges will not increase for the
are life insurance contracts that have as few
life of that contract. The mortality charge is
as one or as many as 30 variable investment
C- and D-share mutual funds are no load
unique to variable annuities. Mortality charges
options. These options are referred to as sub-
in, and if held for a period of time (up to l
are guarantees by the insurance company that
accounts. The sub-accounts are, by law, sepa-
year), no load out. These are deemed no-
in the event of death, heirs will receive either
rate accounts. The variable choices offered
service or self-service funds. This class of
the contributions (deposits) or the face value
differ from the fixed account in that the
funds can be brought to the investor in two
of the contract, whichever is greater.
investor, not the insurance company, absorbs
ways. The old line of funds has no sales force;
the investment risk. There are no guarantees.
transaction are made using a toll-free phone
Today, several contracts have expanded
The money is never commingled in the insur-
number. The new line of funds uses salesper-
the mortality feature. This is called a "stepped-
ance company's general account. All earn-
sons that may or may not receive an up front
up death benefit." If available, the contract
ings or losses are tied to investment perfor-
commission. The management fees will prob-
will increase the amount invested at a certain
mance of the underlying account.
ably be higher than B-shares, therefore one
rate (e.g., five percent per year) or at a con-
should check the prospectus. More families
tract anniversary date (e.g., the fifth contract
Many variable annuity contracts have fixed
will begin offering C- and D-shares.
accounts. Research shows that almost 60
year). This value is the new "floor" that the
heirs will receive. This can be a very attrac-
Another fee that may be assessed is a 12-
percent of assets in variable annuity contracts
tive feature for older faculty investing in
are in fixed accounts. While this may be
b -1 fee, named after a federal government
rule. This fee pays for distribution costs,
prudent for a particular investor, the discus- stock accounts late in their careers. Another
sion provided in the fixed annuity section
fee assessed by the variable annuity is the
including advertising and dealer compensa-
applies here. In some cases, the fixed por-
investment advisory fee and, if applicable, a
tion. The 12-b-1 fee may provide a venue for
use, compensating a professional to work
tions of these contracts are not as competitive
12 -b -1 fee.
A4
ORP/TDA Analysis