The pension fund of New York is one of the three largest in the nation and serves well over one million plan participants. This success has put the state in a great spot for the health of its employees’ retirements. The New York retirement system is one of the simplest in the U.S., though there are still some nuances to be wary of. For those who want some extra help, the SmartAdvisor tool can pair you with financial advisors in your area that have experience working with such clientele.
Types of Retirement Systems in New York
While pensions and money for retirement are the main reasons that certain individuals become public employees, there are many other benefits to belonging to one of New York’s retirement systems. You’ll receive varying levels of death benefits, loans, accidental disability benefits for injuries and vesting long-term benefits. Your “tier” determines where you fall within the hierarchy of these plans.
|New York Retirement Systems|
|Plan Title||Eligible Employees|
|New York State and Local Police and Fire Retirement System (PFRS)||– Eligible state and local Police officers |
|New York State and Local Employees’ Retirement System (ERS)||– Full- and part-time employees of the Civil Service Employees Association (CSEA), the NY State Correctional Officers and Police Benevolent Association (NYSCOPBA), the NYS Public Employees Federation (PEF) and Management/Confidential-Classified (MC)|
|New York State Teachers’ Retirement System (NYSTRS)||– Teachers, guidance counselors, teaching assistants and administrators employed full-time in a New York State public school district, eligible charter school or Boards of Cooperative Educational Services (BOCES) |
– Part-time and substitute teachers at participating employers
– Excludes New York City teachers
|Optional Retirement Program (ORP)||– Full-time employees of the MC-13, United University Professions (UUP) and other eligible groups |
– Part-time UUP employees with terms
– Half-time MC-Classified employees
– Certain employees contracted by in-state community colleges
|New York State Voluntary Defined Contribution Plan (VDC)||– All unrepresented employees of New York State public employers |
– Must have been hired on or after 7/1/2013 and make at least $75,000 annually
Overview of New York’s Retirement Systems
New York State and Local Police and Fire Retirement System – These plans come in 20- and 25-year variations, with benefits increasing the longer you’re part of the system. However, in both plans, you will be covered for death and injuries from the day you start. No matter which you choose, though, a maximum of 32 years can be credited toward your pension.
New York State and Local Employees’ Retirement System – ERS plans come with similar benefits to its counterparts, albeit they can take longer to vest. If you become eligible for a different retirement plan within New York’s system, you can transfer your service time from this to the other.
New York State Teachers’ Retirement System – This system and its benefits are dedicated to most of the teachers in New York, aside from those working in New York City. However, those in the Big Apple have their own retirement system called the New York City Teachers’ Retirement System.
This benefit tier list applies to the three retirement systems above: the PFRS, ERS and NYSTRS. These dates apply to when you became a member to your respective program:
- Tier 1: Before 7/1/1973
- Tier 2: Between 7/1/1973 and 7/26/1976
- Tier 3: Between 7/27/1976 and 8/31/1983
- Tier 4: Between 9/1/1983 and 12/31/2009
- Tier 5: Between 1/1/2010 and 3/31/2012
- Tier 6: On or after 4/1/2012
Optional Retirement Program – As a defined contribution plan, the ORP is perhaps the most customizable retirement plan New York offers. It essentially allows you, the participant, to design how your investment portfolio will look with the aid of a free investment professional. These are completed through Fidelity, Voya, TIAA orVALIC. You can begin taking distributions from this plan whenever you want, although the IRS charges a 10% penalty if you do so before you’re 59.5 years old. The only other way to get out of this fee is to “separate from service” before you turn 55.
New York State Voluntary Defined Contribution Plan – Similar to the ORP, investments, beneficiaries and retirement distributions are chosen by the VDC plan owner. Your contributions will vest after a year with a VDC, which is significantly faster than most other plans New York offers. As a result, this plan offers one of the best chances for state employees to retire early.
Retirement Taxes in New York
The distributions, or payments, that you receive from your pension plan are taxable as income at the federal level, as they’re typically not taxed prior to entering your account. These taxes can either be withheld from your checks throughout the year or you can make estimated tax payments. Withholding can help to ensure that you get a refund or only need to pay very little in taxes at the end of the tax year. On the other hand, you must personally calculate estimated tax and pay it quarterly throughout the year.
However, if your retirement plan affords you the option to send your distributions as a rollover to another qualified retirement account, such as an IRA, you will not have to pay taxes on them. Once that money is distributed from your secondary retirement account, though, you will need to pay federal income tax on it. Roth IRAs are after-tax accounts, though, so rollovers made to a Roth will require your taxes to be paid immediately.
The state of New York does not charge its own income tax on pension distributions given to former employees of its retirement systems. But should you move to another part of the U.S. while you are receiving pension payments, you may be charged taxes by that state. To find out if a state you’re looking to move to is one of those included in this, check the Pension Tax by State list of the Retired Public Employees Association.
What you will need to complete, though, is Form W-4P, which tells New York how to set up your federal tax withholding situation for your pension payments. If you fail to send in a form, the state will make the assumption that you’re married and have three exemptions.
Current Financial Health of the New York Retirement System
At an estimated value of $207 billion, New York’s public employee pension fund is the third-largest in the U.S. It has well over 3,000 employers at a state and local level that have employees included in the fund, with significantly more than one million participating retirees, members and beneficiaries. The fund gains most of its funds from investments, and it’s currently averaging a return of 8.35% every five years. So needless to say it’s performing well and should continue to do so for some time.
In an effort to instill protections for this strong pension fund further, New York state comptroller Thomas P. DiNapoli has passed laws protecting who can be a part of it. For example, any investment advisors who contribute to a state comptroller and lobbyists cannot become involved with the fund. Also, all investment sales and purchases made within it are reported monthly to the public. To keep a further eye on these investments, DiNapoli created the Special Counsel for Ethics.
Tips for Retiring Comfortably
- Choosing the right place to spend time in your retirement is just as important as deciding when to retire. SmartAsset has researched the taxes associated with each state so that you can make an intelligent decision as to where you want to end up. The most tax-friendly states are scattered all over the U.S., so there’s bound to be a choice for you.
- Ensuring that your plans for retirement are complete is tougher than it sounds. It involves not only saving enough money for daily spending, but also long-term goals. The advice and guidance of a financial advisor can be invaluable throughout this time. If you want to get paired with up to three advisors in your area, the SmartAsset financial advisor matching tool can take care of it based simply on your answers to a few financial questions.
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