Most NYSLRS members contribute a percentage of their earnings to help fund pension benefits. For Tier 6 members (those who joined NYSLRS on or after April 1, 2012), that percentage, or contribution rate, can vary from year to year.
When Tier 6 Contribution Rates are Determined
A Tier 6 member’s contribution rate is calculated annually. New rates become effective each year on April 1, the beginning of the State’s fiscal year. Once your rate is set for a fiscal year, it will not change for the rest of that fiscal year. However, depending on your earnings, it may change the following year.
How Your Tier 6 Contribution Rate is Calculated
As a Tier 6 member, your contribution rate is based on how much you earn. Changes in your earnings may result in changes to your rate. The minimum rate is 3 percent of your earnings, and the maximum is 6 percent.
During your first three years as a NYSLRS member, your contribution rate is based on an estimated annual wage we receive from your employer. After three years, the rate is based on what you actually earned two years earlier. If you are a Tier 6 member with three or more years of membership in NYSLRS, this video will help explain how your contribution rate is determined:
The amount you contribute to the Retirement System will not affect the amount of your pension. Your NYSLRS pension is a lifetime benefit based on your retirement plan, years of service and final average earnings. You can learn more about your pension by reading your plan booklet on our Publications page. For help finding the right plan book, read our blog post Knowing Your Retirement Plan is the Key to Retirement Planning.
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. In 2018, 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 according to a recent study by the National Institute on Retirement Security (NIRS).
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.
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.”
Fortunately, it is now easier than ever to find out. Most NYSLRS members can create their own pension estimate in minutes using Retirement Online.
A Retirement Online estimate is based on the most up-to-date account information we have on file for you. You can enter different retirement dates to see how those choices would affect your benefit. When you’re done, you can print your pension estimate or save it for future reference.
How to Create Your Pension Estimate
Before you can use the new pension calculator, you will need a Retirement Online account. Once you sign in, go to the My Account Summary section of your account homepage and click the “Estimate my Pension Benefit” button.
You can enter an estimated retirement date (or retirement age), your current salary and expected annual salary increases. You can also include any service credit you plan to purchase and anticipated lump sum payment for unused vacation. If you add the birthdate for a beneficiary, you’ll also see the estimated monthly payment you would receive if you were to choose a payment option that provides a benefit for a survivor.
Any pension estimate you generate with the online calculator would be an approximation of your potential benefit; it is not a guarantee that you’ll receive a certain amount when you retire.
Alternative Ways to Get an Estimate
While more than 90 percent of NYSLRS members (most Tier 3 through 6 members) can use the new benefit calculator, some members should have NYSLRS generate their benefit estimate.
For example, if you recently transferred your membership to NYSLRS or are covered under certain special plans, it would be better if NYSLRS created an estimate for you. The system will notify you if your estimate cannot be completed using Retirement Online’s estimate tool. Please contact us to request a pension estimate if you receive this notification. Also, if you are in Tiers 1 through 4, you can still use the Quick Calculator on the NYSLRS website. The Quick Calculator generates estimates based on information you provide.
As a NYSLRS member, you have a defined benefit retirement plan that provides a lifetime pension when you retire. The formula used to calculate these benefits is based on two main factors: service credit and final average earnings. You’re probably familiar with service credit — it’s generally the years you’ve spent working for a participating employer. But what are final average earnings (FAE)?
When we calculate your pension, we find the set of consecutive years (one, three or five, depending on your tier and retirement plan) when your earnings were highest. The average of these earnings is your FAE. Usually your FAE is based on the years right before retirement, but they can come anytime in your career. The years used in determining your FAE do not necessarily correspond to a calendar year. For FAE purposes, a “year” is any period when you earned one full-time year of service credit.
Types of Final Average Earnings
Your tier and plan determine how your final average earnings is calculated:
Three-year FAE: Members in Tier 1, 2, 3, 4 and 5.
Five-year FAE: Members in Tier 6.
One-year FAE: Members in the Police and Fire Retirement System (PFRS). Your employer must choose to offer this benefit. It’s not available to PFRS members covered by Article 14 and generally not available to PFRS Tier 6 members.
If you are not sure what retirement plan you are in, you may want to read our recent blog post.
Exclusions and Limits
The law limits the final average earnings of all members who joined on or after June 17, 1971. For example, for most members, if your earnings increase significantly through the years used in your FAE, some of those earnings may not be used toward your pension. The specific limits vary by tier; check your retirement plan booklet on our Publications page for details.
Since 2010, with the creation of Tiers 5 and 6, the Legislature and the Governor have introduced additional limits to the earnings that can be used toward the FAE:
Overtime pay is capped — For Employees’ Retirement System (ERS), $20,763.51 in 2021. For PFRS, the cap is 15 percent of earnings.
Your final average earnings is based on money earned during the period used to calculate your pension. This may include payments you receive after you retire, such as retroactive pay from a contract negotiation or pay for unused vacation days.
Calculating your FAE at retirement can take time because we must collect salary information from your employer(s) and factor in items such as retroactive payments and earnings you receive after your date of retirement. This is necessary to ensure that your pension calculation is accurate and that you receive all the benefits you are entitled to.
Most NYSLRS members contribute a percentage of their earnings to the Retirement System. Over time, those contributions, with interest, can add up to a tidy sum. But what happens to that money? Will you get your contributions back when you retire? The answer to that question is “no.” Let’s look at what happens to your NYSLRS contributions.
How NYSLRS Retirement Plans Work
NYSLRS plans are defined benefit pension plans. Once you’re vested, you’re entitled to a lifetime benefit that will be based on your years of service and final average earnings. The amount of your contributions does not determine the amount of your pension. (Use Retirement Online to estimate your pension.)
Your NYSLRS plan differs from defined contribution plans, such as a 401-k plan, which are essentially retirement savings plans. In those plans, a worker, their employer, or both contribute to an individual retirement account. The money is invested and hopefully accumulates investment returns over time. This type of plan does not provide a guaranteed lifetime benefit and there is the risk that the money will run out during the worker’s retirement years. Experts recommend that workers who have defined contribution plans contribute anywhere from 10 to 20 percent of their income to their plan. NYSLRS members, in contrast, contribute between 3 and 6 percent of their income, depending on their tier and retirement plan.
Where Your Contributions Go
When you retire, your contributions go into the New York State Common Retirement Fund. The Fund is the pool of money that is invested and used to pay retirement benefits for you and other NYSLRS members.
Your Contribution Balance
You can find your current contribution balance in Retirement Online. But if your contributions don’t determine your pension, what difference does it make what the balance is? For one thing, your contribution balance helps determine the amount you can borrow if you decide to take a loan from NYSLRS. Also, you may be able to withdraw your contributions, with interest, if you leave the public workforce before retirement age.
Withdrawing Your Contributions
You cannot withdraw your contributions while you are still working for a public employer in New York State. If you leave public employment with less than ten years of service, you can withdraw your contributions, plus interest. If you withdraw, you will not be eligible for a NYSLRS retirement benefit.
If you have more than ten years of service, you cannot withdraw, but you will be entitled to a pension when you reach retirement age. But remember, you will not receive this pension automatically; you must file a retirement application before you can receive any benefit.
But NYSLRS is more than just the pension fund. The system had 673,336 members as of March 31, including county workers, professional firefighters and State troopers. Here are some facts about our membership:
530,547 active members (that is, members still on a public payroll) work for 2,962 public employers statewide.
One-third of those active members work for New York State. The rest work for counties, cities, towns, villages, school districts and public authorities.
Nearly 94 percent of active members are in the Employees’ Retirement System (ERS). The Police and Fire Retirement System (PFRS) accounts for 6 percent of NYSLRS membership.
More than 44 percent of all members are in Tier 6. Fifty-eight percent of PFRS members are in Tier 2 and almost 49 percent of ERS members are in Tiers 3 and 4.
NYSLRS Retirees and Beneficiaries
The average pension for an ERS retiree was $25,105; the average for a PFRS retiree was $54,684. But these pension payments don’t just benefit the system’s retirees and beneficiaries. Because 79 percent of NYSLRS retirees and beneficiaries live in New York, $10.8 billion worth of benefits stayed in the State. And that money supported local businesses, paid local taxes and generated economic development statewide.
An Award-Winning Publication
Extensive information about NYSLRS members and retirees, the Fund, and Fund investments can be found in the 2020 Comprehensive Annual Financial Report (CAFR). NYSLRS once again received the Certificate of Achievement for Excellence in Financial Reporting for the 2019 CAFR. The Certificate of Achievement is a national award recognizing excellence in the preparation of state and local government financial reports. NYSLRS has won this award for the last 16 years.
Your current health, and your long-term health prospects, should be a factor in selecting your retirement date. If your health is poor, you may want to consider retiring earlier to give yourself more time to enjoy retirement. On the other hand, if you anticipate significant out-of-pocket health costs, working longer might give you more time to save for those costs.
If your health is good, your retirement may last longer than average. In most cases, staying on the job a little longer will increase your NYSLRS pension and provide an opportunity to increase your savings.
NYSLRS has always encouraged its members to save for retirement as a supplement to their NYSLRS pension and Social Security. Retirement savings are a hedge against inflation, can help in an emergency and allow you to do the things you want to do during retirement.
Having retirement savings gives you more flexibility, and if you have enough saved, that may offset any penalty if you decide to retire early. On the other hand, if you have no savings or are short of what you’d like to have, working a little longer offers a chance to save more.
State employees and some municipal employees can take advantage of the New York State Deferred Compensation Plan. If you don’t work for New York State, check with your employer to see if you are eligible. If you are not eligible, your employer may be able to direct you to an alternative retirement savings program. (The Deferred Compensation Plan is not affiliated with NYSLRS.)
In 2020, you can save up to $19,500 per year in a Deferred Compensation account, under Internal Revenue Service rules. Starting in the year you turn 50, you can save an additional catch-up amount. The age 50-plus catch-up amount for 2020 is $6,500, for a total limit of $26,000.
Your Current Job
The type of work you do is an important factor in determining when to retire. A physically demanding job can get even harder as you age, but if you’re working in an office, that’s generally not the case.
But there are other things to consider about your current job. Some members want to retire as soon as they’re eligible to go, but if your job gives you satisfaction and a sense of purpose, are you ready to walk away from it? Do you look forward to social interactions with your coworkers? Will you miss your job more than you enjoy being retired?
Your Plans for Retirement
Is retirement the end of something or the beginning of something new? Answering that question could go a long way to determining your ideal retirement date. If you have dreams of starting your own business or going mountain climbing in Spain, you may not want to delay retirement.
But if you don’t have a plan to fill the long hours of retirement, you risk becoming bored or depressed. For some, that risk is a reason to keep working. But whether you decide to retire earlier or later, having a plan for retirement can help make it a more satisfying experience.
NYSLRS is actually two retirement systems: The Employees’ Retirement System (ERS) and the Police and Fire Retirement System (PFRS).
PFRS, which provides retirement benefits for police officers and paid firefighters, is the smaller of the two systems, with about 35,000 members. Roughly a third of PFRS members work for cities, while 20 percent work for New York State. The remainder work for towns, counties and villages.
There are five tiers in PFRS, reflecting when the members joined the system: Tiers 1, 2, 3, 5 and 6 (there is no Tier 4). Tier 2, which includes PFRS members who joined the Retirement System from July 31, 1973 through June 30, 2009, is the largest tier, accounting for almost 60 percent of membership. If you joined PFRS on or after April 1, 2012, you are in Tier 6.
The vast majority of PFRS members (98 percent) are in special retirement plans that allow for retirement after 20 or 25 years of creditable service. If you are in one of these plans, once you have the full amount of required service, you can retire at any age.
Some PFRS members are in regular retirement plans, which require a member to reach a certain age before they are eligible for a pension.
As a PFRS member, you’ll pass a series of important milestones throughout your career. Knowing and understanding these milestones will help you better plan for your financial future.
Service credit is a key in determining your eligibility for a pension and other benefits, including the amount of those benefits.
Under most 20- and 25-year plans, not all public employment is creditable. Usually, police and firefighting service can be counted as special-plan service. You may also be able to use military service to help you reach 20 or 25 years. If you have questions about the service that can be used to calculate your pension, please check your retirement plan booklet or contact us.
PFRS Plan Booklets
You can find details about your NYSLRS benefits in your retirement plan booklet.
For the majority of PFRS members, that’s the Special 20- and 25-Year Plans booklet. This booklet is for PFRS Tier 2, 3, 5 and 6 members covered by Sections 384, 384-d and 384-e of the State Retirement and Social Security Law.
This COLA is a permanent annual increase to your retirement benefit. It is based on the cost-of-living index and is designed to address inflation.
How COLA is Determined
The law requires that COLA payments, subject to certain limitations, equal 50 percent of the previous year’s inflation rate, but are never less than 1 percent or more than 3 percent of your benefit. The adjustment is applied to the first $18,000 of your Single Life Allowance, even if you selected a different pension payment option. Once COLA payments begin, you will receive an increase to your monthly benefit each September.
The September 2020 COLA equals 1 percent, for a maximum annual increase of $180.00, or $15.00 per month before taxes.
Who is Eligible for a COLA?
To begin receiving COLA payments, you must be:
Age 62 or older and retired for five or more years; or
Age 55 or older and retired for ten or more years (uniformed employees such as police officers, firefighters and correction officers covered by a special plan that allows for retirement, regardless of age, after a specific number of years); or
A disability retiree for five years; or
The spouse of a deceased retiree receiving a lifetime benefit under a pension payment option elected by the retiree. An eligible spouse is entitled to one-half the COLA amount that would have been paid to the eligible retiree when the retiree would have met COLA eligibility; or
A beneficiary receiving the accidental death benefit for five or more years on behalf of a deceased Retirement System member.
When Will You See the Increase?
Eligible retirees will see the first 2020 COLA payment in their September pension payment. It will be available to those with direct deposit on September 30, 2020. If you receive a paper check, the COLA will be included in the check to be mailed September 29, 2020.
You can sign in to your Retirement Online account to view a current breakdown of your pension payment. If you have direct deposit and are eligible for a COLA increase, you will receive notification of the net change in your monthly payment amount in September.
If you are not eligible for a COLA yet, you will receive your first increase in the month after you become eligible. This payment will include a prorated amount to cover the month you became eligible. After that, you will receive a COLA increase each September.
If COVID-19 has taught us anything, it’s that dramatic change can happen quickly.
It’s clear that just about everyone’s life has been turned upside down during this pandemic. Many have been forced to rethink their plans, including plans for retirement.
In the midst of this upheaval, a clear trend has emerged: many people are spending less money, which may create an opportunity to start saving for retirement or increase your current savings.
Why Save for Retirement?
While retirees tend to spend less than they did while they were working, financial experts say you’ll still need 70 to 80 percent of your pre-retirement income to maintain your lifestyle during retirement.
NYSLRS members have the rare advantage of a well-funded, defined-benefit pension. As a NYSLRS member, once you’re vested, you’re entitled to a pension that, once you retire, will provide you with monthly payments for the rest of your life. Retirement savings can supplement your NYSLRS pension and Social Security, helping you reach that income-replacement goal.
Retirement savings can also be a hedge against inflation and a source of cash in an emergency. A healthy retirement account will give you more flexibility during retirement, helping ensure that you’ll be able to do the things you want to do. It can also provide peace of mind.
For New York State employees and many other NYSLRS members, there’s an easy way to get started. If you work for a participating employer, you can join the New York State Deferred Compensation Plan. If you don’t work for New York State, check with your employer to see if you are eligible. If you are not eligible, your employer may be able to direct you to an alternative retirement savings program.
Once you sign up for Deferred Compensation, your contributions will automatically be deducted from your paycheck and deposited into your account. You can choose from a variety of investment packages or choose your own investment strategy. (The Deferred Compensation Plan is not affiliated with NYSLRS.)