Monthly Archives: November 2014

Contributing Towards Your Retirement

What are Member Contributions?

Most New York State and Local Retirement System (NYSLRS) members contribute a percentage of their gross earnings to the New York State Common Retirement Fund (Fund). These member contributions, in addition to employer contributions and investment earnings, help make sure the Fund stays well-funded to support the retirement benefits earned by members and retirees.

Types of Member Contributions

Membership-Contributions_TimelineYour tier and retirement plan determine if you must contribute and what percentage of your earnings you contribute. At NYSLRS, there are two types of member contributions: required and voluntary. If you belong to a retirement plan with required contributions, you must make member contributions for the length of time stated in your retirement plan. If you make voluntary contributions, you belong to a retirement plan where you don’t have to make contributions, but you can volunteer to make contributions.

To help you understand how much you are supposed to be contributing, here is some useful information regarding contributions, broken down by what system you are in:

Employees Retirement System (ERS)

  • Most ERS Tier 1 and 2 members are not required to contribute, but may contribute voluntarily. ERS Tier 1 and 2 members receive an annuity based on their voluntary contribution balance in addition to their pension at retirement.
  • All ERS Tier 3 and 4 members are required to contribute 3 percent of their gross earnings until they’ve been NYSLRS members for ten years, or have ten years of service credit (whichever comes first).
  • ERS Tier 5 members are required to contribute 3 percent of their gross earnings for their entire career.
  • ERS Tier 6 members are required to contribute for their entire career a specific percentage of their earnings based on their salary.

ERS Exceptions

  • Though most ERS Tier 5 and Tier 6 members are required to contribute for all their years of service, the contributions of State Correction Officers in these tiers are limited to 30 years of service.
  • ERS Tier 5 Uniformed Court Officers and Peace Officers employed by the Unified Court System must contribute 4 percent of their salary for all their years of public service.

Police and Fire Retirement System (PFRS)

  • Most PFRS Tier 1 and Tier 2 members, as well as PFRS Tier 3 (Article 11) members, are not required to contribute, but may contribute voluntarily.
  • PFRS Tier 3 (Article 14) members must contribute 3 percent of their gross reportable earnings for 25 years or until retirement (whichever comes first).
  • PFRS Tier 6 members are required to contribute a specific percentage of their earnings based on their salary for their entire career.

PFRS Exceptions

  • Though most PFRS Tier 5 members must contribute 3 percent of their gross reportable earnings for all their years of public service, PFRS Tier 5 members enrolled in a retirement plan limiting the amount of creditable service they may accrue will not be required to contribute once they reach the maximum amount of service allowed by their plan.
  • If a union-negotiated collective bargaining agreement in effect on January 9, 2010 required an employer to offer a 20- or 25-year plan, any new employees who join while that agreement is in place will not have to contribute.

Defined-Benefit vs. Defined-Contribution Plans

As a New York State and Local Retirement System (NYSLRS) member, your pension is part of a defined-benefit retirement plan. According to a report from the National Institute on Retirement Security (NIRS), public employees overwhelmingly choose a defined-benefit plan over a defined-contribution plan, when given the choice. But, what are the differences between the two?

Defined-Benefit Plans

At a glance: Selected differences between defined benefit plans and defined contribution plans.

According to the Internal Revenue Service (IRS), defined-benefit plans provide a fixed, pre-established benefit for employees at retirement. The defined-benefit plans administered by NYSLRS:

Defined-Contribution Plans

With a 401(k)-style defined-contribution plan, employees can make contributions from their paychecks either before or after tax, depending on the plan. Employees often choose where to invest these contributions, among the options provided under the plan. In some cases, the employer also makes contributions (such as matching employees’ contributions up to a certain percentage).

If employees change jobs, they can:

  • Leave the 401(k) money where it is;
  • Roll it into an individual retirement account (IRA) or another 401(k); or
  • Cash out the account.

At retirement, retirees usually decide how to spend their retirement savings on their own. Since the value of the account will fluctuate due to investment gains and losses, defined-contribution plans — unlike defined-benefit plans — may not provide a reliable monthly income at retirement.

Also, defined-contribution plans don’t provide death and disability benefits to survivors. (Though, employees may be able to make extra contributions for death and disability benefits outside of the defined-contribution plan.)

Cost Effectiveness Comparison

Numerous studies have suggested that defined-benefit plans cost less than defined-contribution plans in the long run and perform better. In fact, according to the model in a recent NIRS report, defined-benefit plans cost 46 percent less than individual defined-contribution plans for several reasons:

  • Defined-benefit plans avoid longevity risks. To avoid running out of money, an individual investor in a defined-contribution plan needs to save at a rate that ensures their funds will last well into their nineties. Because they work with large pools of retirees, defined-benefit plans can save for the average life expectancy. As a result, they save 15 percent compared to defined-contribution plans.
  • Defined-benefit plans can maintain an optimal asset allocation. Financial advisors urge individual investors to make higher-risk/return investments when they are younger and shift to lower-risk/return investments as they age, so their funds will last through their retirement. On the other hand, defined-benefit plans do not age like the individuals in them do. They are able to take advantage of the enhanced investment returns that come from maintaining balanced portfolios over long periods of time.
  • Defined-benefit plans achieve higher investment returns. With professional management and lower fees, investment returns increase by 1 percent each year over an individual’s career. That adds up to a 26 percent savings for defined-benefit plans versus defined-contribution plans.

By administering a reliable, cost-efficient and sustainable defined-benefit plan, NYSLRS helps members ensure their financial security in retirement. To find out more about your specific retirement benefits, please read your retirement plan publication.

Countdown to Retirement: What to Do 1–3 Months before Your Retirement Date

Our Countdown to Retirement series highlights the steps you need to take as you approach your retirement date. This post focuses on the final three months.

Filing for Retirement

You must file your Application for Service Retirement (RS6037) with us 15–90 days before you plan to retire. You can get the form from our website or our consultation sites. Make sure to provide all the requested information and have it notarized.

If you send the form by “Certified Mail — Return Receipt Requested,” we will consider your application filed on the date it was mailed. Please don’t give your application to your employer; send it directly to NYSLRS.

Next Steps

Once we receive your application, we’ll mail you a confirmation letter. If you’ve received an estimate from us within the past 18 months, we will include three forms with the letter:

If you haven’t previously received an estimate, we will send you just the W-4P and Direct Deposit Enrollment forms, and we’ll begin processing your estimate. Once your estimate is complete, we will send it to you with the Option Election form.

Choosing Your Pension Payment Option

Select a payment option based on your most recent estimate, which shows what your pension benefit could be based on the pension payment options available to you. All of the options provide a monthly benefit for life, and some provide payments to a designated beneficiary when you die. You must file this form by the last day of the month in which you retire (unless otherwise notified).

Make Sure You’re Prepared

As your retirement date draws near, it’s important to understand the retirement process. Think about scheduling a consultation at one of our offices to file for retirement. Our information representatives can answer any questions to you have, help you complete the paperwork and notarize your retirement application. You can also contact us, if you have questions.

How Elected & Appointed Officials Report Time Worked

Regulation requires elected & appointed officials to keep track of their time

Source: Wikipedia Photo: UpstateNYer CC BY-SA 3.0

As an elected or appointed official, the time you work for your public employer gets reported to us as paid service, and we use that data to determine your service credit towards retirement. However, some elected and appointed officials usually don’t work a fixed schedule or have preset hours like other NYSLRS members, so determining the time they’ve worked is a little bit more involved. In recognition of Election Day and the new terms and appointments that will result of it, let’s take a look at the member responsibilities of our elected and appointed officials.

The Record of Activities

Elected and appointed officials have been required to record and submit a record of work-related activities (ROA) to their employers since 1976. The ROA is a daily detail of hours worked and duties performed by the official, including official duties performed outside normal business hours. Activities can include attending an employer-sponsored event, addressing constituent concerns and responding to an emergency. Activities that would not be considered work-related include time attending electoral and campaign events, time spent socializing after town board meetings, attendance at a candidates forum, and on-call time.

To help ensure that elected and appointed officials receive appropriate service credit, changes and additions to the process of reporting elected and appointed official went into effect in August 2009. Elected or appointed officials who do not participate in a time and attendance system that tracks or verifies their actual work hours now must prepare a record of their work-related activities for three consecutive months within 150 days of the start of a new term or appointment.

The old requirements stated that elected and appointed officials only had to prepare a one-month ROA of time worked, or that they were required to submit their ROAs to a legislative body. Now they’re specifically required to submit the ROA to the clerk of the legislative body and others for their review. The ROA enables their employer to provide us with accurate information about the days they’ve worked so that their retirement service credit will be correct.

For more detailed information about the reporting of elected and appointed officials, feel free to visit our website at http://www.osc.state.ny.us/retire/members/member_elected_appointed/index.php