February 2013
January 25, 2013

TRS: How prior service claims can pay off

Source: NYSUT United
nysutunited_1201_trs

Q: I am a Tier 5 member and substituted for about two months before joining the system. In a recent column, you said I would need to pay 3.5 percent of salary plus 5 percent interest. Can you explain how this would work? Would it be worth my time and money to claim this prior service?

A: It is important to make sure you have all the service credit you are entitled to because it may affect how soon you can retire and how much you will receive. In general, additional credit will increase your pension factor and could get you to a service milestone that allows you to retire sooner.

For your specific situation, contact TRS for a benefits consultation. For illustration purposes only, here's a hypothetical scenario showing the possible importance of purchasing prior service:

For a Tier 5 member with two months of prior service for subbing, the cost would be 3.5 percent of your previous subbing salary. So if your subbing salary were $3,000, you would pay about $130.

If you retired at age 57 with 29 years, seven months of service with an $80,000 final average salary, your reduced pension factor would be 42 percent. So you would multiply your $80,000 FAS by 42 percent, and receive a $33,600 annual retirement benefit.

However, if you purchased those two months of prior service, you would retire at age 57 with 30 years of service. Your unreduced pension factor would be 60 percent — and your monthly benefit would be 60 percent of $80,000 or $48,000. The bottom line: That $130 prior service payment would boost your retirement benefit an extra $14,400 per year!

This is just one illustration of how you might benefit.

For more information on prior service, go to www.nystrs.org and check out the "prior service" section of the You Deserve the Credit publication. Remember you can access your personal benefit information — and file a prior service claim — via an online MyNYSTRS account. Members are urged to submit their claims as soon as possible. Priority is given to those who are retiring and Tier 4 members who will be eligible to end mandatory 3 percent contributions as a result of the additional service.

Q: I heard that I can use the funds in my 403(b) to pay for the cost of prior service. Is this true?

A: Yes. Contact your 403(b) administrator to find out about processing.

Q: How much should I have deducted for federal tax for my pension?

A: It's always a good idea to contact your tax advisor for guidance. Tax time is a perfect time to consider your circumstances. Keep in mind each situation is different and miscalculations can result in additional payments when filing income tax.