NYS Public Pension Contribution Exemptions

    The New York State Teachers’ Retirement System has published a handbook for active members. You will find an excerpt below. Focus your attention on Required Contributions Fund, Tiers 3 and 4. Members contribute 3% of salary but are exempt from contributions after 10 years of membership. This rule has been in effect since 2003. It applies equally  to state, county and  municipal employees in Tiers 3 and 4. Keep in mind that "benefits" and "contributions" are separate words with separate definitions.

     School districts and local governments have complained about this state mandate which, in effect, raises the cost of contributions by taxpayers while exempting public employees. The resultant cost to taxpayers is obvious. Fire and police have a total contribution exemption for their entire active membership.

     Should  these selective rules of exemption be changed? If not, why not?


Editor's note: Several CC contributors are enrolled in the NYS pension system. Those contributors who are not enrolled probably wish they were.

 

Member Contributions

Tiers 1 and 2 — Annuity Savings Fund (ASF)
Today, most Tier 1 and 2 members do not have an ASF. You may have one if you joined prior to July 1, 1970 and made member contributions, transferred contributions from another NYS or NYC public retirement system or purchased prior service credit under Tiers 1 and 2. If you have an ASF:

• Contributions accrue 5% interest (tax deferred) annually, providing your membership remains active.
• You may borrow from it and make repayments until you retire.
• It will be paid to your beneficiary or estate if you die before you retire.
• At retirement, you have the option of withdrawing your ASF and investing the funds privately, or leaving it in the System to provide you or your beneficiary with an annuity return as part of your retirement benefit.

Tiers 3-6 — Required Contributions Fund
Tier 3 and 4 members: You are required by law to contribute 3% of your salary until you have been a member for 10 years or accrue 10 years of total service credit, whichever occurs first.

Tier 5 members: You are required to contribute 3.5% of your salary throughout your active membership.

Tier 6 members: You are required to contribute a percentage of your salary throughout your active membership as follows:

Tier 6 Contribution Chart
Note: From 4/1/12 through 3/31/13, all Tier 6 members are required to contribute 3.5%. Beginning 4/1/13, during the member's first three school years of membership, he/she will contribute a percentage based on a salary projection (as provided by the employer) in accordance with this schedule:
Salary	Contribution Rate
$45,000 and less	3.0%
More than $45,000 to $55,000	3.5%
More than $55,000 to $75,000	4.5%
More than $75,000 to $100,000	5.75%
More than $100,000 to $179,000 (the limit currently equal to the NYS governor's salary)	6.0%
Following the first three years of membership, a Tier 6 member's contribution rate in any given year is based on regular compensation received two years prior.

Required contributions help fund your pension at retirement. They do not provide you with a separate annuity or any other retirement benefit. If you have contributions in the System:

• For purposes of borrowing or withdrawal of membership only, contributions accrue 5% interest (tax deferred) annually.
• You can borrow from your contributions fund and make repayments until you retire.
• Contributions are subject to New York State income tax when made.
• The following federal tax information applies:
• Tiers 3 and 4: Contributions made prior to July 1, 1989 were federally taxed at the time they were made. Those made after that date are not subject to federal income tax until they are received as part of a withdrawal, retirement benefit, death benefit, or loan.
• Tiers 5 and 6: Contributions are not subject to federal income tax until they are received as part of a withdrawal, retirement benefit, death benefit, or loan.
• Contributions plus interest are paid to your beneficiary or estate if you die before you retire.