Current Pension Topics
Credit-Card Debt & Buybacks

By JOEL L. FRANK

Q.: I have $12,000 in credit-card debt and would like to know the best way to pay it off.

G.P.

A.: The first and indispensable step is to scissor up all of your credit cards. Step 2 is to make a compact with your mind's eye never to use a credit card again. Step 3 is to use a debit card that pays you back cash. Having said that, I would advise you to take out a pension loan and pay off the $12,000 immediately with that money. Remember, you will be spinning your wheels if you pay off the loan without implementing the three steps.

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Q.: I have nine years of prior public service credit in the State of New York. The New York State Department of Agriculture has offered me a provisional appointment. If I accept, can I buy back the nine years or must I wait to be permanently appointed?

B.M.

A.: You do not have to wait for a permanent appointment to purchase prior service. You have the discretion to do it under a provisional appointment, as well, if you wish. I would do it sooner rather than later because the cost of the purchase is based on your age at the time of the purchase request. Get back to me with the cost and I will give you some ideas of how to pay for it.

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Q.: I am 35 with 13 years of service. I am a Tier 4 member of the New York City Employees' Retirement System and fed up with the job. I will resign at the end of April. Should I vest my pension or withdraw my money?

P.W.

A.: I would like to take this opportunity to explain the meaning of "vesting." In order to vest, you must have a minimum of five years of service credit. You then must leave the money that you have contributed along with the accumulated interest on deposit with NYCERS. At age 62, you will be entitled to receive your vested pension.

The more NYCERS earns with your money during the vesting period, the next 27 years, the less the city has to come up with. The less NYCERS earns with your money over the next 27 years, the more the city must come up with. It is, therefore, possible that with growth over the next 27 years, your own money will be enough to guarantee you the entire vested pension. If this winds up being the case, then the city does not have to contribute at all, because you have funded 100 percent of the cost. This is in the realm of possibility because the vested pension is based not on the salary levels that will be in effect 27 years hence, in the year 2034, but on what your average annual earnings were during the three years prior to the date you vested (2004-2007). This is called "cold storage" vesting.

Twenty-seven years is a very long time to wait for a pension that will be based on a salary earned a generation earlier. Factor in inflation over the next 27 years and I trust you will agree with me that vesting is not in your best interests. Rather than vesting, I would recommend that you effectuate a Direct Rollover distribution of your NYCERS contributions account to a special 401(k) Rollover Account administered by the Deferred Compensation Plan of the City of New York and invest the entire distribution in the 2035 Fund. Should you die during the next 27 years the market value of the retirement investment account is paid as a death benefit. This is not the case if you vest. While it is true that your contributions account is invested by NYCERS in a portfolio of stocks and bonds, should you die during the next 27 years, the death benefit is the value of the account on the day you vested with interest at the rate of 5 percent.

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.