Before you agree to division terms on a Teachers Retirement System of New York City Retirement Plan, it is important to understand all facets of this unique plan – a plan which includes both pension and deferred compensation (401(k)-style) components.
The most important things to know about the TRS plan include:
- Qualified Pension Plan (QPP): This is a mandatory retirement plan for most NYC educators under Section 401(a) of the Internal Revenue Code, where both employers and members contribute. Retirement allowances are available upon meeting service credit and age requirements.
- Tax-Deferred Annuity (TDA) Program: A supplemental retirement plan under Section 403(b) of the Internal Revenue Code. Contributions to this program are made pre-tax, and the taxes are deferred until withdrawal, which lowers current taxable income. You’ll want to determine, at the time of the divorce settlement, whether a TDA assignment, if any, should be adjusted for investment gains or losses from the date of divorce to the date the funds are disbursed.
- Loans: Members can take loans from both the Qualified Pension Plan and the TDA Program, up to $50,000 depending on the member’s funds and outstanding balances on other loans.
- Disability Retirement Coverage: This is available to in-service members or those on an official leave of absence, with specific service requirements for eligibility.
- Death Benefits: Members with at least one year of service are eligible for death benefit coverage under the QPP. There are also post-retirement death benefits available for TDA Program accounts.
- Individual Retirement Accounts (IRA): Educators can set up their own Roth IRA or traditional IRA. A Roth IRA involves contributions with after-tax dollars and tax-free gains, while a traditional IRA involves pre-tax contributions with taxes deferred until money is withdrawn.
- Access to Retirement Funds: There are four ways to access your retirement funds: early withdrawal (with penalties), loans, hardship distribution, or upon reaching retirement age.
Contributions to the pension are set between 3% and 6% of your salary, automatically deducted from your paycheck. To qualify for a pension benefit, you must have at least 10 years of service with the NYC Department of Education; otherwise, contributions can be returned or moved into an IRA. The specific benefits and contribution levels can vary depending on what tier you fall under, which is determined by your employment start date with the NYC DOE.
Survivor Benefits for the TRS QPP Pension Plan
When it comes to survivor benefits on a TRS retirement account, know that the Teachers Retirement System of NYC offers continuing benefit options for retirees who wish to provide for beneficiaries after their death:
- Maximum Retirement Allowance: Offers the highest monthly payment but no benefits for dependents, heirs, or beneficiaries after the retiree’s death.
- Continuing Payment Option: Provides ongoing benefits to a single beneficiary after the retiree’s death for the beneficiary’s lifetime. This option is costlier as it’s based on two life expectancies and the beneficiary designation cannot be changed post-retirement.
- Term-Certain Option: Ensures a guaranteed number of payments for a set term (either 5 or 10 years). If the retiree passes away before the term ends, the designated beneficiary receives the payments for the remaining term. This option allows changing the beneficiary and can cover more than one beneficiary.
These options are irrevocable once chosen and come with a fractional payment for the month of the retiree’s death, and a post-retirement death benefit if applicable. It’s advised to discuss these options with the TRS staff during the final pension consultation to make an informed decision based on personal circumstances.
DROs For TRS NYC Plans
LexyAlgo is launching a custom QDRO/DRO generator for TRS NYC Plans in November 2023. While most retirement systems will require separate orders for the pension and deferred comp plans, we’ve been able to combine both plans into a single order and have tested this language repeatedly with the plan in the past, so you can rest assured that any edits required by TRS before you can file it with the court will be minimal. Get started today!