Current Pension Topics: COLA Eligibility, Calculations

Current Pension Topics

COLA Eligibility, Calculations

By JOEL L. FRANK

Q.: Who is eligible for a Cost-of-Living-Adjustment (COLA) during retirement and how is it calculated?

P.O.

A.: The following answer comes from the New York City Employees' Retirement System Web site:

_ Disability retirees, regardless of age and who have been retired for at least 5 years.

_ Service retirees, beginning at age 62 and who have been retired for at least 5 years.

_ Service retirees, beginning at age 55 and who have been retired for at least 10 years.

_ Beneficiaries receiving an Accidental Death Benefit, regardless of age, who have been receiving that benefit for at least 5 years.

_ Spouses receiving a joint-and-survivor option benefit are eligible to receive 50 percent of the monthly COLA that the retiree would have been eligible for.

The COLA calculation is based on 50 percent of the Consumer Price Index (CPI). This figure is then multiplied by either $18,000 or your Maximum Retirement Allowance (including any prior years' COLA paid under this legislation), whichever is less. The result is then added to any previous permanent COLA amounts. The sum of these COLA figures equals this year's COLA payment.

The following question and answer comes from the NYCERS Web site:

Q.: How can I get an estimate of my retirement benefits under various options?

A.: If you are a registered member of our Web site, you can use the Retirement Calculator to estimate how the various options might affect your retirement benefit. If you enter the age of a beneficiary, the Retirement Calculator will provide you with an estimate of your retirement benefit under the following options: Maximum Allowance, 100 percent Joint and Survivor, and 50 percent Joint and Survivor.

The following question and answer comes from the NYCERS Web site:

Q.: Does it pay for me to buy back previous service?

A.: Generally, yes. Since most of NYCERS' retirement benefits are calculated based on your years of service, the additional years - under most plans - will increase your benefit. There are a couple of exceptions:

•  Some plans have a cap on the maximum number of years that can be included in your benefit calculation.
•  Some plans have stricter requirements for the types of service that can be used in your benefit calculation.

If you are unsure of the rules under your plan, contact NYCERS before you apply to purchase any previous service.

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Q.: I am a Tier 1 member of the Teachers' Retirement System. I will be retiring shortly at age 65 with 42 years of service. I have never taken out a loan and have contributed my full rate for the entire 42 years. My "excess" is quite large and so is my available loan. Should I take out as much as possible in lump sums or should I annuitize these amounts?

S.O.

A.: Your TRS annuity income rate at age 65 is .09728. If we assume you have the option to withdraw $200,000, and you do, you will be reducing the annuity portion of your retirement allowance by $19,456 annually for life (.09728 X $200,000). In return, you have increased your wealth by $200,000. You now have ownership rights to the $200,000. Assuming these amounts are eligible rollover distributions, you can defer the tax on these distributions by rolling them over to another eligible retirement plan like an IRA or another employer plan. For rollover purposes I strongly recommend the city's 401(k) Plan. You do not have to withdraw any amount from the rollover account until you attain age 70-1/2. Or, if you feel you want to start a flow of income immediately, you can do that. You have much flexibility. TRS, however, gives you but one choice if you leave the money with it. It will guarantee you $19,456 annually until you die and it retains ownership rights to the $200,000 in perpetuity.

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.