Current Pension Topics

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

Q.: I have a DRO (Domestic Relations Order) on file with the retirement system.

As you know, I can only receive my portion of my ex-spouse's pension when my ex-spouse retires. What happens if my ex-spouse does not retire during my lifetime? I am 77 and my ex is still working at age 76. We've been divorced for 25 years. M.P.

A.: There is no mandatory retirement age for civilian members of the public-sector retirement systems of this state. A member may work for as long as he or she chooses to work. So while your question is unusual from a probability standpoint, it is possible you will never live to receive your share of your ex-spouse's pension.

This is why I am not a big fan of using the future pension benefit as marital property. Once the non-member's portion is determined, most lawyers (representing the nonmember) would negotiate the portion away. In other words, the non-member should be willing to give up his or her future portion of the member's pension in return for a sum of money (or other property) payable upon the final divorce settlement. M.P.: I would look at your DRO and other divorce papers to see how your present situation is addressed. It may be time to visit your lawyer to see how you may protect yourself going forward. In the spirit of full disclosure, I am not a lawyer.

 

Upon reaching age 70½, those of us who have pre-tax retirement/investment accounts like IRAs, 403(b)s, 457(b)s and 401(k)s must begin making regular minimum taxable withdrawals from our accounts. These amounts are referred to as Required Minimum Distributions or RMD. You are notified by the account Custodian prior to reaching age 70½ that such distributions will be sent to you. These distributions are fully taxable in the year received and are not eligible for rollover treatment. The following questions and answers come from the Web site of the Teachers' Retirement System of the City of New York, which administers a 403(b) plan known as the Tax- Deferred Annuity. While the information is peculiar to all 403(b) plans, it also applies to the other popular tax-deferred savings/investment accounts. The part of the answer that is in italics refers only to 403(b) plans. I welcome your questions.

How is my RMD amount calculated?

Your annual Required Minimum Distribution (RMD) amount for a given year is determined by applying an actuarial factor from an Internal Revenue Service life-expectancy table to your applicable TDA account balance. The actuarial factors used to calculate your RMD will change every year, as will the amount of your required distribution. If your spouse is more than 10 years younger than you, and is your sole primary TDA beneficiary, your spouse's date of birth will be factored into your RMD calculation.

If you are a retiree between ages 70½ and 75, your RMD amount is calculated based on your post-1986 TDA balance as of December 31 of the previous year. Your post-1986 TDA balance is determined by subtracting your pre-1987 balance from your total TDA balance as of December 31 of the previous year.

If you are a retiree age 75 or older, your RMD amount is calculated based on your total TDA balance as of December 31 of the previous year.

If I have more than one TDA beneficiary, which one is considered when calculating my RMD?

The only time during your lifetime that an actual beneficiary is used to calculate your RMD is when your spouse is more than ten years younger than you, and is your sole primary TDA beneficiary. Otherwise, your RMD is calculated as if you have a beneficiary who is ten years younger than you. After your death, the life expectancy of your oldest beneficiary is considered when determining your final RMD.

Are there different ways that I can receive my RMD amount?

 

Yes. You have several choices: You may receive an RMD payment from TRS for the required amount; you may make a Direct Withdrawal of an amount equaling or exceeding your RMD amount; you may elect to annuitize your funds; or you may satisfy the RMD requirement by receiving payments from another Section 403(b) Plan unrelated to the TRS TDA Plan.

The following comment refers to all funds, pre-tax and after-tax: If you annuitize your funds, you will be entitled to an income for the remainder of your life in return for signing over the title to your funds to the Teachers' Retirement System of the City of New York. This means you have lost all access to your account balance. Your only legal right is to receive an income for the remainder of your life. I am opposed to using this method to satisfy the annual Required Minimum Distribution requirement.