Current Pension Topics
Wise to Use City '457' Plan

By JOEL L. FRANK

Q.: I am a Police Lieutenant with 22 years in the Department. I do not contribute to the city's 457 Plan, however, I do contribute to the Police Pension Fund. My union, in the last contract, negotiated a Savings Incentive Plan (SIP) in which the city will contribute $300 per year into my 457 account, provided I contribute 1 percent. Should I join the 457 Plan to receive the city contribution of $300 or should I continue contributing to the Police Pension Fund?

V.P.

A.: You have raised some very important issues. Firstly, inasmuch as the Pension Fund allows you to withdraw in a lump sum almost your entire annuity savings account balance (your contributions) upon retirement, and this distribution is eligible for rollover treatment, why contribute to the Pension Fund to begin with, especially when the city gives you an excellent supplementary 457 Plan? In my view, you should not contribute at all to the Police Pension Fund. By reducing your rate to zero, you will still be entitled to 100 percent of the city-provided pension and city-provided Increased-Take-Home-Pay annuity.

In lieu of contributing to the Pension Fund, I would contribute, at the very least, my full pension rate to the city's 457 Plan and invest in the appropriate Target Date Fund. This plan of action, in my judgment, is better than first contributing to the Pension Fund and then withdrawing/rolling over one's money upon retirement. In my view, one should contribute to the Pension Fund only if he/she plans on lifetime annuitizing his/her own contributions upon retirement. I trust you now see that if you follow my advice, you will certainly be entitled to the $300 city contribution to your 457 account. I welcome the day when all city employees will get the same match. With reference to the question asked by P.W. in Current Pension Topics of April 30, 2007, please take note that after 10 years of service credit, a Basic Tier 3-4 member of the New York City Employees' Retirement System may not withdraw his/her accumulated deductions. P.W. has 13 years of credited service and is thus compelled by law to leave his/her Accumulated Deductions on deposit with NYCERS.

I want to thank Susan Sanders, a pension benefits attorney, for reminding me of this provision of law.

P.W. is not entitled to withdraw his/her own money and is therefore precluded from effectuating a rollover distribution. He/she is compelled to accept a vested pension at age 35 with the date of payability being age 62. The waiting or vesting period of 27 years works in favor of the city and against P.W.

P.W.'s money is invested by NYCERS in perpetuity. In 2034, the year P.W. turns 62, the city will begin to pay him/her a pension based on the salary earned during 2003-2007. If we assume average investment returns over the next 27 years, P.W.'s own money may very well finance 100 percent of his/her pension.

Note: There are some special retirement programs administered by NYCERS that do allow for withdrawal of one's own money with 10 or more years of credited service. Check with NYCERS if you are a member of one of those special retirement programs and contemplating the withdrawal of your own money.

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 .