Current Pension Topics
Make Plans Early About Loans and Withdrawals

By JOEL FRANK

To Take Out A Loan Or Not To Take Out A Loan, That Is The Question. To Withdraw Excess Or Not To Withdraw Excess, That Is The Question.

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.

According to New York City Employees' Retirement System Rules, only active members may take out a final loan (all Tiers) and withdraw "excess" (Tiers 1-2). Your last day of active service is the day before your date of retirement.

Example: You hand in your retirement application on Feb. 2, 2008 and designate March 2, 2008 as your retirement date. Your last day of employment as well as your last day to take out a loan and withdraw excess is March 1, 2008. Along with the retirement application you should also hand in your applications for a final loan and withdrawal of excess.

If you just hand in your retirement application on Feb. 2, 2008, you still have until March 1, 2008, your last day of employment, to apply for a loan and withdrawal of excess. If you wait until after your last day of employment (March 1, 2008), your applications will be denied because you are no longer in active status. Common sense tells me one should have decided months, if not years, before Feb. 2 on either annuitizing these lump-sums with NYCERS or withdrawing and rolling them over to another eligible retirement plan.

For some of you, these amounts may be hundreds of thousands of dollars. If you need help in deciding the wisest course of action, given your unique set of circumstances, please consult with me at least three months before handing in your retirement application.

Q.: For 35 years I have been maximizing my contributions to the Tax-Deferred Annuity 403(b) plan managed by the Teachers' Retirement System. Once per year, since 1990, I have used Revenue Ruling 90-24 to transfer, tax-free, my TRS TDA balance to no-load mutual funds. Based on new regulations, the TRS has stopped these transfers. Are you able to shed some light on this? The TDA plan is lousy and many of us Teachers really depended on Revenue Ruling 90-24.

R.S.

A.: First, I wish to commend you for your use of Revenue Ruling 90-24. Since 1975 section 403(b)7 of the Internal Revenue Code has authorized mutual funds as an alternative 403(b)investment. As you well know, the TRS/UFT/Department of Education has never allowed for this investment option. This blockade has always been and continues to be unjustified!

Having said that, under the new 403(b) regulations there are two ways in which you may invest in mutual funds: (1) The TRS will need to expand its investment line-up to include no-load mutual funds; or (2) The TRS will have to enter into an "information sharing agreement" with the particular mutual fund you want your money transferred to. In light of the fact that the blockade has never allowed mutual funds to be offered to the Teachers of this city, I believe it will snow in July before this ever happens.

In addition to being arbitrarily denied mutual funds as an investment choice, the TRS does not allow lump-sum transfers among TRS managed funds. This guarantees losses in down markets and minimizes gains in up markets. Could it be for this reason that the TRS is in violation of Federal and state securities laws?

Advice If Younger Than 59-1/2 And In Service: Use the TRS TDA Plan for only the non-risk portion of your pre-tax investment strategy. The Fixed Return Fund is periodically set by the New York State Legislature and is currently guaranteeing 8.25 percent through June 30, 2009. At that time the Legislature will lower it, raise it, or re-set it at 8.25 percent. Under the State's Constitution it may not be set below 7.0 percent.

For the at-risk portion of your investment strategy I strongly recommend the Deferred Compensation Plan of the City of New York (DCP).

Advice If Older Than 59-1/2 and In Service: Same as above. Roll over the at-risk portion of your TRS TDA account to the New York City Employee-IRA Program (NYCE IRA) administered by the DCP.

Advice If Younger Than 59-1/2 And Retired: Same as above except roll over the at-risk portion of your TRS TDA account to the City's 401(k) Plan.