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Office of the New York State Comptroller’s Seal

NYS Comptroller

Thomas P. DiNapoli

Loans: Getting One and Paying it Back

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A Note to Members:

There is a higher than usual volume of loan applications, which is extending the processing time of loan requests to 3 – 4 weeks.

To find out if you are eligible for a loan, your current account balances, whether your application has been received and general loan process information, call our automated line (1-866-805-0990 or 518-474-7736 in the Albany, New York area) at any time. You can also email us via our secure contact form.

If you have contributions on file with the New York State & Local Retirement System (Employees’ Retirement System [ERS] or Police and Fire Retirement System [PFRS]), you may be eligible to take out a loan against those contributions. However, you can’t borrow against any payments you made to purchase credit for military service, as those funds are not considered member contributions.

Read the following loan requirements carefully before submitting your loan application. (Note: We are not affiliated with the NYS Teachers’ Retirement System or any of the other public retirement systems within New York State.)

What You Should Know Before You Borrow

Refinanced Loans vs. Multiple Loans

If you have an outstanding loan and a new loan is approved, you may choose one of two loan options:

  • Refinancing your existing loan — In most cases, this option will result in a higher amount of federal income tax. However, your minimum repayment amount will be less than if you chose the multiple loan option.
  • Multiple loans (taking another loan in addition to your existing loan) — You can take a second loan to minimize your taxes but it will result in a higher minimum payment. Although separate payments will be applied to each loan, the payment amounts will be combined so only one payroll deduction will be taken.

If You Have an Outstanding Loan Balance with Your Deferred Compensation or Tax-Sheltered Annuity Plan

If you have an existing loan with a deferred compensation or tax-sheltered annuity plan through your current employer, the Internal Revenue Code requires us to include this loan balance when calculating the taxes on a loan from the Retirement System. This could cause your loan to exceed the federal limits and result in significant tax consequences. Therefore, you must complete Section 2 of your loan application before submitting it to us or it will be rejected.

We do not offer deferred compensation or tax-sheltered annuity plans. Check with your employer to find out if you participate in either one.

Is Your Loan Taxable?

IRS regulations affect the way we calculate retirement loan taxes.

You will be reported to the IRS as having received a distribution from a qualified plan if:

  • Your outstanding loan(s) total exceeds $50,000; or
  • Your outstanding loan(s) total is more than the greater of (a) $10,000 or (b) 50 percent of the present value of your retirement benefit; or
  • Your loan goes into default; or
  • You are younger than 59½ when any part of your loan becomes reportable (you may be subject to an additional 10 percent penalty tax).

Before choosing a loan type, call our automated information phone line toll-free at 1-866-805-0990 or 518-474-7736 in the Albany, New York area to receive your specific loan or loans information or to speak to a customer service representative. For more detailed information, please read your loan application carefully. You may also want to consult with a tax advisor or an accountant before applying for a Retirement System loan.

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Who Can Take a Loan? What Are the Eligibility Requirements?

ERS Tiers 3 through 6 or PFRS Tiers 3 (Article 14), 5 and 6

  • You must have at least one year of member service credit.
  • You must be actively employed by New York State or a participating employer. (If you are on leave without pay, you are not actively employed.)
  • You may borrow up to 75 percent of your contribution balance, less any outstanding loan balance.
  • The minimum loan is $1,000, so your contribution balance must be at least $1,334.
  • You must repay the loan within five years through payroll deductions.
  • The minimum payroll deduction must be at least 2 percent of your salary.
  • For each loan, a $20 service charge is deducted from your check.
  • You may take out only one loan during each 12-month period.
  • We will reject any new loan application made any sooner than two weeks before the previous 12-month period is up. Any loan applications submitted during the two-week time period will be held until your eligibility date, when it will be processed.
  • The current interest rate is 6 percent.
  • Your loan is insured in case you die before you retire 30 days after it’s issued.

Tiers 3, 4, 5 and 6 Loan Application (RS5025-A) Adobe pdf

ERS Tiers 1 and 2 or PFRS Tiers 1, 2 and 3 (Article 11)

  • You must have at least one year of member service credit.
  • You must be actively employed by New York State or a participating employer. (If you are on leave without pay, you are not actively employed.)
  • The minimum loan is $25.
  • You may borrow up to 75 percent of your contribution balance, less any outstanding loan balance.
  • You must repay the loan within five years through payroll deductions.
  • The minimum payroll deduction must be at least:
    • $3, if paid weekly;
    • $5, if paid bi-weekly or semi-monthly; or
    • $10, if paid monthly.
  • You may take a loan every 90 days.
  • There is no service charge.
  • The current interest rate is 5 percent.
  • Your loan is insured in case you die before you retire 30 days after it’s issued.

Tiers 1 and 2 Loan Application (RS5025) Adobe pdf

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Repaying Your Loan

Loans are repaid through payroll deductions. When you apply, tell us how much you want to repay each pay period and we notify your employer to deduct that amount after your loan is approved and processed.

If you want to change your loan payment amount, send a letter that includes your name, retirement registration number or last four digits of your Social Security number, current loan payment amount, new loan payment amount and your signature to:

New York State and Local Retirement System

Attn: Loan Unit

110 State Street

Albany, NY 12244.

We will notify your employer to change the deduction amount. Once your loan is paid in full, we will notify your employer to discontinue payroll deductions.

Please do not contact your employer directly.

You can also make additional payments or pay your loan in full at any time with no prepayment penalties. For the payoff balance on your loan, call our automated phone service at 1-866-805-0990 or 518-474-7736 in the Albany, New York area.

Make your check or money order payable to the New York State and Local Retirement System, write “loan payment” and your retirement registration number or the last four digits of your Social Security number on your check. We will send you an acknowledgment letter. Payments should be mailed to:

New York State and Local Retirement System

Attn: Accounts Receivable Unit

110 State Street

Albany, NY 12244.

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Defaulting on Loans — What It Means and How to Avoid It

The law requires you to make payments on a Retirement System loan at least quarterly and complete repayment within five years from the date the loan was issued. If either requirement isn’t met, the loan is in default.

When a loan defaults:

  • We are required by law to report your outstanding loan balance, minus any previously taxed amount, to the IRS as a distribution to you.
  • You must include the loan on your federal income tax return for the year the loan defaults.
  • In certain instances, loans are taxable prior to a default. In that case, you will not be re-taxed on the portion of the loan for which you have already been taxed.
  • If you are younger than 59½, you will be subject to an additional 10 percent penalty on the taxable portion of the loan.
  • There are no New York State or local taxes due on the distribution.
  • You will still owe the balance to the Retirement System and the loan will continue to accrue interest and insurance charges until the balance is paid in full.
  • Defaulted loans are not reflected on your credit history.
  • We cannot issue you a new loan until the defaulted loan has been repaid.

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What Happens if You Go Off Payroll?

As long as you are on the payroll of a participating public employer, loan payments must be made by payroll deduction. If you go off the payroll, you must still make the minimum required payments at least every three months to ensure that the loan is repaid within five years. You will be notified if you are in danger of defaulting on your loan.

To avoid a default, contact us as soon as you leave public employment so we can tell you the exact amount you need to pay.

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How Loans Can Affect Your Retirement Benefit

Depending on your tier, if you have any outstanding loan balances when you retire it will permanently reduce your pension or annuity. You cannot pay off your loan once you retire. The amount of your pension reduction will be based on your age, the loan balance at retirement, and type of retirement (service or disability).

Please refer to the examples shown on your loan application to see how much your benefit will be permanently reduced if you retire with an outstanding loan balance.

In addition, part or all of your loan balance may be taxable as a distribution from your retirement plan and subject to federal income tax in the year you retire.

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Loan Deferment Program for Active Military Personnel

If you’re on active military duty, you may be eligible for payment deferment.

Loan Deferment Program Details:

  • You may be eligible to defer your loan payments until your active duty ends.
  • Your loan will not default during your active military service if you choose to defer payment. However, IRS regulations require interest accrual on the loan balance while you are on active duty.
  • The maximum five-year repayment period will be extended by the length of time you were on active duty.
  • If you are a Tier 3, 4, 5 or 6 member and your loan was approved prior to your active military service, the interest rate on your loan will be 6 percent while you are on active duty.

If you believe you qualify and want to apply for a loan deferment, send a letter and a copy of your orders, to:

New York State and Local Retirement System

Attn: Loan Unit

110 State Street

Albany, NY 12244.

When you return from active duty, please send a copy of your release papers or DD-214 to the address above.

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Frequently Asked Questions

  1. What is the interest rate if I take out a Retirement System loan?

    If you are an ERS Tier 1 or 2 or PFRS Tier 1, 2 or 3 (Article 11) member, the interest rate is 5 percent. If you are an ERS Tier 3, 4, 5 or 6 or PFRS Tier 3 (Article 14), 5 or 6 member, the interest rate on loans granted on or after April 1, 2016, is 6 percent.

  2. Is my loan insured if I die before it’s paid off?

    Loans are insured if you die before you retire and it’s not paid off. There is no insurance for the first 30 days of the loan, and the insurance does not cover disabilities. Insurance is based on the balance at the beginning of each month the loan is outstanding. For ERS Tier 1 and 2 or PFRS Tier 1, 2 or 3 (Article 11) members, the insurance that accrued during the fiscal year is deducted from their contribution balance at the end of the fiscal year. The insurance for ERS Tier 3, 4, 5 and 6 or PFRS Tier 3 (Article 14), 5 and 6 members is included in their monthly payment.

  3. I’m employed by two different employers who participate in the Retirement System. Will payments be deducted from the salary I receive from each employer?

    No. If you’re employed by multiple participating employers, loan deductions will only be taken from one employer. You may send a letter or fax to our Loan Unit specifying which employer you want to take the loan repayment deductions. If you switch from a 12-month to a 10-month employer (or vice versa), the minimum required payment may change so you can still repay the loan within five years.

  4. How does having a loan with one of these plans affect loans from the Retirement System — 457 deferred compensation plan, 403-a qualified annuity plan, 403-b tax-sheltered annuity plan or a 401 qualified trust through my employer?

    Only the taxes on loans from the Retirement System would be affected. If you request a non-taxable loan, the amount available to you could change if you have an existing loan with one of these plans.

  5. What should I do if it turns out I no longer need a loan from the Retirement System?

    If the loan check hasn’t been cashed, return it to us. If you’ve already cashed the check, send us a lump sum repayment by check or money order. Contact our Call Center for the payoff amount.

    Note: Members in ERS Tier 3, 4, 5 or 6 or PFRS Tier 3 (Article 14), 5 or 6 will not be eligible for another loan for one year if their check was cashed (even if the loan was paid in full).

  6. I’ve changed employers. How are my loan repayments deducted from the salary I receive from my new employer?

    If your new employer participates in the Retirement System, the employer will begin reporting your salary and service information to us. We will then send your new employer a notice to begin loan repayment deductions. If your new employer does not participate in the Retirement System, please contact us so you can avoid defaulting on your loan and incurring a possible federal tax liability.

  7. Who can I contact if I need more information?

    There are several ways you can get the information you need:

    • Email us;
    • Contact our Call Center toll-free at 1-866-805-0990, or at 518-474-7736 if you live in the Albany, NY area; or
    • Write to us at:

      New York State and Local Retirement System

      110 State Street

      Albany, NY 12244.

(Rev. 8/16)

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