Saturday, January 23, 2010

Part C - Tier 5 - UFT Covered Employees at TRS & BERS

This is the city’s first agreement with a city union with regards to the “Tier 5” pension reform.

It applies to UFT members of TRS and BERS. There are other members in these two retirement systems who are not covered by the UFT. They are not yet subject to this law. It is most likely that they will be covered by a future negotiated pension reform statute.

All UFT members who join TRS or BERS on or after 12/10/2009 are subject to the following benefit reductions.

  • First, they can not retire until they have at least 10 years of credited service. Previously, the requirement was 5 years.
  • Second, they can not vest until they have 10 years of credited service. Previously, it was 5 years.
  • Third, they must contribute 3% of earnings for 27 years. Previously, it was ten years.
  • Finally, as members of the 27/55 Plan, they must contribute 1.85% of the earnings for all their service. Previously, it was 27 years.

In addition, all UFT members of TRS and BERS, old and new, will earn only 7% interest on the fixed income option of their TDA account (IRC 403-b). Previously, the guaranteed interest rate was 8.25%. This reduction is still a dynamite benefit in this crippled economy. I suspect this reduction also applies to the Chancellor’s TDA plan which covers employees of the Board of Ed.who are not members of either TRS or BERS.

This does not change the interest rate on new TDA loans. The old rate stays in effect, unless the associated Boards change the rules that specify the rate of interest on these loans. TDA (403-b) accounts are only available to Board of Ed employees.

The 457 and 401-k plans for city employees are handled by OLR. They, in sharp contrast, do not have guaranteed fixed rates of return. This guaranteed rate has been a heavy load on the city and there has been no real visibility to this problem.

There is also an operational directive included in this new law. This is unusual. The statute states that if a member (TRS or BERS) elects to move funds from his/her fixed TDA account to his/her variable TDA account, then “the retirement system shall effectuate such transfer as expeditiously as is administratively feasible”. (I borrowed the exact phrase). There appears to have been a problem in the past with TRS & BERS moving money quickly enough between different investment options.

Part C is effective as of 12/10/2009.

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