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Loans: Getting One and Paying it Back

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

To determine if you’re eligible for a loan, or to check an outstanding loan balance, call our automated information line toll-free at 1-866-805-0990 or 518-474-7736 within the Albany, New York area. You can also enroll in Retirement Online for 24/7 web access to your loan account and other retirement information.

Be sure to 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. If you are a member of another public retirement system, please visit that system’s website for applicable loan information and forms.)

What You Should Know Before You Borrow

Refinanced loans vs. multiple loans

If you have an outstanding loan at the time a new loan is granted, you are able to choose from two loan options:

  • Refinancing your existing loan — In most cases, refinancing your existing loan will result in a higher amount being subject to federal income tax. However, your minimum repayment amount will be less than if you chose the multiple loan option.
  • Multiple loans (taking a new, separate loan in addition to your existing loan) — You can choose to take a new, separate loan to minimize the effect of the tax calculation. Carrying multiple loans will result in a higher minimum payment. Although separate payments will be applied against each outstanding loan, the payment amounts will be combined so only one payroll deduction is taken from your paycheck.

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 consider this loan balance when calculating the taxability of 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. If you do not provide this information, your loan application 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 the taxability of retirement loans.

You will be affected by these regulations and reported to the IRS as having received a distribution from a qualified plan if:

  • The total of your outstanding loan(s) exceeds $50,000; or
  • The total of your outstanding loan(s) 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 under 59½ at the time 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. Once you access the loan menu, you can receive specific information relating to your account for multiple and refinanced loans or you can speak directly to a customer service representative. For more detailed information regarding the taxability of your loan(s), please read your loan application carefully. You may wish 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?

Employers’ Retirement System (ERS) Tiers 3 through 6/Police and Fire Retirement System (PFRS) Tier 3 (Article 14), 5 and 6 loan requirements:

  • 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 the check sent to you.
  • You may take one loan in each 12-month period. You may submit an application for a new loan no sooner than two weeks before the 12-month period is up. Any loan applications submitted during this time period will be held until your eligibility date, at which point the application will be processed. Your loan application will be rejected if it is received more than two weeks before the 12-month period is up.
  • The current interest rate in effect is 6.5 percent.
  • Your loan is insured against your death prior to retirement 30 days after it’s issued.

Loan Application for Employers’ Retirement System (ERS) Tiers 3, 4, 5 and 6/Police and Fire Retirement System (PFRS) Tier 3 (Article 14), 5 and 6 (RS5025-A) Adobe pdf

Employers’ Retirement System (ERS) Tiers 1 and 2/Police and Fire Retirement System (PFRS) Tiers 1, 2 and 3 (Article 11) loan requirements:

  • 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 in effect is 5 percent.
  • Your loan is insured against your death prior to retirement 30 days after it’s issued.

Loan Application for Employers’ Retirement System (ERS) Tiers 1 and 2/Police and Fire Retirement System (PFRS) 1, 2 and 3 (Article 11) (RS5025) Adobe pdf

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Repaying Your Loan

Loans are repaid through payroll deductions. When you apply for a loan, you indicate the amount you want to pay each pay period on your application. Once we process your loan, we notify your employer to begin deductions.

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 update our records and then notify your employer to change the deduction amount. Please do not contact your employer directly.

You can also make additional payments or pay your loan in full at any time. There are no prepayment penalties. 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 apply the payment to your loan and 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.

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. Once your loan is paid in full, we will notify your employer to discontinue payroll deductions. Any overpayments will be refunded.

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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 of these conditions is not 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. If this is the case, you will not be re-taxed on the portion of the loan for which you have already been taxed.
  • If you are under the age of 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 new loans 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 repay the loan 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. We will tell you the exact amount you need to pay.
  • Send payments directly to us at:

    New York State and Local Retirement System

    Attn: Accounts Receivable Unit

    110 State Street

    Albany, NY 12244.

Write “loan payment” on the check and include your registration number or the last four digits of your Social Security number for identification purposes.

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How Loans Can Affect Your Retirement Benefit

Any outstanding loan balance when you retire will permanently reduce your pension or annuity, depending on your tier. 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 anytime after July 1, 2003, you may be eligible for payment deferment and a reduced interest rate.

Loan Deferment Program Details:

  • You will have the opportunity to defer your loan payments until your active duty has been completed.
  • Your loan will not default during your active military service if you choose to defer payment. However, IRS regulations require the continuous accrual of interest 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 granted prior to your active military service, the interest rate on your loan will be reduced to 6 percent for the time you are on active duty.

If you believe you qualify and want to take advantage of the Loan Deferment Program, send a letter, along with 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 Employees’ Retirement (ERS) Tier 1 or 2/Police and Fire Retirement System (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/PFRS Tier 3 (Article 14), 5 or 6 member, the interest rate on loans granted on or after April 1, 2011, is 6.5 percent. However, for ERS Tier 3, 4, 5 and 6 members, the interest rate is reduced to 6 percent for periods of leave while on active military service if the loan was granted prior to military leave.

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

    Loans are insured against the death of a member prior to retirement. There is, however, no insurance for the first 30 days of the loan. 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/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/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. However, 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 ten-month employer (or vice versa), the minimum required payment may change to complete repayment within five years.

  4. How does having a loan with a 457 deferred compensation plan or 403-b tax-sheltered annuity plan through my employer affect loans taken from the Retirement System?

    The taxability of loans granted through the Retirement System is the only thing affected. The loan eligibility requirements, the amount of the loan, and the loan repayment amounts are not affected. Retirement System loans will also not be affected if members have a 457 or 403-b plan but do not have an outstanding loan balance through either plan.

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

    As long as the loan check has not been cashed, you can return it to us for redeposit. If you’ve already cashed the check, you can send us a lump sum payment by check or money order for the payoff amount. Contact our Call Center for the payoff figure. Note: Members inERS 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. When we receive this information, we’ll send a notice instructing your new employer to begin loan repayment deductions. If your new employer does not participate in the Retirement System, please contact us so we can provide you with the information you need to 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; or
    • 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
    • Fax us at 518-402-4433; or
    • Write to us at:

      New York State and Local Retirement System

      110 State Street

      Albany, NY 12244.

(Rev. 6/14)

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