 |
 |
 |
|
|||||
|
Current Pension Topics: Recalculating Final Salary Cap Current Pension Topics Recalculating Final Salary
Cap
The NYCERS Web site says: "Final Average Salary (FAS) is the greater of the average annual wages earned during any three consecutive calendar-year periods, or the final 36 months immediately preceding the member's retirement date. If the salary earned during any year included in the calculation of a member's FAS exceeds the average of the previous two years by more than 10 percent, the amount in excess of 10 percent is excluded from the computation." So in order to use the full salary for each of the last three years in the calculation, one needs to go back five years and see if any year's salary used in the calculation exceeds the average salary of the previous two years by more than 110 percent. If it does, then the portion of the salary in excess of 110 percent of the average salary of the two previous years is excluded from the calculation. My original calculation was incomplete. Here is the completed calculation of Bill's FAS: His salary for each of the last five years is: $36,000 (2001), $38,000 (2002), $40,000 (2003), $48,000 (2004) and $56,000 (2005). Step one is to find the average of $40,000 and $48,000, which is $44,000, and then multiply $44,000 by 1.1 to arrive at $48,400. The $56,000 salary now becomes $48,400. Step two is to find the average of $38,000 and $40,000, which is $39,000, and multiply $39,000 by 1.1 to arrive at $42,900. The $48,000 salary now becomes $42,900. The last step is to find the average of $36,000 and $38,000, which is $37,000, and multiply $37,000 by 1.1 to arrive at $40,700. The $40,000 salary is not changed because it is less than $40,700. So the FAS for pension-calculation purposes is: $43,766.67 ($48,400 plus $42,900 plus $40,000 or $131,300 divided by 3). Without the 10-percent cap, the FAS would be $48,000. So the use of the cap results in a cut of 8.82 percent in the FAS ($48,000 minus $43,766.67, or $4,233.33 divided by $48,000). Let's assume Bill has 30 years of service: Without the 110 percent cap, his pension is .02 x 30 x $48,000 for a retirement allowance of $28,800. With the 110 percent cap, his pension is .02 x 30 x $43,766.67, for a retirement allowance of $26,260. RETIREMENT AND BENEFITS New York City Employees Retirement System 2006 Tier 3 & Tier 4 Loan Reduction Chart: An outstanding loan at retirement will permanently reduce your retirement benefit. The amount of the reduction in your benefit depends on your age at retirement and the size of the loan. The chart below illustrates the benefit reduction in dollars for every $1,000 of loan outstanding (based on 2006 actuarial factors): Age at Retirement Annual Reduction per $1000 of Loan 50 $67.04 51 67.91 52 68.80 53 69.76 54 70.82 55 71.93 56 73.09 57 74.34 58 75.65 59 77.06 60 78.55 61 80.13 62 81.81 63 83.59 64 85.49 65 87.52 66 89.69 67 92.02 68 94.52 69 97.17 70 100.01 Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, by fax at (732) 536-7373, or via e-mail at rollover@optonline.net. |
      |
||||
