The Difference Between Defined Benefit Plans and Defined Contribution Plans: A NYSLRS Perspective

According to a report from the National Institute on Retirement Security (NIRS), when given the choice between a defined benefit or defined contribution plan, public employees overwhelmingly choose the defined benefit pension plan. As New York State & Local Retirement System (NYSLRS) member, you’re covered by a defined benefit plan.

Defined Benefit Plans

At a glance: Selected differences between defined benefit plans and defined contribution plans.

According to the Internal Revenue Service (IRS), defined benefit plans provide a fixed, pre-established benefit for employees at retirement. The defined benefit plans administered by NYSLRS:

Defined Contribution Plans

The IRS describes a 401(k)-style defined contribution plan as a retirement plan in which the employee can make contributions from his or her paycheck either before or after tax, depending on the options offered in the plan. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. In some plans, the employer also makes contributions such as matching the employee’s contributions up to a certain percentage. The most common employer matching contribution is 50 cents for the first 6% saved by the employee.

If an employee changes jobs, he or she can choose what to do with account. The employee can:

  • Leave the 401(k) money where it is;
  • Roll it into an Individual Retirement Account or another 401(k); or
  • Cash out the account.

At retirement, the retiree is usually left to decide how to spend his or her retirement savings based on the balance in his or her account. Since the value of the account will fluctuate due to investment gains and losses, unlike a defined benefit plan, defined contribution plans may not provide a reliable monthly benefit at retirement.

In addition, defined contribution plans do not provide death and disability benefits to survivors. If they are provided, the employee may be required to make extra contributions to a structure outside the defined contribution plan.

Cost Effectiveness Comparison

Numerous studies have shown that defined benefit plans cost less in the long run than 401(k)-style defined contribution plans and perform better. In fact, according to the model in a recent NIRS report, defined benefit plans cost 46% less than individual 401(k)-type defined contribution plans for several reasons:

  • Defined benefit plans avoid longevity risks. An individual investor in a defined contribution plan needs to plan for a long life expectancy, and must save at a rate that ensures that their funds will last well into their nineties to avoid running out of money. Defined benefit plans save for average life expectancy. As a result of this longevity risk pooling, defined benefit plans achieve a 15% cost savings over defined contribution plans.
  • Defined benefit plans can maintain an optimal asset allocation. Financial advisors urge individual investors to make higher risk investments with higher returns when they are younger, and shift to lower risk investments with lower returns as they age so their funds will last through their retirement. But because defined benefit plans do not age, unlike the individuals in them, they are able to take advantage of the enhanced investment returns that come from a balanced portfolio over long periods of time.
  • Defined benefit plans achieve higher investment returns. Professional management and lower fees result in a 1% annual increase in investment returns over an individual’s career. That amounts to a 26% cost savings for defined benefit plans over defined contribution plans.

By administering a reliable, cost efficient and sustainable defined benefit plan, NYSLRS provides its members with the means to help ensure their financial security in retirement. To find out the specifics about your retirement benefits, please read your retirement plan publication.

Countdown To Retirement: What to Do 1-3 Months Before Your Retirement Date

Countdown-to-Retirement_1_3-MonthsThere are important things you need to do in the final months leading up to your retirement date. Our Countdown to Retirement Series can help you remember what to do and when to do it.

Last time, we discussed what you should do when you’re 4 to 6 months away from retirement. This final post in our series talks about filing your retirement application and what else comes afterwards.

Filing for Retirement

Your Application for Service Retirement (RS6037) must be on file with us 15–90 days before your retirement date. You can get the form from our website, our Call Center, one of our consultation sites, or from your employer. Make sure to enter all requested information on the form and have it notarized.

If you mail it by Certified Mail – Return Receipt Requested, we will consider your application filed on the date it was mailed. Complete filing instructions are on the form. Please don’t give your application to your employer.

Next Steps

We’ll mail you a confirmation letter after we receive your application. You’ll also receive forms that you’ll need to complete and send back to us:

*If you haven’t received a NYSLRS retirement estimate in the last 18 months, we’ll send you an option election form and an estimate separately.

Choosing Your Option Election

Select a retirement option based on your most recent estimate – you can see what your pension benefit could be based on the different options available to you. All of the options provide you with a monthly benefit for life, and some provide for possible payment to a designated beneficiary upon your death. You must file this form by the last day of the month in which you retire (unless otherwise notified).

Make Sure You’re Prepared

As you near your retirement date, it’s important to have an understanding of what will happen once you send in your retirement application. Think about scheduling a retirement consultation at one of our offices before you file for retirement. You can also contact us if you have any other questions.

How Elected & Appointed Officials Report Time Worked

Regulation requires elected & appointed officials to keep track of their time

Source: Wikipedia Photo: UpstateNYer CC BY-SA 3.0

As an elected or appointed official, the time you work for your public employer gets reported to us as paid service, and we use that data to determine your service credit towards retirement. However, some elected and appointed officials usually don’t work a fixed schedule or have preset hours like other NYSLRS members, so determining the time they’ve worked is a little bit more involved. In recognition of Election Day and the new terms and appointments that will result of it, let’s take a look at the member responsibilities of our elected and appointed officials.

The Record of Activities

Elected and appointed officials have been required to record and submit a record of work-related activities (ROA) to their employers since 1976. The ROA is a daily detail of hours worked and duties performed by the official, including official duties performed outside normal business hours. Activities can include attending an employer-sponsored event, addressing constituent concerns and responding to an emergency. Activities that would not be considered work-related include time attending electoral and campaign events, time spent socializing after town board meetings, attendance at a candidates forum, and on-call time.

To help ensure that elected and appointed officials receive appropriate service credit, changes and additions to the process of reporting elected and appointed official went into effect in August 2009. Elected or appointed officials who do not participate in a time and attendance system that tracks or verifies their actual work hours now must prepare a record of their work-related activities for three consecutive months within 150 days of the start of a new term or appointment.

The old requirements stated that elected and appointed officials only had to prepare a one-month ROA of time worked, or that they were required to submit their ROAs to a legislative body. Now they’re specifically required to submit the ROA to the clerk of the legislative body and others for their review. The ROA enables their employer to provide us with accurate information about the days they’ve worked so that their retirement service credit will be correct.

For more detailed information about the reporting of elected and appointed officials, feel free to visit our website at

Preparing for Retirement: Part Seven — Choosing Your Retirement Option

After many months of retirement planning, finally filing your retirement application is a major milestone. But your retirement process isn’t finished yet – you still need to choose your NYSLRS retirement option. When choosing your retirement option, it’s important to think about what your needs will be in retirement so you can pick how you’d like your monthly pension benefit paid to you.

Retirement Planning — Choosing Your NYSLRS Retirement Option

The Preparing for Retirement 7-part video series discusses the main aspects of retirement planning to help NYSLRS members nearing retirement make good, informed decisions for the future. In Part Seven – Choosing Your Retirement Option, you’ll go over what an option election is and how you can learn more about them before making your decision.

Important Links for Retirement Planning

Where to Find More Retirement Planning Information

If you are close to retirement and have more questions, consider scheduling an appointment to meet with an information representative at one of NYSLRS’ consultation sites in New York State. Even though the Preparing for Retirement video series is complete, you can always review previous retirement planning videos like:

When You’re Retired

Our website has many resources to help you prepare for retirement, but don’t forget to check back with us after you retire. Our Retiree home page can keep you informed about pension payments, tax information and other relevant retiree news. Make sure to check it out.

National Save For Retirement Week: The Importance Of Saving For Retirement

Most People Do Not Have Enough Money Saved for Retirement

Although there are few things certain in life, it’s good to know your New York State & Local Retirement System (NYSLRS) pension is one of them. But your pension is only one part of a good financial plan. That’s why we advocate a well-rounded approach to saving for retirement by considering Social Security and personal savings as well.

Unfortunately, according to a recent Employee Benefit Research Institute survey, most Americans have very little savings set aside for retirement, and many don’t know how much they’ll need later in life. In fact, about 36 percent of workers have less than $1,000 in savings and investments that could be used for retirement. The survey also revealed that only 44 percent say they or their spouses have tried to calculate how much money they’ll need in order to live comfortably during retirement.

The findings underscore the fact that Americans need to start saving to avoid further retirement insecurity.

National Save for Retirement Week

This year’s National Save For Retirement Week is from October 19 – 25. It provides an opportunity for people to review their own personal financial situation and determine if they are on track to reach their retirement goals. National Save For Retirement Week has been held annually since 2006, when the United States Congress adopted a resolution specifically designed to elevate public knowledge about retirement savings.

Groups such as the International City Management Association (ICMA) offer educational retirement resources, including more participatory activities like today’s National Pack-a-Sack Lunch Day. According to the ICMA, you could save thousands of dollars over seven years just by bringing your own lunch to work. Check out ICMA’s Big Savings Calculator to see how you can take steps to save money for retirement just by making fewer everyday purchases.

There are several ways to save for retirement. One savings plan to consider is a deferred compensation plan.

Deferred Compensation Plans Work

A deferred compensation plan can be another source of retirement income to consider when saving for retirement. Deferred compensation is a type of plan where part of your earned income is paid back to you at a later date. The money you set aside is tax-deferred, which means you do not pay federal or State tax on it until you begin to collect it.The New York State Deferred Compensation Plan (NYSDCP) is a voluntary retirement savings plan created for New York State employees, and employees of participating employers. Participants in the NYSDCP have their contributions deducted automatically from each paycheck to their deferred compensation account. They can also choose from different investment options within the plan for their account.

If you work for a local government employer, please check with your human resources officer or benefit administrator to learn about deferred compensation plans.

Start Saving Now

The sooner you start saving, the more time your money has to grow. Check out our Weekly Investment Plan to see how making a weekly investment can grow by age 65. With just a little planning and added effort on your part, you’ll have added security for your retirement years.

New AARP Study Finds More Than 25% of New York Baby Boomers Aren’t Confident They’ll Ever Retire

According to the findings of a new American Association for Retired Persons (AARP) report, 27 percent of individuals who are 50 years-of-age or older and currently working in New York State are not confident they will ever be able to retire. More than half of those surveyed say their retirement will be delayed for financial reasons, and 26 percent said they do not have any access to a retirement savings plan through their employer. What’s most alarming is that out of those confident they will retire, 60 percent said they’d be likely to leave New York after retiring.

“Retirement security is eroding day by day,” said New York State Comptroller Thomas P. DiNapoli, one of the panelists at last month’s Boomer Flight Conference sponsored by AARP and City and State in Albany. “Failure to act now will only make the problem worse for the baby boomers and the generations to follow.”

Watch more of the Comptroller’s remarks from the Boomer Flight Conference.

Boomers Help Stimulate the New York Economy

AARP reported that baby boomers retired from New York’s workforce would deliver $179 billion a year to the state’s economy. According to research done by AARP and Oxford Economics, the total economic impact of New York’s 50 and older is nearly $600 billion, supporting 53 percent of the state’s jobs and 44 percent of the state taxes. But AARP also revealed that if 60% of working boomers headed out of state, they would carry with them over $105 billion annually.

New York may still have a chance at retaining the boomer population, if improvements are made. Out of those surveyed by AARP, the following said they’d be more likely to stay in New York as they age if the following areas were improved:

  • Health (77 percent)
  • Housing (70 percent)
  • Transportation (66 percent)
  • Jobs for older residents (61 percent)

“Without a long-term strategy on retirement security,” DiNapoli continued, “we risk condemning an increasing percentage of hardworking New Yorkers and Americans to poverty in their senior years.”

2014 State of the 50+ in New York State (Full report, PDF)

Firefighters Deserve A Salute Every Day

Keeping Us Safe and Sound

10/9/14 Correction to Infographic: Retired Firefighters make up 2.1% of Retired NYSLRS Members, not 1.9% as previously shown.

It’s National Fire Prevention Week (NFPW) this week and, while attention is properly focused on promoting fire prevention, we believe a tip of the cap – or helmet, if you will – should also be extended to all firefighters who are members of the New York State and Local Retirement System (NYSLRS).

Though volunteer firefighters are not part of the NYSLRS family, we value their contributions, their work ethic and the pride they take in safeguarding us as well.

Of the 524,427 active members in NYSLRS, 31,218 are in the Police and Fire Retirement System (PFRS). Of these, more than 6,300 are active firefighters; there are also 8,900 brave men and women who are retired firefighters.

NYSLRS Membership and Firefighters

Unlike most members of the New York State and Local Employees Retirement System (ERS), who are given the option of joining the System, firefighters working for the employers who participate in PFRS must become members of NYSLRS. The milestones for PFRS members are different than they are for ERS members.

In addition, employers can choose to offer different retirement plans or optional benefits to their employees via special plans. A special plan allows for retirement after completing a specific number of years of credited service in specific job titles rather than attaining a certain age. Nearly 44 percent of all PFRS members (14,840) are enrolled in these special 20- and 25-year plans.

Firefighters are Heroes

To the members of the New York State Professional Fire Fighters Association, the Firemen’s Association of the State of New York and the New York State Association of Fire Chiefs; to the county fire marshals, supervising fire marshals, fire marshals, assistant fire marshals, assistant chief fire marshals and chief fire marshals: thank you for your service to New York and its citizens. You are truly underappreciated heroes who render valuable service to us all, and for that we are grateful.

Retirement Planning – Filing for Retirement

After many months of retirement planning, it’s time to fill out your NYSLRS retirement application. Applying for retirement is easy, especially if you’ve done your research and taken the proper steps to prepare for your retirement in advance.

Preparing for Retirement: Part Six – Filing Your NYSLRS Retirement Application

The Preparing for Retirement 7-part video series discusses the main aspects of retirement planning to help NYSLRS members nearing retirement make good, informed decisions for the future. In Part Six – Filing Your NYSLRS Retirement Application – you’ll learn about the important parts of the form, and how to file your NYSLRS retirement application with the Office of the State Comptroller.

Important Links for Retirement Planning

Where to Find More Retirement Planning Information

If you are close to retirement and have more questions, consider scheduling an appointment to meet with an information representative at one of NYSLRS’ consultation sites in New York State. Even though the Preparing for Retirement video series is almost complete, you can always review previous retirement planning videos like:

The last video will take you through choosing the option of how your pension benefit will be paid to you.

Countdown To Retirement: What To Do 4-6 Months Before Your Retirement Date

There are important things you need to do in the final months leading up to your retirement date. Our Countdown to Retirement Series will help you remember what to do and when to do it.

Last month we talked about what you should do when you’re 8 months away from retirement. This post talks about preparing a post-retirement budget and researching your post-retirement health insurance coverage.

6 Months Out: Preparing a Post-Retirement Budget

In our post on requesting an NYSLRS retirement estimate, we talked about how your estimate will have an approximate amount of what your retirement benefit could be. You can use the amount from your estimate to prepare a post-retirement budget. Having a post-retirement budget helps you to decide how you want to spend your money in retirement and helps you keep your goals in focus.

We feature worksheets to help you prepare a post-retirement budget on our website. Keep track of what you spend now for a month or two to get an idea of how you spend your money. You should include periodic expenses, such as car insurance, or property and school taxes as well.

4 Months Out: Review Your Post-Retirement Health Insurance Coverage

You should also check your eligibility for post-retirement health insurance coverage, as NYSLRS does not administer health insurance programs for retirees. If you work for a non-State employer, contact your health benefits administrator for information on coverage available; if you work for a State employer, you can visit the New York State Department of Civil Service website for post-retirement health insurance information.

Counting Down

Your planned retirement date is just a few months away. Check back for more Countdown to Retirement posts on what to do after you’ve filed your Application for Service Retirement form. If you have any pre-retirement questions, please contact us.

Study Finds Retiree Spending a Big Supporter Of The Economy

retirees-in-NYS_top-10-countiesA recent National Institute on Retirement Security (NIRS) study reveals that pension benefit payments provide important support to the economy, generating more than $943 billion in total economic activity and 6.2 million jobs in the United States.

The NIRS study reports on the national economic impacts of public and private pension plans, as well as the impact of state and local plans on a state-by-state basis. It measures the ripple effect of the pension benefit income spent by retirees in 2012 – about $228.5 billion paid to 9 million retired employees of state and local government and their beneficiaries. Retiree spending helped to support labor income, paying nearly $307 billion, and also generated $135 billion in tax revenue at the local, state and federal levels.

New York Retirees Contribute Their Fair Share

At the time of the NIRS study, NYSLRS retirees* were responsible for more than $11 billion worth of economic activity in New York State. The pension benefits they received stimulated our local economies in a number of ways:

  • NYSLRS Retirees Stayed in New York: Seventy-eight percent of NYSLRS’ 413,436 pensioners – 302,954 retirees and beneficiaries – chose to live in New York in 2012. They made up 2.7 percent of the general population, but in some areas of the State, they accounted for nearly five percent of the residents.
  • NYSLRS Retirees Paid New York Taxes: In 2012-2013, NYSLRS retirees paid $1.4 billion in real property taxes – that’s 4.6 percent of the total collected in the entire State. Additionally, NYSLRS retirees paid an estimated $488 million in state and local sales tax in 2012.
  • NYSLRS Retirees Created Jobs: NYSLRS retirees were responsible for the creation of an estimated 61,000 jobs.

Public Pensions Are A Sound Investment In Our Future

The pensions earned by public service retirees don’t just benefit those who receive them, but they pay dividends to local businesses, build strong communities and create jobs. And, as the number of retired public service employees in New York grows, we can look forward to their help in building a stronger New York.

*Read Retirees Contribute (PDF) to see the latest numbers on how NYSLRS retirees have affected the state economy.