Feb 1, 2007 2:39 PM
Loans from the Teachers’ Retirement System are a very valuable benefit for TRS members and they are very popular. As of Nov. 30, 2006, more than 37,500 TRS members had outstanding loans.
There are two types of loans available, one from the traditional pension plan known as the Qualified Pension Plan and a second from the Tax-Deferred Annuity. There were a total of 19,915 QPP loans and 17,650 TDA loans.
Each of the two types of loans has different characteristics and rules. Obtaining a loan from the retirement system is not to be taken lightly. A QPP loan could permanently reduce the amount of your retirement income if it is not repaid before you retire. No one should consider taking either a QPP or TDA loan unless they understand all of the ramifications and consequences.
TRS publishes a series of brochures on loans that are available through its Web site at www.trs.nyc.ny.us, or you can call the TRS Service Line at 1-888-8-NYC-TRS. TRS loans are easy to obtain and may have more favorable interest rates than other available loans. But because of their possible effect on your retirement income and tax consequences (if not repaid in a timely manner) they should be looked at not as a way to handle minor financial problems but only for serious financial events. Several members have run into serious IRS consequences because of failure to pay loans in the IRS-prescribed time limits.
Readers of this column know how strongly we feel about the current social insurance format of the Social Security System with fixed benefits based on years of earnings and salary earned. We have been active in the fight to protect the system from privatization. President Bush is still pushing for privatization and still using the failed Chilean system as a model, despite the fact that the current government of Chile has proposed changing its system back to one where there is a government benefit.
The newly proposed system will go back to a guaranteed benefit and protection for women who do not work. There will also be benefits similar to our TDA program for those who contribute to the system.
The Chilean retirement system was an issue in the recent presidential election in Chile. President Michelle Bechelet made retirement reform a campaign promise in her successful election. The chief supporters of the Pinochet privatized system include the investment companies that make fortunes from that type of system — and President Bush.
We will not have the exact investment results for the TRS investment elections until the next issue but we can again recall the soothing lyrics Frank Sinatra made famous, “It was a very good year.”
Those who wanted no risk in their investments selected the fixed-dollar account and their account balances grew by 8.25 percent. This rate of return is available for investments in the Annuity Savings Fund (ASF) and in the TDA. The rate is guaranteed until June 30, 2009. The power of compounding at this rate leads to the doubling in value of an account in about 8.7 years.
Those who followed the advice of many investment experts and were willing to take some risk (the volatility of the stock market) were even more handsomely rewarded. An investment in the Variable A returned more than 16.1 percent. As a reminder, the Variable A fund is a widely diversified global stock fund. Global means that the fund is invested in both domestic and developed-countries international stocks. Widely diversified means that the fund holds stocks of large, middle and small capitalization companies in many different industries.
Some members invest in a stable, fixed-income fund known as Variable B. While Variable B has met its goal of achieving current interest rate returns with a minimum of fluctuation, the current interest rate environment is one of low rates. Variable B returned more than 3.9 percent for the year.
The $750 one-time lump sum payment that we received in January is pensionable. This means that anybody who retires during the time period when this lump sum is used in calculating the final average salary for pension purposes will have a higher FAS and therefore a higher lifetime pension.
When per-session salary became pensionable at TRS, 3 percent deductions were mandated for those members who are still contributing to the system (those with less than 10 years of credited service). TRS is reviewing the per-session payroll history of members and will be reaching out to those required to make contributions. Cost letters were scheduled to be sent out in January.
“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877), www.trs.nyc.ny.us.