Current Pension Topics
Miscarriage of Justice, 18 Years After Fact
By JOEL FRANK

I just took a call from a retired reader receiving a disability pension for the past 18 years. In 1990, the Medical Board certified the disability to be the result of an on-the-job accident. Last month the retiree received a letter from the New York City Employees Retirement System informing him/her that a mistake was made 18 years ago by granting him/her an accidental disability pension rather than an ordinary one.

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.

This is ridiculous! Under the rules at that time, one needed to have 10 years of credited service in order to qualify for an ordinary disability pension. The person in question had less than 10 years, so the only type of disability pension he/she could apply for was the accidental type. Moreover, based on the same accident, the retiree is receiving lifetime Workers' Compensation income. Unless the rules have changed, a worker can only receive Workers' Compensation if the accident took place on the job, no?

The retiree is having sleepless nights wondering when his/her pension will stop, inasmuch as he does not qualify for an ordinary disability pension. I advised the reader to write a letter to the Executive Director of the NYCERS requesting an investigation of his/her case.

The following questions and answers come directly from the Web site of the Teachers' Retirement System of the City of New York (TRS):

What are "excess" contributions?

Any contributions that Tier I and II members have made to their Annuity Savings Fund account that exceed their required Minimum Accumulation amount are considered excess contributions. Members may keep these excess funds in their account or may apply to withdraw them.

My comment: Excess funds include a taxable as well as a tax-free portion. In my view it is best to withdraw all "excess" amounts (taxable and tax-free) in conjunction with retirement. In order to retain the tax-deferred status of the taxable portion, one should roll over the taxable portion to the New York City Employee Individual Retirement Account Program (NYCE IRA) administered by the Deferred Compensation Plan of the City of New York. The tax-free portion is not eligible for rollover treatment, so the interest/gains on any subsequent investment will be taxable in the year earned.

What is my minimum accumulation?

Your Minimum Accumulation is the amount that Tier I and II members need to fund their full retirement allowance; this amount is based on your prior service, your age when your TRS membership began, and your salary history as a TRS member up through your 20-year date. Reaching the minimum accumulation would generally require you to make pension contributions at your full certified rate.

How will I know if I have contributed more than the minimum accumulation needed in order to receive an excess withdrawal?

The account balance summary of your most recent Quarterly Account Statement (QAS) will indicate whether you are eligible to receive an excess withdrawal as of the close of the reporting period. However, please note that, when you apply for an excess withdrawal, your available balance will differ from the balance indicated on your QAS.

What happens if I do not meet my "minimum accumulation"?

Tier I and II members who do not meet the minimum accumulation may not be eligible to receive their full retirement benefit. In addition, they would not be eligible to elect a zero rate of contributions or to make an excess withdrawal.

How often may I make an excess withdrawal?

In general, you must wait at least one year after receiving an excess withdrawal before you are eligible to apply for another. However, in conjunction with retirement, you may apply for an excess withdrawal regardless of when you made your last excess withdrawal.

How long will it take before I receive my excess withdrawal?

Excess Withdrawal Applications are processed in the order that they are received, and are usually processed within two to three months after TRS' receipt of an application. However, if the necessary salary and service information is not available, processing could take substantially longer. If you file for an excess withdrawal in conjunction with retirement, you generally would receive your check at about the same time that you receive your first retirement allowance check.

How would an excess withdrawal impact my retirement allowance?

Taking an excess withdrawal would reduce your Annuity Savings Fund balance. As a result, you would receive a lower retirement allowance than you otherwise would have.

My comment: If the excess amount is left on deposit with the TRS your only way to access it is to annuitize it. This means you must legally transferred the title to the excess amount to the TRS in return for lifetime annuity income that must begin on your retirement date. If, however, you roll over the taxable excess amount to an IRA, you continue to keep the title to the funds for the balance of your life and need not make any withdrawals until attaining age 70-1/2. Any withdrawals made prior to age 59-1/2 are subject to ordinary income tax plus a 10 percent penalty tax. Any withdrawals made after attaining age 59-1/2 are subject to just ordinary income tax. Required Minimum Distributions (RMD) must commence at age 70-1/2 and are also subject to ordinary income tax.

If I apply for an excess withdrawal in conjunction with my retirement, would I receive my excess withdrawal and my first retirement allowance payment at the same time?

TRS makes every effort to synchronize the two payments. However, since retirement payroll must be coordinated with the New York City Comptroller's Office, there is a chance that the retirement allowance payment will be issued before, or after, the date that TRS issues the excess withdrawal payment. Please note that, if you retired under deferred payability, your excess withdrawal would generally be issued before your first retirement allowance payment.

How would an excess withdrawal impact my ability to take a loan?

Taking an excess withdrawal would not impact your loan eligibility. However, it would reduce the amount available for a future QPP loan.

What are the tax consequences of an excess withdrawal?

Any pre-1987 contributions in your excess funds are tax-free; however, any other excess amounts are taxable upon receipt and would be reported to the IRS on a 1099-R Form. The IRS requires that TRS withhold 20% of any taxable amount you withdraw unless you instruct TRS to directly roll over the amount into an IRA or Section 401(a) Plan. An additional IRS-imposed 10% tax would apply unless the withdrawal is made: a) in conjunction with your separation from service in or after the year in which you reach age 55; or b) after you reach age 59-1/2; or c) to pay federally deductible medical expenses; or d) in conjunction with your disability retirement.