Friday, December 8, 2023

How to Do Investment Fees the Right Way - TRS and Its TDA Fund

TRS is one one the five NYC pension funds, the one that covers NYC teachers. Actually TRS is two funds, a defined benefit fund (DB) and a defined contribution fund (DC). TRS calls its DC fund the TDA Program. The TDA program is funded by payroll deductions (approximately $1.0B/year) from the teachers. This fund is teachers' money, not tax payers' money. Well not really. The DB fund guareantees a 8.25% and 7% rate of return on fixed income assests in the TDA fund. But that is another story for another day.

The following list is the closing balances of the two funds as of June 30th of following years:

  • Year - DB Fund - TDA Fund
  • 2020 -- $59.3B -- $37.0B
  • 2021 -- $78.3B -- $43.0B
  • 2022 -- $64.0B -- $42.2B
  • 2023 -- $67.9B -- $45.4B

You can see from the numbers that the TDA fund runs a tighter ship than the DB fund. The TDA fund grew by 22.7% over the three years while the DB fund only grew by 14.5%. Eeven though the TDA rate of return is is impressive compared to the DC fund, what rally is superhuman is the investment fees that the TDA fund pays versus the DC fund. See the fees for the two funds over the four years listed below:

  • Years - DB Fund - TDA Fund
  • 2020 -- $290.8M -- $0.6M
  • 2021 -- $405.7M -- $13.7M
  • 2022 -- $535.3M -- $24.2M
  • 2023 -- $518.9M -- $11.2M

How does the TDA spend so little on fees and does so much better that the DB fund???

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