Current Pension Topics
UFT's 25/55 Breakthrough

By JOEL L. FRANK

Q.: I am a Tier 4 member of the Teachers' Retirement System of the City of New York (TRS). I will be 55 on June 1, 2008. As of June 30, 2008, I will have completed my 25th year of service. Under the new 25/55 agreement between Mayor Bloomberg and the United Federation of Teachers (UFT), will I be able to draw my full pension as of July 1, 2008?

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

A.G.

A.: Assuming the Legislature passes the bill and it is signed into law by Governor Eliot Spitzer, you will be able to retire with a full pension as of July 1, 2008. This is a tremendous improvement to the current benefit formula. In my view, it is the most significant improvement in the formula benefit since the TRS instituted Tier 1 benefits on July 1, 1970. Under current law (Tiers 2, 3, 4), in order to draw a full pension at age 55, you need to have at least 30 years of credited service. Many have the age, but like you, not the 30 years of credited service. Under current law, however, you can draw, as early as age 55, a reduced pension equal to 73 percent of the full pension you would have received if you were 62. In other words there is a 27-percent reduction (penalty) for not being 62.

Example: Your Final Average Salary is $90,000 and you have 25 years of credited service and wish to retire at age 55. Under current law, your retirement allowance is calculated as follows: 25 x 2 percent equals 50 percent x $90,000 equals $45,000 x 73 percent equals a maximum retirement allowance of $32,850 per year for the remainder of your life. All payments stop upon your death. Note: There is no provision for a beneficiary if you choose "maximum" as a retirement allowance. Under the proposed change in the formula benefit, your maximum retirement allowance, effective July 1, 2008, would be $45,000 rather than $32,850, an increase of 37 percent.

This newly proposed benefit is not mandatory; it is optional and comes at an additional cost for those who elect to join, as follows: For those not yet hired: 4.85 percent of their salary for the first 10 years of credited service, and 1.85 percent thereafter. For those currently employed: There is no retroactive cost. This means if you already have met the age and service requirement (55/25), you may retire, as soon as the law becomes effective, at no additional cost on a full pension (see above example). If you are short the age and/or credited service requirement, you just have to pay in 1.85 percent of your salary for the period of time you are short. For example if you are 53 and have 24 years of service; you will have to serve just two more years and contribute 1.85 percent of your salary for just two years before you qualify for a full pension at age 55. Assume you are 55 but have 21 years of service, you will have to serve just four more years and contribute 1.85 percent of your salary for that time before you qualify for a full pension at age 59.