Tag Archives: defined benefit plans

Defined Benefit Pension Plans Boost National Economy

Defined benefit pension plans, including NYSLRS, provide retirement security for millions of Americans. Here in New York, NYSLRS pays out more than $10 billion in benefits each year to nearly 400,000 New York State residents. Much of that money is spent at home, contributing to local economies and supporting jobs.

What’s happening here is mirrored across the country. According to a study released by the National Institute on Retirement Security (NIRS) in 2021, defined benefit pension plans paid $578.7 billion to 23.8 million retired Americans, and those payments had a significant impact on the nation’s economy.

What Is a Defined Benefit Pension Plan?

A defined benefit pension plan provides a pension that is based on a preset formula that takes into account salary and years of service. Unlike a 401(k)-style retirement plan (also known as defined contribution plan), it is not based on how much you or your employer contribute to your retirement account. A defined benefit plan provides a fixed monthly payment at retirement and is usually a lifetime benefit.

With a defined contribution plan, the amount of money the employee has accumulated at retirement depends on the investment returns of their individual account. A market downturn, especially near retirement, can affect the value of their benefit. With a defined benefit plan, market risk is shared, so a downturn doesn’t affect the benefit.

Most importantly, defined benefit pension recipients don’t have to worry about their money running out during their retirement years.

economic impact of defined benefit pension plans

Who Gets Defined Benefits?

Defined benefit pension plans were once much more common in the United States. Today, defined benefit plans are more commonly offered by public employers, though about 16 percent of full-time private sector employees had access to a define benefit plan in 2018.

Who received these benefits? According to the NIRS study:

  • $308.7 billion was paid to 11 million state and local government retirees and beneficiaries;
  • $105.9 billion was paid to 2.6 million federal retirees and beneficiaries; and
  • $164.1 billion was paid to 10.1 million private sector retirees and beneficiaries.

Employers Benefit from Defined Benefit Plans

Not surprisingly, the financial security provided by defined benefit plans has proved popular among workers. In 2019, the NIRS surveyed 1,100 public employees about their benefits. Most said retirement benefits are good tools for recruiting and retaining workers, and 86 percent said their retirement benefits are a major reason they stick with their jobs.

National Economic Benefits of Defined Benefit Plans

The $578.7 billion in pension payments generated spending that supported 6.9 million American jobs with paychecks totaling $394.2 billion, the study estimated. But the economic benefit didn’t stop there. This is because of what economists call the multiplier effect, the measure of the true impact of each dollar spent as it works its way through the economy.  

The study found that each pension dollar paid had a $2.19 multiplier effect, which resulted in nearly $1.3 trillion in economic output. Real estate, food service, healthcare, and wholesale and retail trade were the sectors most impacted.

The study also noted that defined benefit pension payments have a stabilizing effect on local economies. Because they have a steady source of income, retirees with a defined benefit plan are less likely than retirees with defined contributions to curtail spending during economic downturns.

“These plans are a cost effective way to provide secure lifetime income for retired Americans and their beneficiaries after a lifetime of work. Moreover,” the study concluded, “DB pension plans generate economic benefits that reach well beyond those who earned benefits during their working years.”

What is a Defined Benefit Plan?

As a NYSLRS member, you are part of a defined benefit plan, also known as a traditional pension plan.

Your pension is based on a preset formula that takes into account your salary and years of service. It will not be based on your individual contributions to the Retirement System.

If you retire with a NYSLRS pension, you will receive a monthly pension payment for the rest of your life.

Defined Contribution Plans

Defined benefit plans are often confused with 401(k)-style retirement savings plans, which are defined contribution plans.

With a defined contribution plan, the employer, employee or both make contributions to an individual retirement account, and the money in the account is invested. In most cases, it is the responsibility of the employee to make investment decisions, or the plan may offer pre-packaged investment options. At retirement, the employee will have an account that includes the accumulated value of contributions and investment returns, minus any fees.

The amount of money the employee has at retirement is dependent on the investment returns of the individual account, so market downturns, especially near retirement, can affect the value of the benefit. The employee also can run the risk of outliving their savings.

defined benefit plan

NYSLRS’s Defined Benefit Plans

NYSLRS actually administers more than 300 retirement plans, but all are defined benefit plans and share certain features. NYSLRS plans:

  • Provide a guaranteed lifetime retirement benefit;
  • Offer a pension that is based on final average salary and years of service;
  • Provide a right to pension benefits (vesting) with five years of service credit (ten for Tier 5 and 6 members);
  • Build a cost-of-living adjustment (COLA) into pensions to help offset the effect of inflation; and
  • Include disability and death benefits.

To find out details about your own NYSLRS plan, check your retirement plan booklet. You can find a copy on the Publications page of our website.

Your Checklist to Apply for Retirement

After months of planning and preparation, you’re ready to apply for retirement. To get your NYSLRS  pension benefit, you need to send in an application. Let’s look at what you should include with the form to help make the retirement process go more smoothly.

Filling Out the Retirement Application

Unless you’re filing for a disability retirement, you’ll need to fill out the Application for Service Retirement (RS6037). As you fill out the form, make sure you:

  • Know your registration number. You can find it on your most recent Member Annual Statement or retirement estimate.
  • Know your past employment. To help ensure you receive the proper credit for your public service, please list your public employment history. Include any military service and memberships in other New York public retirement systems.
  • Include your beneficiary’s information. You won’t make an official beneficiary designation with this form, but including these details will help us give you specific amounts for the pension payment options  that offer a lifetime benefit for a beneficiary.
  • See a notary. The form must be filled out completely and signed by a notary public.

Proof of Birth

Make sure we have proof of your birth date. You can send it with your retirement application or before or after, but we cannot pay pension benefits without it. We accept photocopies of the following as proof:

Other Forms

Option Election

You’ll need to choose your pension payment option, or how you want your pension paid. Option election forms are available on our website, but we will also send you a form after we process your application. If you choose an option that provides your beneficiary a lifetime pension benefit when you die, you must provide proof of your beneficiary’s birth date.

Federal Income Tax Withholding

Your NYSLRS pension isn’t subject to New York State income tax, but it is subject to federal tax. You can fill out a W-4P form  any time to tell us how much to withhold from your monthly benefit. We don’t withhold income tax for other states. Visit the Retired Public Employees Association’s website to see whether your benefit will be taxed in another state.

Direct Deposit

Direct deposit is the fastest and most secure way to receive your pension benefits. You can enroll in our direct deposit program when you file for retirement. Just fill out a Direct Deposit Enrollment Application (RS6370), and return it to us.

Domestic Relations Order

If an ex-spouse is entitled to part of your pension, you should send us a copy of your domestic relations order (DRO) as soon as possible. The DRO gives us specific instructions on how to divide your benefits. We cannot finalize your pension until we review it and calculate the court-mandated distribution of your benefit. For more detailed information, please read our Guide to Domestic Relations Orders.

Questions

If you have other questions about applying for retirement, read our publication, Life Changes: How Do I Prepare to Retire? or contact us.

Top Five Pre-Retirement Goals for NYSLRS Members in 2018

January is a great time to set goals for the coming year. And setting pre-retirement goals is crucial in planning for a successful retirement. Here are five goals to consider for 2018:

Plan ahead for retirement

1. Choose a sensible savings plan that works for you.There are several ways to save for retirement, including starting a deferred compensation plan like the New York State Deferred Compensation Plan. An important part of developing a savings plan is to start early. The sooner you start saving, the more time your money has to grow. Check out our Weekly Investment Plan chart to see how a weekly investment can grow by age 65.

2. Track your expenses and income. Tracking your current expenses for a month or two will give you a better idea of how much you’re likely to spend in retirement and how much you’ll need to supplement your pension. Use the expense and income worksheets on our website to create a retirement budget. Be sure to include periodic expenses, such as car insurance and property taxes.

3. Request a pension estimate. If you’re within 18 months of your anticipated retirement date, it’s a good idea to request an estimate of what your retirement benefit will be. You can do this by sending us an email using our secure contact form or by calling 1-866-805-0990 (518-474-7736 in the Albany, NY area). If you are not certain that you’ve received credit for all your public service in New York State, you can submit a Request for Estimate form (RS6030) and be sure to provide detailed information about your public employment in section eight of the form. If your planned retirement date is farther away, you may want to use our online Benefit Calculator. This estimates your pension based on information you provide, so have your Member Annual Statement handy before you start, or sign in to your Retirement Online account to check your current service credit.

4. Pay off any NYSLRS loans. An outstanding loan balance at retirement will permanently reduce your NYSLRS retirement benefit. You cannot make loan payments after you retire, and the pension reduction does not go away after we recover the balance of the loan. Visit the Loans page on our website for information about making additional payments or increasing your loan payment amount.

5. Consider seeking the advice of a financial planner. Financial planners don’t manage your money, but can help you assess your present financial condition and develop a practical plan to meet your specific goals and needs. Also consider doing your own research by seeking Do-It-Yourself financial planning guides on the web.

If you ever have any retirement-related questions, please contact us.

Choosing Your Pension Payment Option

When you retire from NYSLRS, you’ll need to decide how you want to receive your pension benefit.

You’ll have several options. All of them provide a monthly benefit for life. Some also provide a limited benefit for one or more beneficiaries after you die. Others let you pass on a monthly lifetime pension to a single beneficiary. Each option pays a different amount, depending on your age at retirement, your beneficiary’s age and other factors.

Pension Payment Option

That’s a lot to think about, so let’s make this clearer with an example. Meet Jane. Jane plans to retire at age 60, and she has a husband, a granddaughter and a grandson who are financially dependent on her. First, Jane needs to decide whether she wants to leave a benefit to someone after she dies. She does.

That eliminates the Single-Life Allowance option. While it pays the highest monthly benefit, all payments stop when you die.

Jane considers naming her grandchildren as beneficiaries to help pay for their college education.

The Five Year Certain and Ten Year Certain options don’t reduce her pension much, and they allow her to name more than one beneficiary. If Jane dies within five or ten years of retirement, her grandkids would split her normal benefit amount for the rest of that period.

However, the Five and Ten Year options wouldn’t be lifetime benefits. Since her husband doesn’t have his own pension, she’ll leave him her pension and look into a tax-deferred college savings plan for her grandkids instead.

There are a few options that leave a lifetime benefit:

The Joint Allowance — Full and Joint Allowance — Half options continue paying all or half of the retiree’s normal benefit amount to the beneficiary for life.

The Pop-Up/Joint Allowance — Full and Pop-Up/Joint Allowance — Half options also continue the retiree’s normal benefit. They reduce the pension a little more, but they have an advantage: If a retiree outlives his or her beneficiary, the retiree’s monthly payment will “pop up” to the maximum payable under the Single-Life Allowance option.

As you plan for your own retirement, you may also want to consider questions, like:

  • Do you qualify for a death benefit?
  • Do you have life insurance?
  • Do you have a mortgage or unpaid loans that will have to be paid if you die?

These and other factors can significantly impact your retirement planning.

To find out more about pension payment options, check your retirement plan booklet on our Publications page. You can also try our Benefit Calculator, which allows most members to estimate their benefits under the different payment options. For tips on developing a financial strategy that works for you, take a look through Straight Talk about Financial Planning for Your Retirement.

How Much Will My Pension Be?

Estimate Your Pension

For anyone thinking about retirement, one big question looms: How much money will I have to live on after I stop working? Your NYSLRS pension is a lifetime benefit. Having a good idea of what that monthly amount will be is essential to effective retirement planning. Fortunately, we offer tools to help you estimate your future pension.

Most members* can use our Benefit Projection Calculator to estimate their pension. You can use this calculator even if your planned retirement date is a long way off. The calculator provides estimates based on information you enter. By changing each variable (date of retirement, average salary, beneficiary information), you can see the impact it would have on your pension benefit.
how to estimate pension infographic
If you are a vested member who has enough NYSLRS service to be eligible for a pension, you can request a benefit projection by calling our automated information line at 1-866-805-0990 (518-474-7736 in the Albany, New York area). This service is available 24 hours a day, seven days a week.

If you are nearing retirement eligibility and you aren’t certain that you have credit for all of your NYSLRS-eligible employment, complete and submit a Request for Estimate (RS6030) form. If you are a member of the Employees’ Retirement System (ERS), you may use this form if you will be eligible to retire within five years. Members of the Police and Fire Retirement System (PFRS) can submit this form within 18 months of their retirement eligibility date.

As part of your retirement planning process, you may also want to check on your Social Security benefits.

*At this time, you cannot use this calculator if you are in ERS Tier 5 or 6; PFRS Tier 3, 5 or 6; or certain special plans.

A Quick Look at the NYS Common Retirement Fund

Comptroller Thomas P. DiNapoli is the trustee of the Common Retirement Fund, which is the third largest public pension fund in the country. The Fund’s assets come from three main sources: member contributions, employer contributions, and investment returns. The Fund has two main goals:

  • Provide the means to pay benefits to NYSLRS’ participants; and
  • Minimize employer contributions through an investment program designed to protect and enhance the long-term value of the assets.

Over the last 20 years, 79 percent of benefits have been funded from investment returns. When you retire from NYSLRS, your monthly pension benefit—and the benefits of many others—will be drawn from this fund. Ethical management and a long-term, diversified investment strategy has made NYSLRS one of the best managed and funded plans in the nation.
Common Retirement Fund Assets

Strategic Long-Term Investments

The Fund’s investment program is designed to weather the ups and downs of an increasingly volatile global market. Our long-term target allocation for our investment portfolio is 22 percent in fixed income assets (bonds and Treasury Inflation Protected Securities [TIPS]) and 78 percent in equities, which includes:

  • Domestic and international public equities
  • Real estate
  • Real assets
  • Absolute return strategies
  • Mortgages
  • Private equity investments
  • Opportunistic funds

A diversified investment strategy helps us meet the funding needs for our current and future retirees while also helping to control risk.

The Fund is Well-Managed

An independent review of the Fund commended Comptroller DiNapoli and NYSLRS for strong policies and ethical management. By adhering to the highest standards of accountability and transparency, our members, retirees, and beneficiaries can be confident the Fund is being managed wisely.

NYSLRS’ Partial Lump Sum Payments

When you retire, you’ll choose a payment option for your monthly lifetime benefit. Eligible NYSLRS members may also choose to receive a partial lump sum payment. The payment, which you’ll receive when we finish calculating your pension benefit, is a percentage of the actuarial value of your retirement benefit at the time you retire. By accepting this one-time lump sum payment, your lifetime monthly benefit will be permanently reduced.

Who is Eligible for the Partial Lump Sum Payment?

If you’re a Police and Fire Retirement System (PFRS) member covered by a special 20- or 25-year plan, you may be eligible to choose this payment. Certain Employees’ Retirement System (ERS) members (sheriffs, undersheriffs, deputy sheriffs, and county correction officers) are eligible if their employer offers this benefit. (Read the other eligibility requirements for PFRS members and ERS members.)

Partial Lump Sum PaymentsHow the Partial Lump Sum Payment Works

The percentage amounts you can choose from depend on how long you’ve been eligible to retire. You can choose a lump sum payment that equals 5, 10, 15, 20 or 25 percent of the value of your retirement benefit.

The payment can be made directly to you, or you can also have it paid in a direct rollover to an Individual Retirement Annuity or other plan that accepts rollovers. Before you decide, you may want to speak with a tax advisor to see if the partial lump sum payment is right for you. Certain partial lump sum distributions could be subject to federal income tax.

How Do I Choose the Partial Lump Sum?

If you’re eligible for the partial lump sum, we’ll send you a special option election form when you file for retirement. You can use this form to choose both the partial lump sum and the payment option you want for your continuing lifetime monthly benefit.

Please read Partial Lump Sum (PLS) Payment at Retirement – For Eligible Retirement System Members for more information.

Planning Around Your Retirement Date

Retirement is a big decision, and one important factor to plan for is the day you choose to retire. When you’re eligible and ready to retire, you can select any day as your retirement date. You can even choose a weekend or a holiday. Generally, your retirement date is the first day you don’t work. It could also be the first day you don’t get paid by your employer (for example, if you use accruals before your retirement date).

Another thing to keep in mind when choosing your retirement date is when you’ll receive your first benefit payment. Once we receive your retirement application, we begin the process of gathering service and salary information from your employer to come up with your final benefit amount. Most retirees are eligible to receive partial monthly pension payments while we work on calculating their final benefits.

Planning for your Retirement Date

Partial Payments

We base your partial payments on your most recent NYSLRS retirement estimate. These monthly payments provide 90 to 95 percent of what your final pension benefit amount is estimated to be. You’ll continue to receive partial payments until we finalize your benefit. Partial payments are mailed to the address we have on file for you.

This is where your retirement date comes in. The month you retire determines when partial payments will start, not the day. If you retire in March and are eligible to receive partial payments, your first partial payment would be mailed on the first business day of May. It doesn’t matter if your retirement date is March 1 or March 31: your payment will go out on the first business day of May. You can enroll in our Direct Deposit Program at the same time you file for retirement. As soon as we are able to, your payments will be directly deposited into your account.

Keep this in mind before you settle on a date. You may need to set some money aside, as it could be five to eight weeks before your first partial payment arrives. Many retirees retire on the last day of a pay period (so final payment information is available from their employer sooner) toward the end of the month to minimize the number of weeks before they receive their first partial payment.

Filing for Retirement

Once you have a day in mind, when should you apply for retirement? You must file your retirement application with us 15 to 90 days before your retirement date. If you’re over age 70 at retirement, or if you are no longer actively employed by a public employer, you don’t have to wait the 15 days. The application is also available from your employer or can be found on our website by clicking the link above.

Would you like to read more about applying for retirement and what comes after? Read the Applying for Your Service Retirement Benefit and After You Retire sections in these publications:

You may also want to visit one of our consultation sites.

Taxes and Your NYSLRS Retirement Benefit

Your NYSLRS retirement benefit isn’t subject to New York State or local taxes, but it is subject to federal income tax. Before you retire, take some time to think about how taxes could affect your retirement planning.

Will Your Pension Get Taxed in Another State?

While New York State won’t tax your NYSLRS retirement benefit, other states might. If you’re thinking of moving after retirement, you’ll need to consider the tax laws of the state you move to. The Retired Public Employees Association keeps a list of which states tax pension income on their website. And remember, if you do move, we’ll need your updated mailing address for our records.

Federal Tax Withholding Status for Your Pension

taxesAfter you’ve filed for retirement, we’ll reply back to you with a confirmation letter and some forms. One of these forms will be a W-4P form (Withholding Certificate for Pension or Annuity Payments). You’ll need to fill out this form to choose the amount you want withheld from your benefit each month for federal taxes. You can choose the withholding tax status that suits you, and you can change it any time afterward by completing a new W-4P form.

If you’re not sure how much you’ll need withheld for federal taxes, consider meeting with a tax professional to assist you before submitting the form. We also offer a federal tax withholding calculator on our website to help you plan.

Getting Your 1099-R

Once you start receiving your pension benefit, we’ll send you a 1099-R form for federal income tax filing purposes. A 1099-R form lists the distributions you’ll receive from your NYSLRS pension. We mail 1099-Rs out each year by January 31, so make sure we have your correct mailing address on file. This is especially important if you plan on moving in retirement.

We also feature an interactive 1099-R tutorial on our website. It can be a helpful tool to look at the first time you receive your 1099-R.

For more about taxes and your pension, please read our Tax Information About Your Pension FAQs.