Current Pension Topics
Make IRA Contributions ASAP

By JOEL L. FRANK

If funding an IRA (traditional or Roth) is in your plans for 2007, you should contribute to it as soon as possible even though the last day for funding it is April 15, 2008. By contributing to it in January 2007, you will be adding 15 months to the period that it enjoys tax-deferred growth. If you haven't contributed yet to your IRA (traditional or Roth) for 2006, you should also do so as soon as possible even though the deadline is April 16, 2007. I strongly recommend that you use the New York City Employee IRA Program (NYCE IRA) administered by the Deferred Compensation Plans of the City of New York as your IRA investment provider. Note: The NYCE Roth IRA will not be available until the second half of 2007.

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Q.: I am a police officer and my brother is a Teacher. I contribute to the 457 Deferred Compensation Plan, while he contributes to the Tax Deferred Annuity Plan (403(b)) of the Teachers Retirement System (TRS). Why is it that he has the option of getting 8.25-percent fixed interest from the TRS, while I must accept the interest generated from the Stable Income Fund?

G.A.

A.: His rate is much higher than yours because the New York taxpayer guarantees a TRS 403(b) interest rate that cannot be earned in the capital markets.

Tens of thousands of public workers across this state contribute on a voluntary basis to salary-reduction retirement savings plans like you and your brother do. These plans are named for the sections of the Internal Revenue Code that authorize their use (Sections 403(b), 457(b) and 401(k)). When you and every other public worker in the state invests in these tax-favored retirement savings schemes with no subsidized return, it is a moral as well as a fiscal outrage for just a certain group of employees to be singled out for special or subsidized treatment. In the latest reporting period, $5.4 billion has been invested at the 8.25-percent guaranteed rate of the TRS 403(b) Program. This represents a taxpayer subsidy in the amount of about $175 million per year (3.25 percent times $5.4 billion, assuming a 5-percent return from the capital markets)." The 8.25-percent rate is guaranteed until June 30, 2009.

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Q.: A number of years ago I vested my pension with the New York State Retirement System. I defaulted on the loan. This amount was reported to the IRS on Form 1099. I paid the taxes due plus the 10-percent penalty tax for early distribution. Why do they continue to add interest onto the loan balance? Have I not paid off this loan?

R.C.

A.: I believe you have. Once you defaulted on your loan, the balance due was simply taken from your Annuity Savings account by the retirement system. The retirement system then sends you a Form 1099 informing you that you have received a premature taxable distribution from the retirement system equal to the unpaid loan balance. You are then responsible for paying the taxes due on the distribution. This you have done. In my view you do not owe the retirement system any money. I would write to the Executive Director of the New York State Retirement System with supporting documents and ask for his assistance in reconciling your account. Your account should not be reduced beyond the defaulted loan amount as reported on Form 1099.

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net .