Borrowing from your retirement funds
One of the perks of UFT members’ defined-benefit pensions, managed by the Teachers’ Retirement System and the Board of Education Retirement System, is that members may borrow against their own retirement funds.
TRS and BERS members actually have two sources from which to borrow money:
- If you are an in-service member in Tiers 3, 4 or 6, you may borrow from your Qualified Pension Plan against your Member Contribution Accumulation Fund and against part of your additional member contributions.
- In-service members and retirees may borrow from their Tax-Deferred Annuity accounts.
The maximum amount you may borrow from your Qualified Pension Plan and TDA is a total of $50,000 provided you have sufficient money in your accounts.
Qualified Pension Plan loans and TDA loans have a lot in common. Funds are normally available within two weeks after you apply and under normal circumstances are not taxable. Both also have convenient repayment plans. The annual interest rate for a Qualified Pension Plan loan is 6% and the interest rate for a TDA loan is 7%.
You may apply for loans from the secure section of the TRS website or by calling BERS at 929-305-3800.
The difference between the loans
With a Qualified Pension Plan loan, you are actually borrowing against the city’s pension funds and you repay the city. Your personal account balance is not affected by the loan.
With a TDA loan, you borrow funds from your personal TDA account. Your TDA balance is drawn down when you receive the loan, and your payments are credited back to your TDA account.
For repayment, regular amounts are deducted from your paycheck or your pension check. This protects you from falling behind on payments.
What you need to know
Loans from your retirement funds are simple to obtain and are a private arrangement between you and TRS or BERS. These loans do not appear on credit reports. But complications can arise if you go off payroll for any reason. In that event, you must send monthly checks to TRS or BERS and you are responsible for remembering to do so.
Borrowing money is a serious financial decision. Be sure to compare the terms of TRS/BERS loans to other loans to understand all of the ramifications.
Brochures about Qualified Pension Plan and TDA loans are available. Download the TRS brochure from www.trsnyc.org or request a BERS brochure by calling BERS at 929-305-3800.