One of the many benefits of working for NYC is the ability to participate in the New York City Employees Retirement System, or just NYCERS for short. Due to the variable ways you can participate we’ll barely begin to scratch the surface. I did discuss some of this in an earlier post, but we’ll go a little deeper into some of the points.
There are numerous benefits to participating. The main one is getting a pension benefit. Try to find that these days. New civilian (not uniformed) employees hired into Tier 6 (joined NYCERS on or after April 1, 2012) will participate generally in the “63/10” plan. The Tier 6 63/10 Plan allows participants to retire with an unreduced pension at age 63 with at least 10 years of Credited Service. Participants with 10 years of Credited Service may retire with a reduced pension earlier than age 63 but no earlier than age 55. For those of us in the Tier 4 program, the calculations are a bit different and the basic plan is the 62/5 Plan, with a similar benefit – age 62 with at least 5 years of credited service in the plan. There are other offshoots, including a 57/5 and a one-time 55/25 plan that I was lucky enough to get in to.
Employees who are appointed and have completed six months in a permanent position MUST join NYCERS after the six months, but can actually join anytime during the first six months. Provisionals and other non-permanent employees can join NYCERS and will not be forced to join after the six month period. As long you are on the city payroll and you file a membership application with NYCERS you can begin earning credited service. This was information that I did not have and was not given at the beginning of my employment. I was hired as a provisional and didn’t become a permanent for about two years. Luckily I was able to “buy-back” that time, which then became “credited service” and counted towards my city time.
So, credited service is ANY service that can be used to add to your time to help improve your benefit. Your retirement amount, or benefit, will generally increase based on the amount of credited service you have. It can also bring you closer to retirement. For example, you’re 64 but only have worked for the city and been in the NYCERS system for 8 years. So you meet the Tier 6 age requirement of 63 minimum, but you need 10 years. Perhaps you were in the military for two years. You can buy back those two years (if you meet the criteria) and make them “credited service”. Maybe you worked for NYS in Albany or out on Long Island for agencies that were part of the NY State & Local Employees Retirement System (NYSLRS) and have a couple of years under your belt. Those, too, can be bought back and help you reach your 10 years of credited service.
Other benefits of joining NYCERS is that the contributions reduce your federal income and are tax deferred. You can borrow against it as your contributions increase. Your contributions gain interest, so if you leave and choose to take the money it will have grown some (although you will be hit with taxes on the way out). And a super deal is that when you do retire and receive that pension, you will not pay any NY state and local taxes on the distribution – only federal taxes. You can find the list here at the NYCERS website.
Supplemental Retirement Benefits
Although the pension provides a substantial amount of benefit, depending on your lifestyle and where you choose to live, you may need more than the pension provides. The city through the Office of Labor Relations (OLR) offers a 457 plan as well as a 401(k) – both with pre-tax and Roth options. OLR has a nice summary document here. Each plan has advantages and disadvantages, however, the one that I found most beneficial is that the 457 has no “early withdrawal penalty” – I can take money out prior to 59 ½ – unlike a 401(k). As a recent retiree, I’m not sure if I will need to tap into it yet. However, should I need to, and considering I haven’t reached 59 ½ yet, I have that savings available just in case. Of course I will have to pay taxes on it as I had a percentage of my pre-tax salary put into it – but it will be taxed at a lower rate because my taxable income has decreased due to the change in tax status due to the retirement.
As the 457 plan is derived from the tax code, this description is accurate from this gentleman (even though he’s from Florida)
Like my regular disclaimer, I’m not a HR, Benefits, Legal, or any financial guy, just a regular working slob. So I would recommend you seek advice from your benefits person and/or attend a few OLR Deferred Comp seminars to see what works best for you.