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NYS Comptroller

Thomas P. DiNapoli

Police and Fire Retirement System Article 14 Benefits for Tier 3 Members

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On June 2, 2009, the Governor vetoed a bill that would have extended through June 30, 2011, Tier 2 benefits to new Police and Fire Retirement System (PFRS) members. As a result, PFRS members who joined July 1, 2009 through January 8, 2010 are in Tier 3 and may be covered by the benefits of Article 14. In addition, on January 9, 2010, the Governor signed a bill creating a new Article 22 for Police & Fire members and a new Tier 5. PFRS members who joined July 1, 2009 through January 8, 2010, and did not elect to be covered by Article 22 (opt into Tier 5), can be covered by Article 11 or Article 14 benefits, depending on their retirement plan election.

This summary of Article 14 requirements, benefits and frequently asked questions is intended to give you a better idea of how this change may affect these PFRS members. These changes DO NOT AFFECT members with a date of membership on or before June 30, 2009; they DO AFFECT members with a date of membership of July 1, 2009 through January 8, 2010.

Summary of Article 14 PFRS Requirements

Under Article 14, the Retirement System is required to perform an analysis of the cost of any special 20- or 25-year plan adopted by the employer and elected by the member and compare it to the cost of the Article 14 plan. The Retirement System must assign the member to the less costly plan. Members covered by Article 14 are required to contribute 3 percent of their salary for 25 years or until they retire, whichever is earlier. Based on our analysis, we believe that:

  • If the member elects the 25-year plan, and the employer has adopted the one-year final average salary (FAS), the member will be covered under Article 14.
  • If the member elects the 25-year plan, and the employer has not adopted the one-year FAS, the member will be covered under the 25-year plan.
  • If the member elects the 20-year plan, regardless of whether the employer has adopted the one-year FAS, the member will be covered under Article 14.
  • If the member does not elect a 20- or 25-year plan, or if the employer does not offer a 20- or 25-year plan, the provisions of Tier 2 (Article 11) will apply and the member will be covered under the regular age 55 plan offered by the employer.

New members hired by the City of Yonkers can elect the 20-year plan within one year of becoming a member. If members do not elect the 20-year plan, they are automatically covered by the mandatory 25-year plan. Since the City of Yonkers has also adopted the one-year FAS, all PFRS members employed by the City of Yonkers who joined July 1, 2009 through January 8, 2010 are covered under Article 14.

The State Police are automatically covered by a 20-year plan. As a result, all PFRS members of the State Police who joined July 1, 2009 through January 8, 2010 are covered under Article 14.

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Summary of Article 14 PFRS Benefits

Article 14 PFRS Service Retirement Benefits

Article 14 PFRS members can choose normal retirement or early retirement, but must be separated from service on the first of the month following the month they turn 62.

Normal Retirement

With at least 22 years of service credit, members can apply for normal retirement regardless of their age. The normal retirement benefit equals 50 percent of the member’s three-year FAS. When members turn 62, the normal retirement benefit is reduced by 50 percent of the primary Social Security benefit.

  • If members retire with at least 22 years and 1 month, but less than 25 years of service credit, they are immediately eligible for partial escalation (see below).
  • If members retire with at least 25 years of service credit, they are immediately eligible for full escalation (see below).
Early Retirement

With 20 years of service credit, members can apply for early retirement regardless of their age. The early retirement benefit equals 42 percent of the member’s three-year FAS for 20 years of service credit plus an additional 4 percent of the FAS for each year of service (or prorated portion thereof) beyond 20 years. The total benefit cannot exceed 50 percent of the FAS. When members turn 62, the early retirement benefit is reduced by 50 percent of the primary Social Security benefit. This benefit is not eligible for escalation.

Retirement at age 62 with Fewer than 20 Years of Service

At age 62, the service retirement benefit equals 2.1 percent of the FAS for each year of service credit. The benefit is reduced by 50 percent of the primary Social Security benefit. This benefit is not eligible for escalation.

Escalation

Service retirement, ordinary and accidental disability retirement and accidental death benefits are eligible for escalation. Escalation is the annual increase or decrease each April based on the cost-of-living index. The benefit will never be reduced below the original amount.

All disability retirement and accidental death benefits receive full escalation. Service retirement benefits may receive full or partial escalation, or may not be eligible for escalation at all, depending on the member’s date of retirement. Full escalation is either the actual increase or decrease in the cost-of-living index or 3 percent, whichever is less.

Once a member becomes eligible for a cost-of-living adjustment (COLA), the benefit will include either the COLA or escalation (if eligible).

Social Security Offset/Reduction

A Social Security offset applies to both service retirement and disability retirement benefits. Retirement benefits are reduced by 50 percent of the primary Social Security (or Social Security disability) benefit. The primary Social Security (or Social Security disability) benefit is based on earnings for service with public employers only. It may not be the same as a member’s actual Social Security benefit.

For members receiving service retirement benefits, the reduction begins at age 62, regardless of whether they are receiving Social Security benefits. For members receiving ordinary disability retirement benefits, the reduction begins on the date they first become eligible for primary Social Security disability benefits. For members receiving accidental disability retirement benefits and Social Security disability benefits, the reduction begins immediately. However, for accidental disability retirees who are not receiving Social Security disability benefits, the reduction begins at age 62.

Article 14 PFRS Ordinary Disability Retirement Benefit

Article 14 PFRS members may be eligible for an ordinary disability retirement benefit if they meet these three criteria:

  • They are unable to perform their duties because of a permanent physical or mental incapacity.
  • They have five years of service credit.
  • They are eligible for primary Social Security disability benefits.

The benefit equals the greater of:

  • 1/3 of the FAS; or
  • 2 percent of the FAS for each year of service credit, up to a maximum of 25 years.

Regardless of which calculation is used, the benefit is reduced by 50 percent of the primary Social Security benefit and 100 percent of any Workers’ Compensation benefit payable.

Article 14 PFRS Accidental Disability Retirement

Article 14 PFRS members may be eligible for an accidental disability retirement benefit if:

  • They are unable to perform their duties because of a permanent physical or mental incapacity; and
  • It’s determined the disability is the natural and proximate result of an accident sustained in the performance of duties not caused by their own willful negligence; or
  • They are eligible for primary Social Security disability benefits; and
  • It is determined that the disability is the natural and proximate result of an accident sustained in the performance of duties not caused by their own willful negligence.

There is no minimum service credit requirement for an accidental disability retirement.

The benefit equals 50 percent of the FAS and is reduced by 50 percent of the primary Social Security benefit and 100 percent of any Workers’ Compensation benefit payable. If a member is receiving Social Security disability benefits, the Social Security reduction begins immediately. If a member is not receiving Social Security disability benefits, the reduction begins at age 62.

Article 14 PFRS Ordinary Death Benefit

Upon completing 90 days of service, a member’s ordinary death benefit would equal three times his or her last year’s earnings raised to the next highest multiple of $1,000. The earnings are limited by Section 130 of the Civil Service Law.

Out of Service Death Benefit

If a vested member with at least ten years of service credit dies more than one year after leaving public employment, 50 percent of the death benefit may still be payable. This benefit may also be payable if a member dies within one year of leaving public employment, but was gainfully employed during that time.

Article 14 PFRS Accidental Death Benefit

If a member dies as the natural and proximate result of an on-the-job accident, not due to his or her own willful negligence, an accidental death benefit may be payable. There is no minimum service credit requirement for this benefit. The benefit is a pension equal to 50 percent of the member’s FAS and is paid to certain beneficiaries as specified in the law.

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Frequently Asked Questions

Who is affected because legislation extending Tier 2 was not enacted?

Only members who joined the New York State Police and Fire Retirement System (PFRS) on July 1, 2009 through January 8, 2010 will be affected.

How are the benefits of PFRS members who joined prior to July 1, 2009 affected?

The benefits of members who joined prior to July 1, 2009 are not affected. Tier 2 (Article 11) benefits are guaranteed to members who joined through June 30, 2009 because of previous legislation. Members’ benefits are constitutionally protected and cannot be diminished.

Will all members who joined PFRS July 1, 2009 through January 8, 2010 receive Article 14 retirement benefits?

No. With the exception of State Police and PFRS members employed by the City of Yonkers, the benefits members will be eligible to receive depend on the retirement plans their employer has adopted and any plan election made by the member.

All PFRS members of the State Police or employed by the City of Yonkers who joined July 1, 2009 through January 8, 2010 are covered under Article 14.

Please note: Members who joined during this time period were able to choose to be covered by Article 22 benefits and be designated as Tier 5. The deadline for electing this coverage was May 9, 2010.

Are Tier 3 PFRS members covered by Article 14 benefits required to contribute toward their pensions?

Yes. Article 14 is a contributory plan. Members must contribute 3 percent of their reportable earnings for 25 years or until retirement, whichever is earlier. Under Internal Revenue Code Section 414(h), effective October 1, 2013, the required 3 percent contributions are tax-deferred until they are distributed to members. These contributions are reportable for federal income tax only when members withdraw or retire from the Retirement System. Therefore, the 3 percent contributions made by these members on or after October 1, 2013* are:

  • Not reported as wages for federal income tax;
  • Reported as wages for New York State and local income taxes;
  • Reported as wages for Social Security;
  • Reported as wages to the New York State and Local Retirement System, and used in the calculation of all benefits paid by the Retirement System; and
  • Calculated on members’ full gross reportable earnings, before any salary reductions for any other tax-deferred plan.

*IRC Section 414(h) does not apply to PFRS member contributions made prior to October 1, 2013 and is not retroactive.

Is there a mandatory retirement age under Article 14?

Yes. Members must be separated from service on the first of the month following the month they turn age 62.

If a Tier 3 member elects the 20-year plan, the member will be covered by Article 14. Can that member later withdraw from the 20-year plan?

Yes. If members elect the 20-year plan, either on their registration application or within one year of joining, they can withdraw from that plan prior to retirement and retire with the benefits of the employer’s regular age 55 PFRS plan. This may not be the best choice for everyone. Each member should make his or her own individual assessment.

A Tier 3 PFRS member who elects a 20-year retirement plan will be covered under Article 14. If the employer subsequently adopts a 25-year retirement plan, can the member elect the 25-year plan and be covered under the provisions of Article 11?

Yes. The member has one year from the date the employer adopts it to elect the 25-year plan. If the employer has not adopted the one-year FAS, the member will revert to Article 11 coverage. However, if the employer has adopted the one-year FAS, the member will still be covered by the provisions of Article 14.

What benefits does Article 14 provide for PFRS members and their beneficiaries?

Like all PFRS retirement plans, the Article 14 plan provides service retirement benefits, ordinary and accidental disability retirement benefits and accidental death and ordinary death benefits. However, unlike other PFRS plans, there is no performance of duty disability benefit. Please see the benefit summary, Article 14 Benefits for PFRS Tier 3 Members (VO1644), for details on eligibility requirements and calculations.

How is the Article 14 PFRS Final Average Salary (FAS) calculated?

Article 14 has a three-year FAS with limitations. It is the average of the wages earned during any 36 consecutive months of service when earnings were highest. The salary in any year cannot exceed the average of the previous two years by more than 10 percent. Any amount over the 10 percent limit is excluded from the FAS calculation.

Are there any changes in the member registration process?

Employers will still use form PF5022, Police and Fire Membership Application, to register new members. If the employer offers a 20- or 25-year retirement plan, the member can still elect the special plan by completing the appropriate section on the membership application. However, a member who elects the 20-year plan, or the 25-year plan where the employer has adopted the one-year final average salary, will be covered under Article 14, unless he or she withdraws from the special plan prior to retirement. A member who withdraws from the 20- or 25-year plan prior to retirement will switch to Article 11 coverage and retire with the benefits of the regular, age 55 PFRS plan offered by the employer.

How will this affect monthly reporting?

Since Article 14 PFRS members must contribute 3 percent of their earnings, employers must deduct and report those 3 percent contributions to the Retirement System. Effective October 1, 2013 these contributions are covered under Section 414(h) of the Internal Revenue Code and are tax-deferred. Therefore, employers must deduct the mandatory 3 percent contributions before taxes. IRC Section 414(h) does not apply to PFRS member contributions made prior to October 1, 2013 and is not retroactive.

Will there be an easy way to distinguish between members who joined before July 1, 2009 and those who joined on or after that date?

Members who joined July 1, 2009 through January 8, 2010 will have registration numbers beginning with 0B2, so they can be easily identified.

How does an employer know to withhold 3 percent contributions from a member’s salary and when should the deductions begin?

Employers should wait for instructions from the Retirement System before taking 3 percent contributions from any new PFRS member.

How will this affect employer costs and billing?

Your annual bill due February 1 each year (or December 15 of the previous year, if you choose to prepay) will be unaffected. Any necessary adjustments to the current bill will be handled as part of the reconciliation and any credit due will be applied to the following year’s bill. Each September, when the Retirement System mails the employer contribution rates for the next fiscal year, the long-term expected rate and the next fiscal year’s rate for Article 14 PFRS will be listed.

(Rev. 12/13)

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