Current Pension Topics
TRS 55/25 Contribution Rates

By JOEL L. FRANK

Q.: Under the proposed 55/25 plan for members of the Teachers' Retirement System of the City of New York and the Board of Education Retirement System, what will be the rates of contribution and for how long?

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

A.: A new member will contribute for 25 years as follows: For the first 10 years of service, the contribution rate will be 4.85 percent, and for the last 15 years of service, the rate will be 1.85 percent. After 25 years, employee contributions will stop. All contributions will be tax-deferred on the Federal level, but subject to state and city income tax.

Q.: I am maxing out my contributions to the 457 and Roth 401(k) Plans. Will taking out a maximum pension loan reduce my contributions to these plans?

A.: No. Taking out a loan has nothing to do with saving for retirement through these two plans.

Q.: Why are public-school employees the only class of public employees (nationwide) who have the right to join a 457(b) plan, in addition to a 403(b) plan? I am a cop in upstate New York and would like to contribute to both plans just as my brother-in-law does by virtue of being an Assistant Principal in a nearby town. He contributes to a high-priced 403(b) variable annuity (ING), as well as the statewide 457(b) Plan, while I am limited to just the 457(b) Plan. I find this to be a gross injustice. What can be done about this?

A.: I could not agree with you more. About two to three years ago, a bill was introduced in Congress that would have given you the right to pay into the two plans. It never got out of committee because the insurance lobby wanted to protect its retail-priced 403(b) variable annuity business. If non-school district public employees were offered a Section 403(b) Plan, it would most probably be run by the same state agency that has operated the 457(b) Plan for decades. If the bill became law (using New York State as an example) the New York State Deferred Compensation Board could be offering both a 457(b) Plan (which it currently does) and a 403(b) plan to all of the public employees in the state. This would have inflicted a mortal blow to the commission-based 403(b) variable annuity business which has been flourishing in hundreds of local school districts in New York (outside of the city) for almost a half-century.

Having said all that, I suggest you write to your union president, as well as your representatives in Congress, and tell them that you demand parity with public-school employees. Tell them that all retirement-savings programs for public employees should be run by state government. Tell them that the logic that created a state-administered 457(b) plan should be extended to Section 403(b). Tell them that you want the bill that allows non-school district public employees to join a 403(b) plan re-introduced in Congress. Commission-based 403(b) variable annuities and mutual funds must be effectively removed from the public school districts of this nation.