ebulletin - august 2010

8/9/2019 eBulletin - August 2010

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Volume LXIV Number 1

July/Aug/Sept 2010


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The TACT Quarterly eBulletinJuly/Aug/Sept 2010 - Volume LXIV Number 1

In this quarters TACT newsletter...

Letter from the Presidentby Gary Coulton

Executive Directors Report

by Chuck Hempstead

House Bill 2504

by Peter Hugill

Oral Testimony to the Senate Committeeon Higher Education: Faculty Workloads

by Peter Hugill

From the TACT Archives: The Perfect TACT Memberby Barbara DeBois

ORP Study 2010

Key Election Dates/GRF Contributions

Fall Conference

Membership Application

Page 3

Page 5

Page 6

Page 7

Page 10

Page 11

Page 15

Page 16

Page 17

TACT Board of Directors

2010-2011

President

Gary Coulton

University of Texas -

San Antonio

President-Elect

Peter Hugill

Texas A&M

VP of Financial AffairsFrank Fair

Sam Houston State Universit

VP of Membership

Mark Gaus


VP of Legislative Affairs

Cindy Simpson


Directors At Large

Elizabeth Lewandowski

Midwestern State University

Allen Martin

University of Texas - Tyler

Debra Price


Executive Director

Chuck Hempstead

(512) 873-7404

Texas Association of College Teachers

5750 Balcones Dr., Suite 201 Austin, Texas 78731

[email protected]

[p] (512) 873-7404

[f] (512) 873-7423

Copyright 2010 by the Texas Association of College Teachers. All rights reserved.

No part of this publication may be produced in any form without permission; Chuck Hempstead, Editor.

TACT
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Letter from thePresident

Executive DirectorsReport

HB 2504

Oral Testimony:Faculty Workloads

The Perfect TACTMember

ORP Study 2010


Fall Conference

Membership

CONTENTS

3

The TACT Quarterly eBulletinTexas Association of College TeachersDefending Academic Freedom

TACT

Letter from the President

by Gary CoultonTACT President

Economic times are tough. Higher

education (as well as public schools) in Texas

were facing many challenges before the

current economic downturn (or recession ifyou prefer). Now, its even worse. It is hard

to imagine that many people reading this

column disagree that a key factor in ensuring

the long-term economic health of Texas is

increasing the educational level of our work-

force. Few faculty members who have been

employed by public institutions of higher

learning in Texas for any length of time are

likely unaware of the states program (i.e.,

Closing the Gaps; http://www.thecb.state.

tx.us) that is intended to do just that. The

general strategy to achieve this goal is bybreaking down barriers that prevent many

minority group members from successfully

pursing college degrees. More recently an

accelerated version of the plan - the Acceler-

ated Plan for Closing the Gaps by 2015 has

been instituted.

In a perfect world, the cause(s) of the

disparity in educational attainment between

white Texans and minority groups would

be straightforward and few. However, as I

learned long ago there are seldom (if ever)

simple answers to complex problems. This is

certainly a complex problem.

Part of the story involves various

difculties that may interfere with minority

youth obtaining maximum benets from pub-

lic school, which result in their poor prepara-

tion for higher education. However, space

prohibits discussion of that part of the story.

The primary concerns here are interventions

that can be made with current college stu-

dents.

The remainder of this column willfocus on recommendations made by a higher

education advisory committee appointed

last year by Governor Rick Perry (Melissa

Ludwig, July 29, 2010, Houston Chronicle

On-Line) and Dr. Raymund Paredes, Com-

missioner of the Texas Higher Education

Coordinating Board (THECB).

Governor Perrys Advisory Board

recommended ways to make higher educa-

tion more efcient. In their preliminary

report, the Advisory Board recommended thefollowing: making 15 credit hours (instead of

12) a full time load; outsourcing no-frills

education to for-prot schools; and requir-

ing 10% of courses applied toward students

degrees be in non-traditional formats (e.g.,

on-line, dual-credit courses). They further

recommended that the THECB be permit-

ted to establish an online junior college.

Although educators (and others) will likely

question many of these recommendations,

perhaps the two most salient ones are the use

of for-prot institutions (which have recently

be exposed as [at minimum] very costly for

students, and the extensive use of online

courses (which often cost more to offer than

traditional ones).

Finally, at TACTs June Board Meet-

ing we were pleased to have Commissioner

Paredes join us to discuss ve factors found

to be important in the retention of college

students (Clifford Adelman, 1999; 2006).
mailto:tact%40bizaustin.rr.com?subject=http://www.thecb.state.tx.us/http://www.thecb.state.tx.us/http://www.chron.com/http://www.chron.com/http://www.chron.com%29/http://www.chron.com%29/http://www.chron.com/http://www.chron.com/http://www.thecb.state.tx.us/http://www.thecb.state.tx.us/mailto:tact%40bizaustin.rr.com?subject=


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Those factors are: taking roll; effective academic advising; a strong orientation program; at

least one personal faculty contact per student per semester; and a change in census day rules.

The most controversial (and most likely to impact the scal health of Texas univer-

sities) of these factors is changing census day. The census day (the enrollment on that date

determines the amount of funding the university receives from the state) is currently the 12th

class day. Dr. Paredes proposes that the census day be shifted to the last day of class, so basi-

cally state funding would be based on class enrollments at the end of the semester. Students

would be included in the count regardless of whether they passed or failed the class. Commis-

sioner Paredes explained the rationale was that research showed students who tend to com-plete classes, regardless of whether they pass or fail, are more likely to eventually graduate

(vs. those who tend not to complete classes).

The TACT Board discussed potential problems they saw with the strategy. Several

Board Members predicted that the most likely way this may affect instructors is through

pressure from administrators to keep class enrollments as stable as possible. One way that

instructors might accomplish this goal is through grade ination. When questioned about that,

Commissioner Paredes said the THECB would have ways to monitor grades for trends (i.e.,

grade ination). However, Dr. Paredes was no more specic than that. While the TACT Board

was very appreciative that the Commissioner was willing to spend time with us, we continue

to be very concerned about the plan to change the census date and how doing so might impact

higher education in Texas.

If you are also concerned, I encourage you to contact your State Representative or

Senator. If youre not sure who represents you in Austin, simply go to the Who Represents

Me? webpage .

Letter from the President

(contd.)

The TACT Board with Commissioner Paredes.Left to Right: Peter Hugill, Elizabeth Lewandowski, Chuck Hempstead,Cindy Simpson, THECB Commissioner Raymund Paredes, Gary Coulton,

Mark Gaus, Frank Fair, Allen Martin, and Janet Fair
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Executive Directors Report

by Chuck HempsteadTACT Executive Director

Its THAT time of year again! The busy time of year where everyone

is gearing up for the new school year, the next legislative session,

and the new TACT year.

This year, it is vital to encourage colleagues to join TACT because of the ever-growing importance

of the state budget shortfall. Now, more than ever, it is essential for college educators to have

their voices heard about the importance of funding higher education.

The TACT year will start full swing with our newly-elected board members. Its my pleasure

to work with your experienced leaders, and you should thank them, too:

Gary Coulton, President

Peter Hugill, President-Elect

Frank Fair, Vice President of Financial Affairs

Mark Gaus, Vice President of Membership

Cindy Simpson, Vice President of Legislative Affairs

W. Allen Martin, Director at Large

Elizabeth Lewandowski, Director at Large

Debra Price, Director at Large

Mark your calendar for our Annual Fall Conference, October 29th in Austin. We want to know

if you can join us that Friday morning for legislative visits. And yes, things are happening at

the Capitol. Lt. Governor David Dewhurst has signicantly transformed the Senate committee

membership. These changes could be a good indication of what the makeup of the committee

membership will look like in the coming session. Until that time, we are still attending interim

committee meetings and making sure that college educators are kept in mind in the conversations

concerning subsidizing higher education. With the legislative nancial situation, we advocate

for any funds (general, research, or scholarship) that will be channeled to higher education.

I strongly encourage all members to persuade any new faculty in their department to look at the

TACT ORP/TDA study included in this eBulletin. Decisions regarding pension plans should be

made with great consideration for the future. This decision can only be made once, and thereis no turning back.

I would also like to remind everyone of the Government Relations Fund contributions report

in this eBulletin and hope that you will consider donating when renewing your membership in

September. The GRF greatly helps with the advancement of TACTs legislative agenda.

With all of that being said, I wish you good luck in your endeavors this year. Never hesitate to

contact us with any suggestions about how we can better serve college educators.


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The Texas Conference of the American

Association of University Professors recently

went on record as opposed Texas House Bill

2504 on several grounds, but mainly that it is

a clear assault upon the principles of academicfreedom long supported by AAUP. I believe

that the Texas Association of College Teachers

should follow that lead. House Bill 2504 will

have a chilling effect on the ability of students

and faculty to openly and honestly discuss

controversial scientic and cultural subjects

in the classroom because it will allow persons

opposed to such discussion to identify where

such discussions are occurring. It does so by

requiring faculty to post detailed descriptions

of material to be covered in their classes on

keyword searchable websites. Americanuniversities have long prospered because we

do not constrain speech in the classroom, just

as we practice free speech in other areas of our

lives. Academic free speech, like free speech

in the public forum, does not mean, as the

Supreme Court has long pointed out, the right

to yell re in a crowded room.

What it does mean is that controversial

issues appropriate to the class in question can

and, indeed, must be raised if educated citizens

are to understand crucial issues that will affect

their lives. Obvious examples would be the

teaching of global climate change in courses

on atmospheric science, discussion of stem

cell research in biology, and of the impacts

of fundamentalist religion in courses dealing

with human cultures. Even tenured faculty

can feel constrained in such discussions when

they know they are likely to be exposed to

ill-informed criticism. Untenured faculty and

faculty teaching in the many Texas institutions

of higher education where faculty speech

is unprotected by tenure will be far more

constrained.

Other than its assault upon long-heldacademic values, HB 2504 will substantially

raise costs. It requires far more than posting

machine-readable course outlines. It requires

posting ofcurriculum vitae, student evaluations

of each faculty member, departmenta

nances, and the like. It is already consuming

a substantial amount of staff and faculty time

and will require considerable expansion of

server space and expense, taxes that are

imposed at the level of individual departments

but that will have to be passed on to students

and the people of the state in some way. It is aclassic logistically burdensome and unfunded

legislative mandate.

House Bill 2504

by Peter HugillTACT President-Elect

Peter Hugill is a Professor in

the Department of Geography

at Texas A&M University;

he serves as President, Texas

A&M Chapter AAUP;

President, Texas ConferenceAAUP; and President-Elect,

TACT


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I thank the Committee for inviting

me to testify today. Faculty workloads are

extremely complex, especially in Tier 1

Research Universities. Im proud to have

been part of the remarkable developmentof Texas A&M University for the past

32 years and my work there has included

almost all the teaching, research, and

service roles that faculty perform.

My testimony today relies on data

from A&M, but much of what I have to

say applies to other universities where

research is highly valued, such as Texas

Tech, the University of Houston, et ce-

tera.

We are good at measuring one

important part of our workload: teach-

ing. Our reporting is transparent, but we

measure at the level of the individual.

Universities, like the Departments and

Colleges within them, are really complex

teams in which team effort is at least as

important as individual effort. Within the

University, we do a good job measuringthe other crucial parts of that team effort,

research and service, but I believe we do

a poor job communicating those measure-

ments to you, our elected representatives.

I hope to do a little better today!

In universities with strong re-

search programs, it is necessary to mea-

sure workload in part through research

dollars generated. Grants from major

national research funding agencies such

as NSF are highly competitive and, with

teaching and publication, comprise an im-

portant part of annual faculty evaluation.

Most grants are for multiple years withextension clauses. Assigning an annual

value is difcult.

Research dollars pay much of the

cost of running research laboratories andprograms. More importantly, they fund

graduate students, who are the primary

labor source in research and our future

knowledge generators. A faculty member

with large grants usually has a reduced

teaching load of formal classes in order to

attract and supervise substantial numbers

of graduate students.

As business and industry becomemore knowledge-intensive, research

universities contribute more to economic

development. Universities help develop

important new industries and new jobs

for our state while enhancing older indus-

tries through innovation. For example, the

cheap and effective boll-weevil eradica-

tion program developed initially at A&M,

and efcient handling of harvested cotton

using the module builders developed at

Oral Testimony to State of Texas SenateHigher Education Committee: Faculty Workloads;7/22/10

by Peter HugillTACT President-Elect

Unfunded faculty research is

a part of the research workload

that cannot be assigned dollar

values or be easily measured.


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Texas Tech, keeps Texas cotton agricul-

ture competitive with that of China. Since

World War Two, half the productivity

gains in America, gains that provide new

jobs, have come from basic research,

most from the major research universi-

ties.

Unfunded faculty research is a

part of the research workload that can-not be assigned dollar values or easily

measured. My own work analyzes shifts

in global power over the last 500 years,

most recently, why Britain declined, why

America rose and, perhaps most impor-

tant, why the challenge from Germany

failed. By constructing a model of such

transitions my work can be a powerful

aid to policy makers dealing with, for ex-

ample, the rise of China. My experiences

in the Bush School, training our future

leaders, suggest that our best policy mak-

ers use the lessons of history to manage

our foreign affairs well. It is impossible

to measure the impact of my sort of

work in the here and now, but in the long

run that impact is serious.

Within the University, we mea-

sure this workload through our annual

evaluation of faculty research output.The most signicant part of this output

is in published form and what we are

most concerned with is its impact. We

have always measured citation rates and

are increasingly able to do so because so

much material is now on-line. We look at

journals by ratings within a discipline

all scholarly disciplines have agship

journals, publication in which is difcult

to achieve because of rejection rates of

70% and up. We also look at journal

impact factors, their measured impact on

scholarship as a whole.

Much research seems esoteric,

and it often takes a great deal of time to

come to fruition. For example, Maxwells

mathematical work on electromagnetic

waves was published in the 1860s. In

the late 1880s Hertzs work on radiowaves gave the rst proof. Even then the

concepts were understood by only 4 or

5 mathematicians worldwide, and only

reached American universities after 1900.

Yet they are the basis for all modern elec-

tronics. In a 50 year period this technol-

ogy exploded: radio communications;

radio entertainment; radar in World War

Two; television; and computers. Without

Maxwell, who was at least a generation

ahead of his time, we would not have

what we think of as the modern world.

Because I have the major re-

sponsibility for evaluating faculty in

my Department, I have looked at many

attempts to quantify scholarly output. It

is the quality and impact of the university

as a whole rather than the discrete yearly

output by individual faculty of published

pages, research dollars, and teachinghours that brings value to Texas. While

annual evaluations of the faculty are im-

portant, and we take them very seriously,

they comprise only a part of the larger

picture of long-term faculty contributions

to the state.

Finally, I would like to mention

national surveys of output that are use-

Faculty Workloads

(contd.)


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ful if one is comparing output at the university level. Most of us are familiar with U.S.

News and World Report, but it speaks only to teaching. Academic analytics indexes

scholarly productivity on the basis of published papers, books, and research dollars at

the nations Ph.D. granting institutions. This allows one to break out the top-ten per-

forming departments and thus universities. In 2007, for example, out of 375 universi-

ties, A&M had 14 top-ten performing departmentsmy own among themthe Uni-

versity of Texas at Austin had 28, and one of our main peer institutions, the University

of California at Los Angeles, had 41. Similar analyses exist at the international level.

The truest measure of research would be its contribution to the long-term suc-cess of the state and its citizens, an impossible task using annual evaluations. One

can measure, in part, the funded research workload using a ve year running average,

university wide, of the number of research dollars generated. One can also measure the

number of Ph.D. students supported on grants, not state monies. But these do not mea-

sure non-funded work, ground-breaking work, or the effort of the university as a whole

in its interlinked missions of teaching, research, and service.

Faculty Workloads

(contd.)


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I Am the Perfect TACT Memberby Barbara DeBois, TACT Bulletin Vol. XLVIII, No. 4, 1996

I am not politically oriented. I do not have the desire, or even the slightest

inclination, to sit down and write my state legislator. I do not have the time or energy

to drive to Austin to pound on his/her door to voice my concerns regarding various

issues. More often than not, I am not even aware of the issues. I am too busy being

an educator, advisor, counselor, administrator, parent, signicant other, chief cook and

bottle washer...

Politically, I am the proverbial ostrich with his head in the sand. When I do

have time to look up, it is usually after the fact, and all I can do at that point is ask,

WHO did that?... WHEN did they do that?... WHY did they do that?... CAN they do

that? It is amazing what one can lose before one is even aware that the threat of loss

exists!

Ignorance is no excuse (How many students have I said that to?). Reactive

actions are never quite as effective as proactive actions, and they are usually more

frustrating. I have enough stress in my life! Therefore, I let TACT be my eyes and

ears in Austin. TACT is my proactive watchdog, looking out for my best interests as

an educator in the state of Texas. I can be proactive with minimum effort on my part...

my yearly membership fee. While I am busy looking after the best interests of my

students (and everyone else around me), TACT is busy looking after me.

I am what TACT is all about! I am the perfect TACT member!

From the TACT Archives...

TACT at the Capitol.


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TEXAS ASSOCIATION

OF COLLEGE TEACHERS

TEXAS COMMUNITY COLLEGE

TEACHERS ASSOCIATION

2010 Analysis of Possibilitiesfor ORP/TDA

The Texas Optional Retirement Program (ORP)is designed for full time faculty at state supportedinstitutions of higher education. Created by the TexasLegislature in 1967, it is offered as an alternative toparticipation in the Teacher Retirement System ofTexas (TRS). Upon employment at an institution, anemployee is given 90 days to choose whether to investhis or her retirement fund in ORP or TRS. This choiceis irrevocable. Therefore, new employees are urged tomake this decision carefully.

The Teacher Retirement System is for all persons

who choose not to be in ORP or are not eligible forORP. TRS is a dened benet program, in which theemployees retirement benet is 2.3 percent of averagesalary in the highest three years (ve years for neweremployees under recent provisions), multiplied by thenumber of years of participation. The vesting period forTRS is ve years. (If an employee does not vest, thestates monies are returned.) A Rule of 80 (when thecombination of age plus years of service entitles TRSmembers to retire without penalty) applies for thosehired before September 1, 2007, but change thereafterfor new hires, imposing a minimum age of 60 for anunreduced annuity.

Historically the majority of new faculty membershave participated in ORP, though TRShas gained in popularity in recent years.The constitutional minimum state TRScontribution is 6 percent of salary andcurrently is set at 6.4 percent. The

employee contribution has been 6.65percent for over twenty years. The TRSWeb site is www.trs.state.tx.us .

For ORP, a dened contributionprogram, there is a contribution of upto 15.15 percent of salary placed into aretirement plan. This is the sum of theemployees contribution (6.65 percent ofgross salary) and the states contribution(historically from 6.0 to 8.5 percent). Theretirement savings plan is self-directed,and the vesting period is one year and oneday. The retirement benet or monthlyincome is based on contributions andearnings on those contributions.

A law passed in 2003 by the Texas Legislatureallows institutions participating in the Optional Re-tirement Program to supplement the state employercontribution for all participants up to 8.5 percent ofsalary, regardless of when they were hired.

Whether the choice is ORP or TRS, most employ-ees are eligible to place additional pre-tax contribu-tions into a Tax Deferred Account (TDA). A TDA is asupplemental investment that may be made in additionto the mandatory program. TDAs receive no statecontribution.

An important federal overhaul of retirement ruleswas included in the Economic Growth and Tax ReliefReconciliation Act of 2001 (EGTRRA). This lawraised the limits of pre-tax contributions to deferredcompensation plans, and also provided for catch upcontributions for participants over 50. The law alsorepealed the Maximum Exclusion Allowance, a com-plex formula that limited the tax-advantaged treatmentof combined contributions to deferred compensationprograms. Higher education employees should seek theadvice of a nancial advisor to learn how any changesmay affect retirement planning.

Most companies have incorporated TDA loanprovisions into their policies or custodialagreements under the Tax Equity and Fis-cal Responsibility Act of 1982. The IRSand each rm have guidelines that must befollowed or the loan could be considered a

withdrawal or premature distribution andsubject to tax and ten percent penalties. Forspecic information, the investor shouldcontact representatives of the company.

All performance figures quoted inthis study are net of all administrative ormanagement fees for the years mentioned.Net performance is a good starting placefor comparison. Neither low nor highexpenses and charges assure the bestinvestment. Is an investment that has again of ten percent and charges only onepercent per year (nine percent net) betterthan an investment that has a gain of 30percent and charges three percent per year

Editors Note: For thethirty-sixth consecutiveyear, this analysis has beenmade available to membersof the Texas Association ofCollege Teachers and theTexas Community CollegeTeachers Association toassist in retirement plan-ning. The staff of the two

associations remain grate-ful for the efforts of FrankL. Wright, who managedthe project for most of itshistory, and to the profes-sionals of the ORP/TDAcompanies who cooper-ated in making this servicepossible.

No investment decisionshould be based solely ondata reported in this analy-sis. Past performance doesnot guarantee future suc-cess.

Convenient links

to the most

popular ORP

carriers in Texas

higher education

are now

available at

www.tact.org.

You may also download the 2010 ORP Study online

from the TACT Members Only Section.

TACT
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2 ORP/TDA Analysis

3

2

1

?(27 percent net)? Historical investment performancedoes not and cannot guarantee future results. However,many individuals will use past performance to assist inthe decision process. Flexibility and portability shouldalso be considered.

As an investor, it is important to analyze front endcharges (which reduce the amount of money that goesto work immediately), and contingent deferral charges(which tend to limit exibility and the portability of theinvestments). In order to maximize potential gains in thefuture through new products or innovations, exibilityand the allowance of change are important factors.

Fixed Accounts

Fixed accounts are traditionally investments in thegeneral accounts of an insurance company. Theseaccounts function similar to a banks Certicate ofDeposit. The dollars on deposit are lent to the insur-ance company. The insurance company agrees to repay

both principal and a contractually-guaranteed minimuminterest rate. Most companies pay the current interestrate, which is normally higher than the contractualminimum. This rate may change daily, monthly, quar-terly, or annually. The current rate of interest is derivedfrom the companys earnings, and is set by the boardof directors. The actual formula for the current interestrate varies from rm to rm. It is often an unknown anddiscretionary formula, subject to change.

Other types of xed accounts offer more specic in-formation regarding their yields. They may offer a ratebased upon a pool of specic underlying assets such asgovernment bonds, treasuries, or other securities. Theseare sometimes called Market Value Adjusted accounts.Only when a rm will disclose and contractuallyguarantee the formula can investors be assured of theinterest crediting method for their contract. While mostinsurance companies work on an old banking principle,paying policyholders two percent less than the company

earns on its investments, the choice of formulas is stillat the discretion of the companys board.

Insurance companies credit or pay interest in manydifferent methods. A widely used method is to bandinterest rates. As money is received by the company thecurrent interest rate is applied. The current interest ratecan be guaranteed for any period of time. However, asthe rate changes, monies received from that point for-ward would be considered a new band and credited atthe new rate. The old money, or band, may continue toearn the former rate of interest for the specied periodof time. Once that time has elapsed, a new rate may beapplied to that band. Over time, the contract may havemany bands of different rates. Some rms band for ayear and then the dollars drop into a pool or portfolio.The current rate paid on the pool or portfolio may behigher than the initial band. If the rates are quoted on aportfolio basis, the dollars earn the stated interest ratewhen deposited.

To attract new participants, many companies willincrease or enhance third quarter current rate declara-tions, when companies receive the lowest contributionsof the year. Not all companies engage in this practice;however, one should be aware that this strategy is usedto entice participation in certain programs.

Another tool to entice participation is the two-tiercrediting process. This process enhances the rate fordollars that are annuitized at retirement, and creditsless interest to those wishing a cash option. Annu-

ity contracts have twophases, accumulationand distribution. Annui-tization is a distributionphase. By utilizing thisdistribution process, aparticipant can buy anincome stream. Theinsurance company willguarantee, accordingto the contract choicemade, to provide anincome the annuitantcannot outlive. Otheroptions can include:

receiving money for a set period of time, or even anincome stream for the spouse upon the annuitantsdeath (known as joint and last survivor option) or anyother mutually-agreed combination. The loss of ex-

ibility and liquidity for the dollars annuitized is assured,since the purchase of an income for life guarantees theaccumulation in the account to be with the insurancecompany for a very long time.

When comparing interest rates, be careful of themanipulations that companies may use to enhancetheir contracts. The highest interest rate is not necessar-ily the best bargain. Since interest rates have declined,a number of companies will pay a rst-year bonusthereby enticing a move to that company. However,the enhanced rst-year rate can be at the expense ofthe renewal rate.

Not all enhancements to contracts are negative. Somebonus contracts truly provide a positive enhancementto earning potential. Annuitization is necessary tosome peoples nancial planning, but is typically notrecommended for all accumulations. Keep in mind, therms currently available for ORP and TDA are focusedupon creating competitive products for accumulations.At retirement, shopping for the best annuitization rateis a very prudent decision. In addition to checkingwith ones current rms, there are several companiesthat specialize in the distribution phase (annuitiza-tion). At retirement, all accumulations in both ORP andTDA accounts become 403(b)s. 403(b) is the section ofthe Internal Revenue Code that allows for these retire-ment programs. Therefore, all dollars could be com-ingled. By placing a larger sum on deposit, one couldpurchase a higher income stream, but do not forget toshop because it is a lifelong decision.

Most xed contracts, like CDs, will have a penaltyfor early withdrawal. The term for this is surrender orwithdrawal penalty. This charge is usually assessed onpayments made to the contract that have not been on-deposit for a specied period of time.

Finally, it is important to consider ratings of rmsif the dollars are invested in the xed side of any con-

tract. Since the money is guaranteed by the insurancecompany, solvency of the rm should be a factor forconsideration. When placing assets in a xed account,utilizing two or even three different rating services isconsidered prudent. (See Table 1.)

Each rating service (such as A.M. Best, Standard andPoors, Duff and Phelps, and Moodys) has a differentarea of expertise and specic evaluation criteria. Someof those areas include solvency and claims-paying abil-ity. However, be advised that even these rating servicesare not infallible. In the past, several companies have

hat will be my nancial

needs at retirement, and

should I supplement my

ORP with other

vestments such as a tax

deferred account?

What is the likelihood of

good return throughout

the term of my

investment?

s it diversied enough to

ensure stability?

What are the outside

rating rms evaluations

of the carrier? Does the

ompany have soundness

and experience to fulll

its contract and provide

good management?

Formulating

the

Decision

For a comprehensive

overview of the rules

and rate histories of

TRS and ORP, provided

annually by the Texas

Higher Education

Coordinating Board,

visit www.thecb.state.

tx.us/reports.


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CONTENTS

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TACT

ORP/TDA Analysis A 3

6

5

4

been placed into receivership despite having highratings by these services. Texas does have a guaran-tee program. This program offers protection of up to$100,000 of account value with each company.

Mutual Funds

Mutual funds are available for ORP and TDA depos-its. An investment company or a mutual fund is eithera corporation or a trust in which investors pool theirfunds and invest them in a wide variety of securities.An investment company or mutual fund is engaged inthe business of investing in securities, managing fundsfor people more effectively than individuals ordinarilycould for themselves. A fund operates as a sing le largeaccount that is owned by many shareholders. Today,there are more mutual fund choices available thancompanies listed on the New York Stock Exchange. Asthe world economy continues to grow, opportunities forinvesting beyond our shores become increasingly viableoptions. Additionally, most funds are now grouped infamilies that offer a broad array of funds within onepackage or company.

Here is a brief description of the kinds of invest-ments available.

1. Money Market Funds invest in securities thatmature in less than one year. These funds can be com-posed of one or more of the following: Treasury bills,certicates of deposit, commercial paper, EurodollarCDs, and notes. The objective is to maintain a constantshare value while producing a return slightly abovebank money market funds.

2. Bond Funds can come in many varieties, includ-ing a government bond fund, a corporate bond fund,high yield bond fund, or others. Typically, the invest-ment criterion requires that any holding purchased bea bond.

3. Stock Funds can be classied in th ree categories.Equity-Income Funds focus on income, with capital ap-preciation as a secondary concern. Growth and IncomeFunds attempt to produce both capital appreciation andcurrent income. Growth Funds seek capital apprecia-tion rst while current income is a distant secondaryconcern.

4. Balanced Funds are also called total returnfunds. The objective is to provide total returns throughgrowth and income. The fund typically purchasesstocks, bonds, and convertible securities. Weighting ofeach asset class will depend upon the managers percep-tion of the market, interest rates, and risk levels.

5. International (Global) Equity Funds consist oftwo types. International or Foreign Funds may onlyinvest in stocks of foreign companies. Global Funds caninvest in both foreign and U.S. stocks. The objective ofeither category is growth of capital.

6. Aggressive Growth (Small Company) Funds aremutual funds that focus strictly on appreciation, with

no concern about generating income.7. Special Funds are grouped in two categories:

Metal Funds and Non-Diversied Funds. A metal fundpurchases metals in one or more ways: bullion, goldstocks, and mining stocks. Non-Diversied Funds aredened by the Securities and Exchange Commissionas holding more than ve percent of the funds totalholdings in the security of one company. These fundscan also be industry specic.

The above denitions have been modied fromthose found in the Certied Fund Specialists guide.

Each mutual fund comes with a prospectus, whichmust be provided to the investor before purchase. Thisprospectus will provide information such as the nameand credentials of the fund manager, the goals and ob-

jectives of the specic fund, and information regardingfees and other expenses. It will also describe the limita-tions placed on the manager. All funds instruct the in-vestor to read the prospectus carefully before investingor sending any money. Unfortunately, the prospectusis written in such technical terminology, most peoplewould have difculty interpreting its contents.

All mutual funds have fees, including so-calledno-load funds. The investor ultimately pays theseexpenses, which include marketing, research, adminis-trative support, reports, fund managers, and other costs.Accepting the fact that there is no free lunch, whatcharges should one review before investing?

The investment advisor or advisors, making thedaily decisionsto buy, sell, or hold the investmentsof the fundmust be paid. The research and overheadcosts for administering the fund must also be paid.These are usually described as investment advisoryexpenses or management fees. It is always best tond out what the management fees are, since the feeamount can affect the performance of the fund. Whileone does not want to make this an overriding concern,an investor needs to be comfortable and understandthe fees assessed. Generally, net performance, notinternal cost, is the most important factor to considerwhen investing.

There are three pricing strategies for mutual funds.A-share mutual funds are front-loaded funds. Thecost to invest will usually range from zero percent forMoney Market Funds to more than ve percent forInternational Funds. The load immediately reduces theamount going to work. These funds will typically bepresented by a salesperson who receives a commissionto represent that company.

B-share mutual funds are sometimes known as no-load with a contingent deferred sales charge. Theseshares have an early withdrawal penalty if the amountdoes not remain on deposit for a specied period oftime. These funds typically have higher managementfees than the A-shares and are often clones of an A-share fund.

C- and D-share mutual funds are no load in, and ifheld for a period of time (up to one year), no load out.These are deemed no-service or self-service funds. Thisclass of funds can be brought to the investor in twoways. The old line of funds has no sales force; trans-action are made using a toll-free phone number. Thenew line of funds uses salespersons that may or maynot receive an up front commission. The managementfees will probably be higher than B-shares, thereforeone should check the prospectus. More families willbegin offering C- and D-shares.

Another fee that may be assessed is a 12-b-1 fee,named after a federal government rule. This fee paysfor distribution costs, including advertising and dealercompensation. The 12-b-1 fee may provide a venue foruse, compensating a professional to work with an inves-tor in the design of an investment plan. The professionalwill be paid based upon the amount invested and theperformance of the account. If applicable, this fee willbe found in the prospectus.

It has long been the subject of much discussionwhether paying an up front charge is best or if it is

What are the expenses

involved with the

program? Do transfer

fees, surrender charges,

and other costs permit

exibility as my invest-

ment needs change?

Is my contract surrender-

able for cash value, in

whole or in part, after

leaving covered employ-ment for ORP, and af-

ter I turn 591/2 for TDA?

Does it allow lump sum

withdrawals in lieu of an-

nuitization at retirement?

Do I have sufcient

choices between xed and

variable types of

investments and can I

shift between them easily

and without cost?


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A 4

7

preferable to have a contingent charge. One positionholds that if the investment is for the long term (tenyears) it will be better to pay up front charges, sincethis will make the annual management or investmentcharge signicantly lower. However, this argumentdoes not take into consideration personal, economic,or product changes. The original investment chosentoday may not be the best investment for an individualin the future.

Variable Annuities

Variable annuities can be described as a combinationof xed annuities and mutual funds with a twist. Vari-able annuity contracts are life insurance contracts thathave as few as one or as many as 30 variable investmentoptions. These options are referred to as sub-accounts.The sub-accounts are, by law, separate accounts. Thevariable choices offered differ from the xed account in

that the investor, not the insurance company, absorbs theinvestment risk. There are no guarantees. The money isnever commingled in the insurance companys generalaccount. All earnings or losses are tied to investmentperformance of the underlying account.

Many variable annuity contracts have xed ac-counts. Research shows that almost 60 percent of as-sets in variable annuity contracts are in xed accounts.While this may be prudent for a particular investor, thediscussion provided in the xed annuity section applieshere. In some cases, the xed portions of these contractsare not as competitive as a xed only contract. Variableannuities are by design variable investments.

The variable annuity is a product that is constantlyevolving. The horizontal integration of these contractsis an innovation that seems to be growing. Previously,all programs were vertically integrated. Management,marketing, administration, and sales were all performedby the same company. In the late 1980s, several rmsbegan adding external fund managers to the proprietaryfunds offered in the contract. Today, an investor caneven cross fund families in one contract.

Remembering that the variable annuity contract isoffered by an insurance company may assist an inves-tor with the following discussion regarding fees. Theexpense risk and mortality charge are fees assessed inmost variable annuities. The expense charge guaranteesfrom the date a contract is signed that the charges formanagement and annual contractual charges will not in-crease for the life of that contract. The mortality chargeis unique to variable annuities. Mortality charges areguarantees by the insurance company that in the eventof death, heirs will receive either the contributions(deposits) or the face value of the contract, whicheveris greater.

Today, several contracts have expanded the mortal-ity feature. This is called a stepped-up death benet.If available, the contract will increase the amount in-vested at a certain rate (e.g., ve percent per year) or ata contract anniversary date (e.g., the fth contract year).This value is the new oor that the heirs will receive.

This can be a very attractive feature for older facultyinvesting in stock accounts late in their careers. Anotherfee assessed by the variable annuity is the investmentadvisory fee and, if applicable, a 12-b-1 fee.

The surrender or withdrawal structure of the vari-able annuity is very similar to B-share Mutual Funds(no-load with a contingent deferred sales charge). Mostcontracts will not have front end charges, but will havesurrender charges. These charges may be level (say,

three percent for three years, then dropping to zero),reducing (say, six percent the rst year, then reducingone percent per year), or level for a certain period oftime then declining (say, six percent the rst two years,then declining each year to zero). This penalty may beassessed upon each contribution. This type of surrendercharge is called a rolling surrender charge. The pen-alty can also be based upon contract years. This typeof surrender charge is called a non-rolling surrendercharge. If dollars are moved to another rm beforethe time period for surrender charges has elapsed, thecontributions can be penalized for early withdrawal.Unlike mutual funds, most companies allow a tenpercent free withdrawal, allowing a transfer to anotherrm. This ten percent free withdrawal is usually not acumulative privilege.

Another feature offered by variable annuities is

dollar cost averaging. This allows an investor to placea systematic transfer of a specic amount each monthfrom one sub-account to another. Theoretically, if theinvestor purchases shares over a period of time whenprices are high and low, the cost per share will be lessexpensive in the long term using dollar cost averaging.The availability of this option could be an additionalfeature to consider.

Additional Options

A recent innovation in ORP and TDA investmentproducts is the trust. This option allows the investorto design a very personal investment. Unlike investingin one family with limited options, through the trustarrangement the investor can mix different funds andcross family lines. The ability to select the top per-formers, or specic asset classes from several mutualfund families, is a powerful investment tool. Currently,this option is available for fund use only (not multiplevariable annuities) through several different trust pro-grams.

Another innovation is on the money managementside. Texas law, under the section of law that createdORP, allows the use of independent professional invest-ment advisors. The fee for this service can vary, butmay not exceed two percent annually. The recognitionby the investment community that this service can beprovided to faculty has added a new dimension to ORPand TDA accounts.

Money management has many schools of thought.There are extremes. At one extreme are the institutionalinvestors who typically use asset class selection withsystematic rebalancing. At the other extreme are themarket timers. This theory purports the ability to takeadvantage of upswings while limiting the downside.Of course, most theories and services fall betweenthese extremes.

Summary

As with all cash accumulation plans, investmentperformance may vary. There are no guarantees. This

study should not be the sole basis for investmentdecisions. The nal decision regarding retirementinvestments should remain between the investor andthe investment professional, when utilized. A properlydesigned program can be developed to enhance per-formance and maximize gains given the investors risktolerance level.

Are my companys

reporting and servicing

policies sufcient for my

needs?

8Have I checked my com -panys Web site for themost currentinformation?


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Key Election Dates 2010Oct. 4 Last day to register to vote in general election.

Oct. 18 First day of early voting in general election.

Oct. 29 Last day of early voting in general election

Nov. 2 General election.

Click here for more information on electionsSource: Texas Secretary of States Ofce

The James M. Puckett, Ph. D.Government Relations Fund

The TACT Dr. James M. Puckett, Ph.D. Government Relations Fund is a result of optional

contributions made by those committed to TACTs heightened public affairs program. It is

not used for candidate contributions, but for activities that will increase awareness of TACT

among opinion leaders of public policy. Your contribution will assist in TACTs legislative

efforts to improve Texas higher education. All expenditures are approved in advance by TACTs

President, President-elect and Legislative Committee Chair.

Click Here to Contribute

Thank you to the following contributorsGary Coulton

Jonathan Coopersmith

Mary DeShazo

Frank Fair

Clarke Garnsey

Chuck Hempstead

Harvey Johnson

Elizabeth Lewandowski

Andrea Williams

George Parangimalil

Robert Strader

Debra Price
mailto:tact%40bizaustin.rr.com?subject=http://www.sos.state.tx.us/elections/voter/index.shtmlhttps://hempsteadassociates.com/tact/node/add/grf?reset=1&id=1https://hempsteadassociates.com/tact/node/add/grf?reset=1&id=1http://www.sos.state.tx.us/elections/voter/index.shtmlmailto:tact%40bizaustin.rr.com?subject=


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Please join us!

TACTFall Conference

Joint meeting with TCFS and AAUP

October 29 & 30, 2010

Crowne Plaza Hotel

Austin, Texas

Hotel Reservations: 1.800.227.6963

Participate in annual Friday morning legislative

visits to the Capitol. Support fellow colleagues asthey speak to current trends in higher education.

Network with members during evening social hour

and banquet. Vote on important TACT items.

Registration is only $40!Call today at 512.873.7404 to register!

RSVP by Monday, October 28, 2010

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College Teachers


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TACT

Visit www.tact.org, and

join TACT Today!

TACT would like to give special recognition to the new members who joined as a

result of our recent Membership Drive. Thank you to all members who encouraged

colleagues to join this association. Through your efforts, we are pleased to announce

that 13 new members have recently joined. Welcome New Members!

Thank you, current members, for passing along Legislative First Alerts and other

general information about TACT. These efforts help us to grow membership and

strengthen our voice as we work to protect the interests of all faculty members inTexas. Please invite your colleagues to join TACT today!

Texas A&M San Antonio

Marianne Phillips

Syed Harun

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Texas Southern University

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Texas Tech University

Christian Pongratz

University of Texas at

Tyler

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Courtney Cullison

Membership

Sul Ross State University

Jim Case

Melanie Croy

Tarleton State

Brian Fehler

Texas A&M Corpus

Christi

Louis Katz

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Carl Saltarelli
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