Tuesday, April 15, 2014

Our Retirement System Is As Good As It Gets.

One of the major perks that we educators have is the retirement system that goes a long way to provide us with lifetime security.  If I look at the three stools of retirement, our retirement system provides us with two of the three.  A pension, and savings, with social security being the third leg of the stool. Is it any wonder that the newspapers are always claiming that our pensions are too generous by calling it the "pension bomb".  However, many of my fellow educators don't take full advantage of what's offered to us and that's a shame.  We are known as New York City's "smartest" but when it comes to "financial smarts" we are lacking.  Hopefully, I will try to enlighten my fellow educators on how to take advantage of what the retirement system gives us.

Defined Benefit Pension:
We are blessed with a pension plan that can give us a 40% pension after twenty years of service and 60% after thirty years, using the highest three consecutive years of employment.  If one is fortunate enough to qualify for the 25/55 program, even better.  For tiers 1 to 4 it's very important to finish the twentieth year, since your pension jumps up from 31% after nineteen years to 40% after twenty years for the majority of teachers in the system.  Since tier 5 and tier 6 educators have few years in the system, the pension is far away and they have requirements that require twenty-five years for maximizing the pension.  Moreover, for tiers 1 to 4 educators, there is no employee contribution to their pension after completing ten years, the City must fund the entire cost.  For tiers 5 and 6, employee contributions continue throughout their employment (if you are in the tier 4 25/55 program, employee contributions of 1.84% for that program continue to retirement).  You can retire as early as 55 but unless your in the 25/55 program, or have 30 years of service, there will be a significant age reduction factor that will reduce your actual pension. See below. For tiers 2-4 vesting occurs after 5 years while for tier 5-6 you need 10 years.

Annuity Savings Accumulation Fund:
One of the real perks is the ASAF annuity that is added to the pension.  Once a teacher reaches their final step increase (8b), every year thereafter the teacher receives $400 yearly which has a 5% interest added to the balance.  Teachers who have approximately 25 years in the system can expect the ASAF fund to have about $15,000 in it and is annualized to add an extra thousand or so to the yearly pension.  For administrators it is $550 annually.

Teacher Deferred Annuity:
This is a 403b plan known as the TDA. Contributing to the TDA can make or break an educator's retirement plans.  Since this is a tax deferral instrument, the more an educator contributes to their TDA, the less they are taxed since the amount taken out of the paycheck is not subject to federal, state, and local taxes until the money is taken out of the TDA.  For teachers 50 years old and older, the "Fixed Income Fund" guarantees 7% return annually and in this low inflation environment (between 1-3%) its the best deal in town and most of the TDA should be in the "Fixed Income Fund".  For younger teachers, the "Fixed Income Fund" should be a part of your TDA and use it instead of the bond fund which has low yields and far lower returns.  Unfortunately, many educators fail to take full advantage of the TDA and put too little into it.  The more an educator puts in the TDA, the better retirement he or she will have.  For school administrators it's 8.25% until the next contract.  The maximum contribution is $17,500 and if over 50 years of age $23,000 for 2014. Cinally, only 70% of the educators re thing advantage of this benefit, it should be 100%!

Retiree Health Benefits:
For tier 4 and 5 employees, ten full years of service entitle the educator for lifetime retiree benefits and this is a godsend since health costs usually increase with age.  Therefore, its extremely important to achieve a minimum of ten full years of service to achieve lifetime retiree benefits as soon as age 55.   For tier 6 employees its 15 years of service. For tiers 1 to 3 its only five years.

A teacher can take up to 75% of their MACP funds from their pension or 75% of the TDA balance as a loan.  I strongly suggest that you take the loan from your MACF in your pension since, if you pay the loan back before you retire, your pension is unaffected.  On the other hand, taking a loan out of the TDA will reduce your balance and lose interest and appreciation during the time you take out the loan.  If you still have an outstanding loan, your pension will be pertinently reduced by $75 for every thousand dollars owed (amounts vary) and can result in almost $3,000 less in the yearly pension.

Pension Max:
Teachers close to retirement are tempted to take the single payer option, even if they are married.  This is called "pension max" and instead of having their pension reduced to 85-92% by covering the spouse, the educator takes out a life insurance policy on the spouse with the savings by taking the maximum pension.  I personally would not use this risky approach and I strongly urge all future retirees to compare their own circumstances and read up on the pros and cons of "pension max".

Realistically there are very few Tier 1 and 2 members left in teaching and I didn't include them in much of  my post.  However, the very few that are left have 40 or more years in the system and they are usually no longer in the classroom.  These educators can contact TRS for more information specific for their tier. Tier 3 members can and usually automatically convert to tier 4  since tier 3 employees have a social security offset that can reduce their retirement benefit by 50% of your social security benefit that came from public service.  Moreover, tier 3 educators who retire before age 62 have a steeper reduction rate that results in a more reduced pension.  Finally, tier 3 members are limited to 60% of their final three years for pension purposes while for tier 4 is unlimited. Therefore, almost all tier 3 educators convert to tier 4 status. Tier 5 and 6 employees must pay into the pension system during their employment and have slightly inferior calculation methods that may result in a reduced pension. Two years ago I wrote an article comparing the tier 6 pension to the tiers 4-5 pensions here. Further information can be found comparing the six tiers from the New York State Teacher Retirement System website.

Termination Pay.
An educator can convert their accumulated sick days into either termination pay until it runs out or get three lump sum checks every six months.  By taking termination pay the educator keeps their salary, contributes to the TDA, and accumulates pension credit until the sick days are used up.  In both cases the "2 for 1 rule" applies.  Meaning for every day of payment or termination pay, two days are taken from the CAR.  The termination pay is only good for one semester, if an educator still has days in the CAR, its converted to a lump sum payment and paid six months later.

Life Insurance:
Educators get three times their final three year salary if they die in service.  If they die within one year after retirement they get 50% and within two years 25%.  After that its 10%.

Buyback Time:
If you worked for any State or local government outside the DOE in New York State, you can and should buyback the time.  It's to your advantage to do so.  TRS will work out a buyback plan to ease your payments.  Remember for most of us, every year in the system will increase our pension by 2%.  Call TRS and send them a request to buyback the time.

Cost Of Living Adjustment:
The COLA to the pension is given to the first $18,000 of a retiree's pension and starts five years after retirement or 62 if the educator retires at 55, you must wait ten years for the COLA to kick in.  .The yearly COLA is 50% of the Consumer Price Index (CPI)  and has a 1% minimum but cannot exceed 3% in any one year regardless, even if the CPI is greater than 6%.

For more information call the UFT and ask for their "Pension Handbook".  I believe it costs $9 and tell them what tier you are in. For more detailed information and if you're within five years of retirement, then call the UFT Borough office for a pension consultation.  You are entitled to have one every year until you retire.  However, you can only have one "final retirement consultation" so use it the year you intend to retire.

Note: The age correction factor for the pension is 55, 0.73,  56, 0.76,  57,0.79,  58,0.82, 59,0.85, 60,88, 61,0.94, 62,1.00. 


Anonymous said...

I just want to say a simple thank you. I read your blog from time to time and always find what you write useful and thought provoking. This pension info is the best. Thanks again.

Anonymous said...

you neglect to mention the extremly large penalties one incurs if they do not reach the required years of service however.

Chaz said...

Anon 4:04

Thanks I forgot to include it.

Anonymous said...


What is so good about the 55/25 year program? You only retire with 50 percent of your pension if you retire at 55 with 25 Years?

Anonymous said...


Chaz said...

Without 25/55 you would take a 27% reduction in your pension if you retired at 55.

Anonymous said...

I'm a 22 year teacher and plan to retire in the next three years, maximum salary. When I asked my Chapter Leader to explain to me what my options were he told me that I had to wait to just before I retired to get a pension consultation.

Thanks to you I realize I can see a pension consultant this year. You are the man!

Anonymous said...

Anon 622

Got to love the uft and their chapter leaders

Anonymous said...

Although, I plan on going to my share of pension clinics and consultations over the next nine years before I retire, I have pretty much self educated myself on the entire subject. However, Chaz has taught me a few more things than I didn't know, and for that I am grateful. Our pension plan is one of the remaining great things they haven't taken away from us, and our enemies who denegrate us in the news, begrudge us our worth, look at our wonderful pension as one more thing to jealously run us down about. I just want to hang in there for dear life, and get the hell out, and collect on this deal.

retired teacher said...

THe chapter leader was wrong about pension consultations. A member can have one every year and a final, more comprehensive one, the year of retirement. Also the union holds large group pension meetings in the summer. These are of a general nature but are very informative.
When I was teaching, chapter leaders were admonished not to give pension advice - they are untrained and if they give wrong advice the union could be liable.

Anonymous said...

Thanks for the great read. If you can respond, just a quick question. For our pension you wrote it is a calculation if the highest 3 consecutive years. I've always heard it was the final 3 years (which is prob the highest 3 consecutive years anyway) but can you clear that up? Is it any 3 highest consecutive years?

Anonymous said...

Hi Chaz,
You know what's sad? I get more, much more, from you than I do from our union. Even their paper left out much of what you just explained. When important issues are being decided, the union only partially explains it. This is what led to the demise of seniority transfer rights. Many said who cares- I'm staying in my school until I retire. No one explained that doing away with that right allowed Bloomberg to close those schools and not have to rehire the staff. All the surreal crap we have been dealing with stems from the fact that none of this was properly explained and should never have been done. (Bloomberg never would have closed any schools if he was forced to hire the same staff.)
Now the union is negotiating for us again. What half baked idea will be presented to us as a great way to get a raise? Who's advising DeBlasio, the same bunch of 18 devils put in by Bloomberg? Will Bloomberg bribe Mulgrew the same way he must have done with Randi? How else could she go from being great to selling the store (and then leaving!)?

Chaz said...

anon 8:12 am

Any three consecutive years that give you the highest salary.

Anonymous said...

Question for anyone out there
what are the health benefits after 10 years of service ? I always get different answers on what the benefits of completing 10 yrs as a teacher..Thanks for all the info Chaz I agree with 8:43
More INfo on your blog compared to trying to ask our union any questions

Ms. Tsouris said...

For working members, there are the pension workshops and the "Ready or Not" pension and TDA workshops. Everyone is entitled to one "preliminary" pension consultation per year. The irony is that the union is much better for retired UFT members than for working members. The courses given at the borough offices are phenomenal!

Anonymous said...

What if im dead before getting to the pension and TDA because of what goes on daily?

Anonymous said...

While most of what you say is correct, there is some miss-information. The best you can advise is to have members call the pension department of their respective boro office. The consultants are trained professionals who can answer all questions.

A pension consultant

Chaz said...

Anon 11:46

The money you have in the pension , usually between 50-60,000 go to your beneficiary as well as the life insurance that equals the highest three year salary of about $300,000 if you're at top salary.

The TDA goes to your beneficiary.

Anon 8:09

There is no misinformation. Maybe the union needs to do a better job in informing its members of the benefits they have and how to use them.

Anonymous said...

Great info Chaz! But...! The worst thing you could ever do is take out a TDA Loan. Why?
1. Any money you borrow is not earning the 7% interest. Instead, you are paying a 7% interest charge on the money you've borrowed as you repay it!
2. You must also pay a 3% insurance premium on the amount you borrow.
3. You pay back the loan with your net income - after taxes. Then, when you retire and withdraw the repaid loan from your TDA, you pay taxes on that borrowed money again. Double taxation!
So, 10% fees (interest/insurance) and double taxes. Suze Orman would be screaming!!

Unknown said...

I have been participating in the Tier 4 25/55 contributions since it started. Question: What if I do not retire early and stay past the 30 service years and 60 age point.? Do I get my 1.84% annual contributions back in any way or is it simply lost money at that point?
Thanks for any info.

Anonymous said...

Very informative! Is it true that I can retire after 30 years without a penalty if I did not sign up for the 55/25 program? I started teaching 15 years ago at the age of 22. I didn't sign because I felt it would not be beneficial. Was I wrong? Do I have to stay until I'm 62 without a penalty? Please advise.

catt55 said...

TRS holds seminars every year that are very informative. You can only attend once. I highly recommend taking this seminar. TRS is working for YOU - they will find every penny that is pensionable.

You can have a pension consult with the UFT yearly but they are not very well informed. The "final" consult is the UFT flogging it's added services, such as SHIP which you pay into but have to sign on within a specific timeframe after retiring, which I forgot all about (oh well!), and they make a big deal over the "free" courses and activities you can sign up for as a retiree which I'd rather stick pins in my eyes than ever do but that's just me. signed "not a joiner' lol

if you are Tier 4 you have to wait until 62 to retire which is why 55/25 is so great you have the option to retire before 62.

Chaz Jr said...

Hi Chaz,

My name is also Chaz and I love your blog. I have a complicated question. I coached outside NYC for many years before getting hired in 2012. I signed up for tier 4 right before they switched over to tier 6. I did buy back some coaching time. How do I know if I bought back all of my coaching years or just got credit for the years I coached after I signed up for tier 4? (I was at a private school teaching prior to the NYC DOE so I had to sign up for tier 4 through my public school coaching)

Hope I was clear. Thanks!


Anonymous said...

Question: How many CAR days are equivalent to one month ... ie: If I have 80 days at the 2 for one that would amount to 40 days ... How is that calculated into months? If I were planning terminal leave, would that be two months or do they count the days in each month including holidays?

Anonymous said...

Hi. Thank you for your very informative writing! Two questions:

1) How do I know for sure that I joined 25/55? I am in Tier 4 and pretty sure I enrolled. Where can I look to verify?
2) What jobs qualify me to keep contributing to my TDA and 25/55 benefits? I am thinking about long term options outside of the classroom and outside of NYC. For example, what about DOE teacher assigned jobs, DOE Educational Administrator jobs at Tweed, teaching jobs in public schools upstate, or administrative jobs at a SUNY school? Would those types of jobs allow me to keep contributing to my TDA and 25/55 benefits?


kenny said...

That's not correct. Age 55 w 30 years

Joelle said...

I was wondering the same thing. Did you ever get an answer to this question??

kenny said...

If you are 55 and have 30 years you can be done w a full pension Joelle. I forgot was that the original question?

Unknown said...

Many chapter leaders aren’t educated about our contract The union really needs to address this problem especially now after the Janus case It’s the main reason many people are unhappy about the union