Current Pension Topics: No Excuse for Big Check Delay

Current Pension Topics

No Excuse for Big Check Delay

Q.: I am a Tier I Assistant Principal who filed for retirement after 37 years of service on Feb. 8 with an effective date of 2/16/06. Two weeks later, I received a confirmation letter from the Teachers' Retirement System acknowledging receipt of my application along with other appropriate forms. The letter stated that I would receive an estimated pension check within one to two months and continue to receive the estimated amount monthly until my retirement application was finalized, which should take four to six months. I received no payment in March or April and when I called them on April 20, they said that no payment would be issued until the end of May at the earliest. When I asked why and told them that would be three-and-a-half months without even an estimated payment, they stated that there was nothing they could do and I should have made provisions. I had made provisions but not for three to four months without an income. Is there any legal requirement that TRS must comply with to provide a payment in a reasonable period of time? I called my union on this matter and I'm still waiting for their reply. Can you offer any advice?

R.M.

A.: This is very unfortunate indeed. Your situation was common in the 1970s when the city experienced a de facto bankruptcy. There is absolutely no excuse for this treatment in the year 2006. If the TRS lacks staffing, it should do some hiring; otherwise this is just another example of their incompetence. I wish I could do more for you and the others that are in your boat.

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Q.: As you know, retirement income derived from a New York State or City retirement system is exempt from the New York State and City resident income tax. This is not the case with IRA income. How is IRA income taxed by the state and city?

M.E.

A.: The first $20,000 of income derived from your IRA is exempt from the New York State resident income tax. All distributions from your IRA, 457(b) and 401(k) accounts are aggregated. This means if your IRA paid you $20,000 and your 457(b) paid you $7,000, the $7,000 is fully taxable.

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Q.: Do you suffer a penalty when taking out a loan at retirement?

T.C.

A.: No. The annuity portion of your retirement allowance is simply reduced by the annuity income value of your loan. This reduction is not a penalty because you are receiving a lump sum of cash in return. Assume a teacher takes out a $50,000 loan in conjunction with his/her retirement at age 60. If left with the TRS, the $50,000 will generate a retirement income of 0.08935 x $50,000 or $4,468 annually. If the $50,000, is withdrawn in cash, the annual annuity income will be reduced by the $4,468. This is a simple business transaction. You need to ask yourself: Do I voluntarily want to have $50,000 in cash or do I want to voluntarily annuitize my $50,000? Regardless of your answer, you are receiving fair economic value. There is no penalty.

Over the years many employees have asked me what is the single most beneficial thing they could do with their paychecks after contributing to the pension system and Social Security? I have always answered: Contribute all you can to the Deferred Compensation 457(b)/401(k) Plans of the City of New York. In fact, if I had my way, the city would automatically enroll all employees in the 457(b) Plan. This would force the employee to think about the need to save for retirement while helping to do it for them unless they filed the appropriate papers to stop the contributions. Automatic enrollment would vastly increase participation. Also, if I had my way I would terminate the city's contribution to the unionadministered annuity funds and have the city's contribution go directly into the employee's 457(b) account.

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.