Tag Archives: Loans

Retirement Myths vs Facts

Common Retirement Myths

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retirement myths versus facts

Retirement law can be confusing. Sometimes a small misunderstanding can have a big impact on your benefit. That’s why it’s important to correct some common retirement myths. Here are the top five:

Retirement Myth #1

myth

My NYSLRS contributions go into a personal 401(k)-style savings account that I will get when I retire.

fact

NYSLRS is a defined benefit plan. Your pension will be based on your earnings and years of service  — it will not be based on your contributions.

Retirement Myth #2

myth

If I work for more than one NYSLRS participating employer, the service credit from both will count toward my pension benefit.

fact

It depends. You can only earn one year of service credit in a 12-month period. If you work part-time for two participating employers, you would receive credit toward retirement from both, up to the maximum of one year. However, if you already work full-time for one NYSLRS employer plus you work part-time for another employer, your part-time job won’t increase your retirement service credit. Also, if you are a full-time employee of a school district, you won’t earn extra service credit if you work during the summer.

Retirement Myth #3

myth

NYSLRS administers health insurance coverage for its retirees.

fact

NYSLRS does not administer health insurance programs. We may deduct premiums from a retiree’s monthly pension benefit to pay for health insurance coverage if their former employer instructs us to do so, but we can’t answer questions about coverage or changes in premium amounts.

The New York State Department of Civil Service administers the New York State Health Insurance Program (NYSHIP) for New York State retirees and some municipal retirees. If you are still working, your employer’s human resources (personnel) office should be able to answer your questions about post-retirement coverage.

Retirement Myth #4

myth

I can take out a NYSLRS loan after I retire.

fact

You need to actively work for New York State or a participating employer to borrow against your retirement contributions. NYSLRS loans are not available to retirees.

Retirement Myth #5

myth

If I’m vested and no longer working for a public employer, NYSLRS will automatically start paying my pension as soon as I’m eligible.

fact

Your pension is not automatic. You must apply for retirement 15 to 90 days before your retirement date. Your retirement date is up to you. Most NYSLRS members can begin collecting their pension as early as age 55. If you retire between age 55 and your full retirement age (62 of 63, depending on your tier and plan), you may face a permanent benefit reduction. If you have left public employment though, your benefit won’t increase after you reach full retirement age, so delaying retirement beyond that point can cost you money.

You can find more answers about your NYSLRS benefits in your retirement plan publication. If you have account-specific questions, please message our customer service representatives using our secure contact form.

Making Loan Payments When You Leave Public Employment

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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.

loan payments when you leave public employment

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:

NYSLRS
Attn: Accounts Receivable
110 State Street
Albany, NY 12244-0001

Debt and Retirement

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If you’re planning to retire in the near future, it’s a good idea to take inventory of any debt you may owe. Paying off your debt now can give you more breathing room to enjoy the type of retirement you want.

Where to Start: Repay Your NYSLRS Loans

A high priority should be any loans you have taken from NYSLRS. If you have an outstanding NYSLRS loan balance when you retire, it will reduce your pension.

For example, if a 60-year-old Tier 4 member of the Employees’ Retirement System (ERS) retires this year owing $10,000, the annual pension reduction would be $482.84. And that reduction would continue even after the total reduction exceeds the amount owed. What’s more, at least part of the loan balance at retirement would be subject to federal taxes.

ERS members may repay their loan after retiring. However, if you choose to pay back your loan after you retire, you must pay back the full amount of the outstanding balance that was due when you retired in one lump-sum payment. Following your full repayment, your pension benefit will be increased from that point going forward, but it will not be adjusted retroactively back to your date of retirement. Visit our Repaying Your Loan After Retirement page for more information if you are considering retiring with an outstanding loan.

debt and retirement - benefit reductions for loan balances

Other Debt to Check

Another priority is paying off credit cards. The average American household with credit card debt owes more than $6,006 in revolving balances and pays about $1,029 a year in interest, according to a recent analysis of federal data.

Fortunately, a federal law makes it easier to get a handle on your credit card debt. Credit card statements must now carry a “Minimum Payment Warning.” This tells you how long it will take, and how much it will cost, to pay off your balance if you only make minimum payments. It also tells you how much it will cost each month to pay off the balance in three years.

If you have more than one credit card balance, many financial advisers recommend you pay as much as you can on the card with the highest interest, while paying at least the minimum on lower-interest cards. Once you’ve paid off the high-interest card, focus on the card with the second-highest rate, and so forth. But some advisers say it might be better to pay off the card with the smallest balance first. That will give you a sense of accomplishment, which could make the process seem less daunting.

Mortgage balances make up 70 percent of the $15.24 trillion in U.S. household debt. But should you strive to pay off your mortgage before you retire? Financial advisers differ on that question. Paying off the house will eliminate a major expenditure and allow you to spend your retirement income on other things. On the other hand, if your mortgage rate is relatively low, you may want to focus on paying off other debts or boosting your retirement savings. What will work best for you depends on your particular financial situation.

NYSLRS Loans and Retirement Online

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Planning on taking out a NYSLRS loan? Applying online offers speed and convenience.

NYSLRS loan eligibility is based on your tier, but generally, you’ll need to be on the payroll of a participating employer, have at least one year of service and have a certain amount of contributions in your account. Retirement Online will provide the eligibility information you need as you step through the application process. (Note: retirees are not eligible for NYSLRS loans.)

Use Retirement Online to apply for a NYSLRS loan

Getting Started

Retirement Online is the fastest way to apply for a NYSLRS loan. It’s also an easy way to check your current loan balance, the amount you are eligible to borrow and more.

­­If you don’t already have an account, go to the Sign In page and click “Sign Up” under the “Customer Sign In” button. (Need help with Retirement Online? See this post for handy tips.)

The Application Process

Once you’ve signed in, scroll down to ‘My Account Summary.’ Under ‘I want to…’ click the green “Apply for a Loan” button and follow the prompts.

As you work your way through the online application, you’ll see:

  • How much you can borrow;
  • The minimum repayment amount;
  • The expected payoff date; and
  • How much you can borrow without tax implications.

A service charge of $45 will be deducted from your loan check when it is issued. The current interest rate is 5 percent. The interest rate will remain fixed for the term of your loan.

NYSLRS loans are exempt from New York State and local income taxes. But the Internal Revenue Service (IRS) may consider all or part of a NYSLRS loan taxable in some cases – for instance, if you borrow above certain limits. The Retirement Online loan application will show you the maximum amount you can borrow without tax implications. 

If you already have a loan and you want to take another loan, you can either take multiple loans or refinance your existing loan. Taking a new loan (the multiple-loan option) minimizes your potential tax consequences. Your minimum payment will be higher, but you will pay off your loans faster than you would by refinancing. Refinancing adds the new loan amount to your existing balance and spreads the entire balance over a new five-year term. Your payment will be lower but your tax consequences may be significantly higher.

Repaying Your NYSLRS Loan

Loan payments will be deducted from your paycheck. You can choose the minimum payroll deduction, which would pay off your loan in five years, or you can pay more to pay off your loan sooner. The payment calculator in Retirement Online will provide your expected payoff date if you enter an amount higher than the minimum.

Retiring With an Outstanding NYSLRS Loan

If you retire with an outstanding loan, your pension will be reduced. You will also need to report at least a portion of the loan balance as ordinary income (subject to federal income tax) to the IRS. If you retire before age 59½, the IRS may charge an additional 10 percent penalty. If you are nearing retirement, be sure to check your loan balance. If you are not on track to repay your loan before you retire, you can increase your loan payments, make additional lump sum payments or both.

Note: Employees’ Retirement System (ERS) members may repay their loan after retiring, but they must pay the full amount (that is, the amount that was due on their retirement date) in a single lump-sum payment. Following your full repayment, your pension benefit will be increased from that point going forward, but it will not be adjusted retroactively back to your date of retirement. 

More Information

For more information about NYSLRS loans, visit our Loans page. If you need help with the Retirement Online loan application, click “Help” at the top of your account page, then click next to ‘Requesting a Loan’ and select the step-by-step guide that best fits your situation.

Retirement Planning: Questions to Ask Yourself

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retirement planning - things to think aboutAfter months or years of retirement planning, you’re probably looking forward to the day when you apply for your NYSLRS pension. But before you retire, there are a few questions you should ask yourself. After all, by filing for retirement, you’re making critical decisions about your financial future. And once you’ve retired, some of those decisions will be irrevocable. Whether your planned retirement date is just around the corner or a few years off, asking these questions now could help you avoid costly mistakes.

Do I have all the service credit I think I have?

Under some retirement plans, service milestones (20 years, 30 years, reaching full retirement age) can have a big impact on the amount of your benefit. If you’re aiming for one of these milestones, but retire just short of reaching it, your pension will be less than you might be expecting. To make sure you have enough service credit on your planned retirement date, sign in to Retirement Online to check the most up-to-date estimate of your total service credit.

Do I have previous service credit I want to purchase?

You may be able to buy credit for previous public employment or military service, which in most cases would increase your pension.  

If you are planning to purchase service credit, including military service, you should do that as soon as possible, especially since you can’t purchase service credit after you retire. You can apply for additional credit in Retirement Online or by submitting a Request to Purchase Service Credit form (RS5042). You may also wish to read our publication Service Credit for Tier 2 Through 6.

Do I have a balance on a NYSLRS loan?

If you have an outstanding balance on a NYSLRS loan, you should pay it off before you retire. If you retire with an outstanding loan, your pension will be permanently reduced.

While Employees’ Retirement System members may repay their loan after retiring, they must pay back the full amount of the outstanding balance that was due at retirement in one lump-sum payment. Once the loan has been repaid, their pension benefit will be increased from that point going forward, but it will not be adjusted retroactively back to their date of retirement.

You can use your Retirement Online account to check your loan balance, make a lump-sum payment or increase your payment amount. For more information, visit our Loans page.

Retirement Planning Resources

The more you know about retirement and the retirement process, the better off you’ll be. Here are some resources that can help with your retirement planning:

Countdown to Retirement — 18 Months to Go

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Thinking about retiring soon? Our Countdown to Retirement series will help you get started and stay on track to hit your retirement date.

Countdown to Retirement 18 months

Review Your Account Information in Retirement Online

As your first step on the road to retirement, you should sign in to your Retirement Online account and review the information we have on file for you. If you don’t have an account, consider signing up for one. It’s an essential retirement tool that will make the retirement process easier.

Make sure your mailing address and email address are current and check other information in your account. In your Retirement Online account, you’ll find:

  • The date you joined NYSLRS;
  • Your tier and membership plan;
  • Your estimated service credit;
  • Your annual earnings for the past five years; and
  • Loan balances and payoff dates.

If you believe information is missing or incorrect in your Retirement Online account, please contact us.

Read Your Retirement Plan Booklet

Your retirement plan booklet provides essential information about your NYSLRS benefits. It shows the formula that NYSLRS will use to calculate your pension and discusses other factors that may affect your pension.

You can find your plan booklet on our Publications page. Read our blog post about retirement plans to figure out which plan is yours. If you’re still not sure, check your Retirement Online account or ask your employer.

Learn How Divorce Can Affect Your Pension

If you’ve been through a divorce since you joined NYSLRS, that may affect your pension.

Retirement benefits are considered marital property and can be divided between you and your ex-spouse. Any division of your benefits must be stated in a domestic relations order (DRO), a legal document that gives us specific instructions on how your benefits should be divided.

Read our Divorce and Your Benefits page to learn more.

Other Things to Consider

If you have a NYSLRS loan, you should plan to pay it off before retirement. Your pension will be reduced if you retire with an outstanding loan. You can use Retirement Online to check your balance, make a lump-sum payment or increase your payment amount. For more information, visit our Loans page.

If you are planning to purchase service credit, including military service, you should do that as soon as possible. You can apply for additional credit in Retirement Online or submit a Request to Purchase Service Credit form (RS5042). Our publication Service Credit for Tier 2 Through 6 has more information.

Your Countdown to Retirement

Your planned retirement date will be here before you know it. Watch for future posts in the Countdown to Retirement series for steps to take at 12 months, four-to-six months and one-to-three months before your retirement date.

Questions About Your NYSLRS Membership? Look Here for Answers

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If you have general questions about NYSLRS or your benefits, we have a web page that can help you find the answers.

That’s because the NYSLRS Contact Us page does double duty. It not only lists contact information, it also helps you find answers for many of the common questions we get from members, retirees and beneficiaries. It covers subjects like address changes, loans, pension estimates, direct deposit and cost-of-living adjustments (COLA).

To get started, go to the Contact Us page and select the Member, Retiree or Beneficiary button to find the questions and answers you need. Each section has categories specific to that member group.

Member

answers
  • Address Change
  • Forms
  • Loans
  • Member Annual Statement
  • Mortgage Letter/Account Verification Letter
  • Pension Estimates
  • Retirement Online
  • Service Credit
  • Withdrawing from NYSLRS

Retiree

answers
  • 1099-R Reprint
  • Address Change
  • Cost-of-Living Adjustment (COLA)
  • Direct Deposit
  • Federal Taxes
  • Forms
  • Health Insurance
  • Pension Checks
  • Pension Verification Letters
  • Retirement Online

Beneficiary

answers
  • 1099-R Reprint
  • Address Change
  • Direct Deposit
  • Federal Taxes
  • Forms
  • Pension Checks
  • Pension Verification Letters
  • Reporting a Death
  • Retirement Online
  • Who is a Beneficiary?

Getting Account-Specific Answers

The information on the Contact Us page is general. If you’re looking for information specific to your situation, like your loan balance or a breakdown of your pension payment, sign in to Retirement Online. If you don’t already have a Retirement Online account, sign up today.

NYSLRS

Doing Business with NYSLRS from Home

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When we first launched Retirement Online, we were proud to provide our members and retirees a new, convenient way to review their benefit information and do business with NYSLRS. But as a result of recent upgrades, Retirement Online now offers a variety of time-saving features that make doing business from home a snap.

Doing Business with NYSLRS from Home

What Can You Do in Retirement Online?

Retirement Online gives you an easy and secure way to review your NYSLRS benefit information and conduct transactions in real time. In many cases, you can use Retirement Online instead of sending forms through the mail or calling NYSLRS. Here’s a quick look at some of its features:

  • Update Contact Information
    Do you have a new mailing address, email address or phone number? Make sure NYSLRS can get in touch with you by updating your contact information.
  • Update Your Beneficiary Information
    You can designate beneficiaries for your death benefits, and also make updates to existing beneficiaries.
  • Create a Pension Verification Letter or Mortgage Letter
    If you’re a retiree and need to provide proof of your retirement income, you can generate and print an income verification letter from your account. If you’re a member and need to verify your retirement account information, you can generate and print a mortgage letter when you need it.
  • Update Your Last Name
    If you changed your last name recently, you can change it online instead of submitting a Name Change form.
  • Change Your Correspondence Preference
    Would you prefer to receive emails from NYSLRS instead of mail? You can update your correspondence preference and receive an email notification from NYSLRS whenever we have updated information to send you. (Please note that some information, such as tax forms, will be sent by mail for security purposes.)
  • Estimate Your Pension (Members Only)
    You can estimate your pension benefit based on up-to-date account information, then save or print the estimate for your records.
  • Manage Loan and Service Credit Payments (Members Only)
    Need to pay back a loan or purchase service credit? You can adjust your payment amount or make a lump sum payment.
  • Apply for Retirement
    Ready to retire? You can file your service retirement application right from home.
  • Apply for a Loan (Members Only)
    Eligible members can apply online to take a loan out against their NYSLRS contributions.

If you don’t already have a Retirement Online account, sign up today. If you need help with Retirement Online, please refer to our Retirement Online Tools and Tips blog post.

Should You Join NYSLRS?

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Most State and municipal employees are required to join the New York State and Local Retirement System (NYSLRS) when they are hired. But for some employees, such as part-time and seasonal workers, membership is optional. If you’re a member and you know someone who could join NYSLRS, consider sharing this piece with them.

join NYSLRS for membership benefits

What is NYSLRS?

NYSLRS is the third largest retirement system in the nation, with more than 1.1 million members, retirees and beneficiaries. State Comptroller Thomas P. DiNapoli administers the Retirement System and is trustee of the New York State Common Retirement Fund, which holds and invests NYSLRS assets. The Fund had a value of $210.5 billion as of March 31, 2019.

Why Join NYSLRS?

Joining NYSLRS will improve your chances of a secure financial future. You’ll earn credit toward a pension that will provide monthly payments throughout your retirement. But NYSLRS also provides other important benefits.

What Does NYSLRS Offer?

As a NYSLRS member, you’ll be eligible for a pension after you earn ten years of service credit. (This is called being vested.) If you work part-time, service credit is pro-rated. For example, if you work half of the hours that a full-time employee works, you’ll receive six months credit for every year you work.

Also, as a NYSLRS member you’ll be able take loans from your contributions if you’ve earned a year of service credit and meet other requirements. You’ll be eligible for a death benefit once you have one year of service credit, and disability benefits after you have ten years of service credit. (If your disability results from an on-the-job accident, not due to your own willful negligence, there is no minimum service requirement.)  

Over 3,000 employers participate in NYSLRS, allowing you to continue to build on your benefits if you go to work for another government employer. Your benefits also may be transferable to six other public retirement plans in New York.

Making Contributions

As a Tier 6 member, you’ll contribute between 3 and 6 percent of your earnings to the Retirement System. Tier 6 contribution rates vary based on each member’s annual compensation. If you don’t join NYSLRS when you first start working and later decide to purchase your previous service credit, you will need to contribute 6 percent of those earnings plus interest, even if your salary level for the prior time period would have resulted in a lower contribution rate.   

Your NYSLRS pension will be based on your service credit and salary, not on the amount you contribute. A NYSLRS pension is a lifetime benefit. Unlike a 401-k, there is no risk that your pension benefits will be reduced during your retirement.

But what if you join NYSLRS and decide to leave public service before you are vested? You won’t lose your contributions. In fact, you can withdraw your accumulated contributions, plus interest, and roll that money into a retirement savings plan at your new job.

More Information

If you would like to join NYSLRS or just want more information, please contact your employer’s human resources (personnel) office. You may also be interested in our booklet, Membership in a Nutshell.

Divorce Affects Other NYSLRS Benefits

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signing divorce documents

We’ve written here before about divorce and your pension and what a DRO is. However, NYSLRS members have other benefits besides their pensions. Divorce and DROs may affect some of them as well.

Ordinary Death Benefit

As with your pension, a DRO may direct you to designate your ex-spouse as a beneficiary for some portion of your ordinary death benefit. You should file the DRO with NYSLRS as soon as it’s officially accepted by the court. We will prepare a custom beneficiary form that complies with the DRO. Also be sure to choose additional beneficiaries for any remainder of the benefit and submit your changes to NYSLRS.

Post-Retirement Ordinary Death Benefit

Most Tier 2, 3, 4, 5 and 6 members of the Employees’ Retirement System (ERS) are covered by a post-retirement ordinary death benefit. A DRO may direct you to designate your ex-spouse as a beneficiary for some portion of the benefit. You should file the DRO with NYSLRS as soon as it’s officially accepted by the court. Be sure to contact us to choose additional beneficiaries as allowed by the DRO.

Loans

NYSLRS members who meet eligibility requirements can borrow a certain percentage of their contribution balance. DROs may be written to prohibit members from taking future loans.

Outstanding loan balances at retirement reduce retirees’ pension benefits. Unless a DRO specifically provides that the ex-spouse’s share of the pension be calculated without reference to outstanding loans, the ex-spouse’s portion will also be reduced if a NYSLRS loan is not paid off before retirement.

Refunds

Occasionally, NYSLRS may refund a member’s contributions because of a tier reinstatement, membership withdrawal, membership transfer or excess contributions. If the member is divorced and NYSLRS has a DRO on file, the DRO will determine whether a portion of the refund must go to the ex-spouse. Generally, if the DRO doesn’t mention a contributions refund, the member receives the full amount.

Keeping Your Ex-Spouse as Beneficiary

A divorce, annulment or judicial separation removes a member’s former spouse as beneficiary of certain death benefits and retirement options, except as provided by the divorce judgment or decree, or a DRO. So, if you have gone through a divorce, annulment or judicial separation and you do NOT have a DRO, you must resubmit your beneficiary designation to NYSLRS to retain your former spouse as a beneficiary.

The easiest way to do this is by using Retirement Online, our secure, self-service web application. You can also submit a Designation of Beneficiary form.