Current Pension Topics
Still Time for DCP Tax Break

By JOEL L. FRANK

Q.: Now that the Governor has signed into law the new 55/25 plan of the Teachers' Retirement System of the City of New York, when will the balance of the city workforce receive the same benefit?

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.

P.Z.

A.: I don't know. In my view I find it stunning that the city unions have not demanded parity with the Teachers. This is the most generous improvement in city pensions since Tier 1 benefits became law 40 years ago. At that time, all city workers (excluding the emergency forces) were treated the same, regardless of job title. That practice should be followed with the new 55/25 Plan. If the Teachers deserve it, everyone deserves it.

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Q.: My wife got a job last February. At that time, I should have increased my contribution to the Deferred Compensation 457(b) Plan of the City of New York. Can I send them a check now and get a benefit on my 2007 tax return?

D.W.

A.: You sure can! But the amount must be credited to your New York City Employee-Individual Retirement Account (NYCE IRA). Please do this before April 16 in order to reduce your taxes for 2007.

Review: The City of New York practices the gold standard when it comes to administering supplemental/voluntary retirement savings programs for its workforce. The major program is the pre-tax 457(b) Plan. If after maximizing your contributions to this plan, you still desire to contribute more, you can do so by contributing to the companion pre-tax 401(k) Program. For 2008, you are allowed to contribute a maximum of $15,500 to each.

Additionally, the Deferred Compensation Plan of the City of New York (DCP) offers the pre-tax NYCE IRA Program. For those of you who will benefit from after-tax retirement savings arrangements, the DCP offers a Roth feature to the 401(k) Plan and to the NYCE IRA Program. The Congress currently is considering a Roth feature to 457(b) Plans. Hopefully, that will be offered in 2009.

For a thorough understanding of your DCP, I encourage you to log onto its Web site at: http://www.nyc.gov/html/olr/html/deferred/dcphome.shtml.

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Q.: I am entitled to purchase three years of prior-service credit. I was told that I may use funds from my 457(b) account for this purpose. Is this so?

B.K.

A.: Yes, you may, and funds from an IRA and 403(b) account may also be used for this expressed purpose. Prior to this law, one had to use funds that had already been taxed. For most, this was a hardship. The use of pre-tax funds means you are simply switching the needed funds from one pre-tax retirement account to another. It is a no-brainer.

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Q.: My son just became a father, and we got to talking about a rainy-day fund. How much should he have in this fund?

R.E.

A.: I suggest a fund of six months' worth of living expenses. I would place this money in a money-market mutual fund with check-writing capability.