A Couple of Diversions

One is what I suspect is a serious accounting error that I would like this educated readership to check me on before I go to the proper authorities (assuming any exist) and another I did not even write but public employees discouraged from participating in the SACT might find useful:


Do you have any idea how the costs associated with investing impacts the growth of your 403(b) (TSA) investment account? Consider the examples of Teachers A and B.

Assumptions: First year salary of $30,000 with annual increases of 3 percent. 10 percent of salary is invested each year. The investments are made for 40 years and earn 8 percent a year.

Teacher A invests with the State-administered 403(b) Plan called the Supplemental Annuity Collective Trust (SACT). After 40 years the account is worth $1.1 million.

Teacher B invests with one of the commission-based investment providers found on the website of the Department of Community Affairs–Division of Local Government Services. After 40 years the account is worth $700,000.

Why the massive difference in accumulations? With the SACT, Teacher A’s account is credited with the entire 8 percent return because the State pays all costs associated with maintaining the account. Teacher B, on the other hand, invested with one of the 403(b) sharks that charge about 2.2 percent a year. The 8 percent return, therefore, is reduced to 5.8 percent. The difference after 40 years of investing is $400,000.

However since its inception in 1963 the SACT has offered just one investment option, a portfolio of common stock. Thus, over the 52 years the lack of a diversified investment menu was used as a super successful selling tool by the commission-based vendors. Today the SACT investments total about $110 million while the outside providers sport about $10 billion.  The reverse would be true if SACT had a diversified investment menu.
It’s hard to comprehend how such glaring negligence can continue, unchecked, for more than half a century.
Such flagrant breach of the Fiduciary Standard on the part of the SACT Trustees is the only reason why each of the 565 school districts have farmed out their own, high pressured, commission-based 403(b) plan to insurance companies and mutual funds.


For additional information and to participate in this Class Action please contact Joel Frank at 732-536-9472 or at: rollover@optonline.net.

Cap Bank Blunder?

The concept of the ‘Cap Bank’ is hard to understand because it’s a stupid idea and bad budgeting.

Basically it means that if you did not raise taxes as high as you possibly could in any two years you are allowed to ‘bank’ those differences and raise taxes by those additional amounts in the third year.  From what I have seen in reviewing county budgets it only applies to the 1977 Cap. There is also a 2010 Cap that is calculated separately and does not use the Cap Bank concept.

Here is how it was explained at the last freeholder meeting:

and here is that ‘tax levy book’ for 2015 as obtained through an OPRA request (click the image below for a clearer view):
cap bank
Are these numbers right? Look back at the 2013 and 2014 budgets and you find one number that appears very WRONG and will cost taxpayers $837,175 in excess taxes in 2015 and possibly millions more.

The two numbers to compare to see how the Cap Bank develops each year are – (A) the Allowable County Purpose Tax After All Exceptions and (B) the County Purpose Tax Levy Per Budget.  Subtract (B) from (A) and you have the Cap Bank that can be utilized either next year or the year after that.

In the worksheet above those two numbers for 2013 are $317,643,215.86 (A) and $317,544,198.00 (B) and the difference between them is $99,017.86 which is banked for either 2014 or 2015.  Both (A) and (B) correspond to the tax cap calculation in the 2013 budget.

For 2014 those numbers from the worksheet above are $334,631,102.80 (A) and $327,061,905.00 (B) which develops an amount Available for Banking of $7,569,197.60 that could be used in 2015 or 2016.  But look at the tax cap levy cap calculation in the 2014 budget and you do not see that $334,361,102.80 number anywhere.  What you do see under “1977 Cap” Maximum County Purpose Tax After All Exceptions is $327,526,317.69 which would mean that the 2014 Cap Bank should be $464,412.69.

Now look at the tax levy cap calculation in the 2015 budget and you see the full $99,017.86 Cap Bank from 2013 used and $1,301,587.78 used from the 2014 Cap Bank but the problem is that the county could only have used $464,412.69 from 2014. That means 2015 taxes are $837,175 over the maximum allowed and that 2016 taxes will be as much as $6,267,610 higher than they would otherwise be allowed to be because of the use of that phantom $334,631,103 number in 2014.

9 responses to this post.

  1. Posted by Jim Buettner on June 11, 2015 at 5:07 pm

    John, On what planet does a plan earn 8% a year for 40 years? That is way better than any of the stock indexes, ie. Dow, NAS, S&P.


  2. Jim,

    The planet is EARTH. Since 1926 the S&P 500 Index returned 9.77 percent.

    Check it out at: https://www.ridgeworth.com/includes/files/assets/files/1333396467_EI_Ibbot-Growth0312.pdft at:

    Jim, the point of this exercise is to prove just how important it is to have a de minimus cost plan AND a diversified investment menu.



  3. Posted by Anonymous on June 11, 2015 at 9:11 pm

    You realize that this same heist of funds is happening in the state pension system. They would be better off investing in a Vanguard index fund. Montgomery county (PA)recently did this with their funds.

    It seems there’s always money to cut corporate taxes, money for investment bankers, but no money to make the pension payments. I believe over 4 billion in corporate tax giveaways since 2000.


    • There is no heist of funds. The SACT is a salary reduction Defined Contribution plan. Employer contributions are not allowed. The participants are not given a choice of investments which is a violation of the prudent person rule under NJ State Fiduciary and Trust Law. I believe ERISA requires private plans to provide a choice of at least four investments.

      Anonymous, would you like to join the Class Action?


  4. Posted by Tough Love on June 12, 2015 at 12:49 am

    John, I see your point re the 2014 CAP Bank calculation. Perhaps there is an “adjustment” of some sort (not shown on the worksheet) that brought the 2014 “Allowable ….” up to the $334MM. Sometimes, last minute (high level ?) adjustments (hopefully legitimate ones) don’t find there way back into the supporting workpapers.

    Definitely worthwhile “asking” where the $334MM came from given the inconsistent (2013 vs 2114) backup worksheets.


    • There are adjustments allowed if the county takes on more duties but that would have been put into the 2014 budget. So far, this looks like a made-up number and unfortunately there is no one to ask. You only get answers to resolutions on the agenda and you can’t send in a a question with an OPRA that needs any type of work to answer..

      I’m going back to prior budgets and checking other counties. So far it looks like there was a similar scam pulled a few years ago. This matters since when you have a cap and you artificially insert a higher number it impacts all future years. I should know more in a week when I can another OPRA back.


  5. Re: The SACT



    • To: NJEA

      If you were adequately representing teachers and their families over the last 52 years, a Class Action Lawsuit would not be necessary. Tell us, as a 401(K) plan sponsor/employer, how many investment options are on your plan’s investment menu?

      To: Members of the NJEA

      Tell the Association, to which you legally MUST pay dues to, to go to hell by commencing this Class Action lawsuit. We need a live body to be the named plaintiff.
      Get up off your knees and fight back. Contact me at 732-536-9472 or rollover@optonline.net


  6. The lack of employee knowledge about the very existence of the SUPPLEMENTAL ANNUITY COLLECTIVE TRUST proves the dismal failure of the NJEA over the last six decades. Teachers: Why do you pay dues to the NJEA?


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