Two of the finest deferred-compensation plans in the nation are offered to the employees of the State and City of New York.

With that said, the most common mistake I come across when helping participants select their investments is their use of the core investment funds in addition to a pre-arranged portfolio. The pre-arranged portfolios are designed to be used for your entire investment. These investment funds are comprised of the core investment funds. You are losing the full value of a pre-arranged portfolio if you do not invest all your money in the portfolio.

Sharon is a teacher and calls in sick only when she is really sick. As a result, she maintains 100 days in her Cumulative Absence Reserve account. Sharon is also very cost-conscious. She is shopping for a disability-income policy and tells the insurer she wants the disability benefit to start on the 101st day of disability.

Q.: My brother works in private industry and is investing for retirement by participating in the company's 401(k) Plan. The company contributes 6 percent of my brother's salary to his investment account. Why doesn't the city do the same thing for us? R.U.

A.: The 6-percent contribution is called the company match, which means your brother must contribute at least 6 percent in order to get the company's 6 percent. The city does not do this because every year it contributes billions to the five defined-benefit pension systems it maintains for its employees. This year the city will spend almost $20 billion on pensions and health insurance for its active and retired employees. Your brother is receiving the company match of 6 percent because his company does not maintain a defined-benefit pension plan.

That said, your brother's 401(k) plan is voluntary. Should he decide not to use it, he will have only Social Security income during his retirement. City employees, on the other hand, will have Social Security income plus Defined Benefit pension income. Those who are investing in the city's Deferred Compensation 457(b) and 401(k) plan will have a third layer of retirement income. City workers and retirees have a lot to be thankful for.

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by phone at (732) 536-9472, or via email at

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