To repay a NYSLRS loan, you make loan payments automatically through payroll deductions. But what happens if you go off the public payroll before the loan is paid off?
The answer is…it depends. If you leave your job because you’re retiring, then your pension will be reduced. (Employees’ Retirement System members may repay their loan after retiring, but they must pay the full balance in a single payment.)
However, if you leave public employment for any other reason, you must make loan payments directly to NYSLRS at least quarterly and pay off your loan balance within five years from the date the loan was issued. If you fail to meet either of these conditions, your loan will go into default.
You will still need to repay the outstanding balance to NYSLRS, and the loan will continue to accrue interest and insurance charges until it’s paid in full.
What Happens If My Loan Defaults?
If your loan defaults, NYSLRS will report your outstanding balance, minus any previously taxed amount, to the Internal Revenue Service (IRS) as a distribution to you. You must also include the loan on your federal income tax return for the year it defaults. (If it was taxable before default, you will not be re-taxed on that portion of the loan.)
If you’re younger than 59½ in the year the loan defaults, the IRS will charge an additional 10 percent penalty on the taxable portion of the loan. (There are no New York State or local taxes due on the distribution.)
We also cannot issue a new loan until the defaulted loan has been repaid.
Managing Your Loan Payments
If you leave public employment, contact us as soon as possible. We’ll tell you the exact amount you’ll need to repay each quarter to avoid defaulting.
Retirement Online offers a convenient way to manage your NYSLRS loan. Sign in to check your balance. You can also use Retirement Online to make quarterly loan payments or pay off the balance. If you don’t have an account, sign up today.
If you mail your loan payments by check, be sure to write “loan payment” on your check and include your NYSLRS ID number so we can apply it to the correct account. Mail payments to:
Attn: Accounts Receivable
110 State Street
Albany, NY 12244-0001
It still seems logical to me that even if a person retired, he had to first take care of closing all his loans or pay from existing pension payments!
I retired January 10, 2020 due to 2 heart attacks. I qualified for Social Security disability soon there after. This is the first time Learning about this. I’ve received a refund on my taxes all my adult working life until I had to retire due to illness… Now NYS retirement and the IRS ,l feel, are ganging up on me !! All I have is my pension, and my Social Security disability. I struggle at the end of the month to pay all my bills and put food on the table I’ve asked several agencies for help and they all say the same thing I get too much money a month to qualify. I need help
If you have questions about your NYSLRS benefits, please email our customer service representatives using our secure email form. Filling out the secure form allows them to safely contact you about your personal account information.