Pensions probably don’t top the list of concerns for most newly hired CUNY faculty and staff. Yet within 30 days of their start date, new full-time CUNY employees must choose between two radically different pension plans. The decision is irrevocable, and making a wise choice requires careful consideration of several factors.
Your basic choice is between a defined-benefit plan and a defined-contribution plan. CUNY’s defined-benefit plan is provided by the New York City Teachers’ Retirement System (TRS), a municipal government agency. The defined-contribution plan is known as the Optional Retirement Program (ORP), which includes TIAA-CREF and two alternative investment vehicles, MetLife and Guardian.
Below is some information to help new full-timers make the decision. Pension rules for newly hired faculty and staff at CUNY are based on New York State’s Tier VI pension legislation, which covers those newly hired on or after April 1, 2012.
TRS: the Basics
The NYC Teachers’ Retirement System guarantees retirees a fixed monthly pension payment for life, with small periodic cost-of-living adjustments. There are no fluctuations based on investment returns. Retirement allowances are calculated using formulas that are based on years of service and highest annual earnings.
A TRS pension is funded by both employee and employer contributions, but the employer contribution is much larger. An employee participating in TRS does not see CUNY’s contribution in a separate account in his or her own name. Instead, CUNY makes regular lump-sum payments to TRS as a whole, based on actuarial calculations made about all CUNY employees with TRS pensions in active service.
ORP: the Basics
In the Optional Retirement Program, there is a retirement account in the employee’s name that is funded by both employer and employee contributions.
The employee decides how money in this retirement account is invested. Investment choices include stock, bond, fixed-rate and real estate funds managed by TIAA-CREF. The Optional Retirement Program may also include investments in the alternate funding vehicles, The Guardian and MetLife. A retirement account may be invested in several different funds, and employees may periodically change their allocations among different accounts.
An ORP pension is funded by the amount of money in the individual employee’s account. There is no way to predict how much the account will be worth at retirement because the value of an employee’s investments changes constantly.
For new participants in TIAA-CREF and the other ORP plans, CUNY contributes 8% of gross pay during the first seven years that an employee is at the University; from the eighth year on, the employer contribution is increased to 10% for the remainder of the employee’s service.
The required employee contributions are the same for both TRS and the ORP plans. Employee contributions are calculated as a percentage of regular compensation on a federally tax-deferred basis, with the rate dependent on an employee’s salary. For all new full-time hires at CUNY, those rates are as follows:
$45,000 or less 3.00%
More than $45,000 to $55,000 3.50%
More than $55,000 to $75,000 4.50%
More than $75,000 to $100,000 5.75%
More than $100,000 6.00%
These gross salary deductions occur from an employee’s paycheck through automatic payroll deductions. If deductions are not occurring after you choose a plan, check with your payroll office.
When you are vested, you become eligible to receive a retirement allowance when you reach retirement age. TRS participants are vested once they have 10 years of TRS credited service. If TRS participants leave CUNY employment before they are vested, they don’t lose their employee contributions: participants in qualified pension plans like TRS earn 5% annual interest on these monies while they are waiting to vest. If you leave CUNY before you are vested, you will take these funds with you.
ORP participants are vested after they have worked at CUNY for 366 days; vesting is immediate for those who come to CUNY with an open-vested TIAA-CREF retirement account from a previous employer.
If you have been newly hired at CUNY and choose TRS, you will become eligible to retire with an unreduced pension benefit once you are vested and at least 63 years old. Under current rules, those vested in TRS who are between 55 and 62 can retire with an immediate, lower pension benefit, reduced by 6.5% per year for each year younger than 63. All TRS participants who are receiving a pension and who have at least 10 years of service credit will retain their City of New York health insurance and the benefits provided through the PSC-CUNY Welfare Fund upon retirement.
ORP participants may retire at any age, but can only maintain their health benefits if they have 15 years of continuous service at CUNY. In addition, these health benefits take effect only when the retiree is 62 or older. Since September 2005, if you are a health-benefits-eligible retiree in the ORP, you are required to maintain $50,000 in reserve with TIAA-CREF, in order to pay for retiree health insurance premiums. Additional reserve amounts may be required depending on the health plan you select, or to cover future insurance rate increases.
TRS participants can get pension credit for any work done for the City or State before they became full-time CUNY employees. ORP participants do not have this option.
If you worked previously as a CUNY adjunct and already have significant pension credit under TRS, then TRS will probably be your best choice – but speak to a pension counselor to be sure. If you worked as a CUNY adjunct but were not previously a TRS member, you can pay to “buy back” pension credit in TRS for your prior years of adjunct service. Again, consult a pension counselor about your options.
If you are have prior CUNY adjunct service and are hired on a full-time substitute line, the decision is more complex. Details are discussed here; note that there are exceptions. Consulting a pension counselor is thus especially important for former adjuncts who are hired on a full-time substitute line.
ORP participants in TIAA-CREF can maintain or even possibly merge their TIAA-CREF accounts if they leave CUNY for another employer that provides TIAA-CREF pensions. This is all subject to the CUNY TIAA-CREF ORP Plan Rules. TRS pensions can be transferred to other New York City and State retirement systems, but cannot be transferred to private or out-of-state employers.
Leaving Money to Your Family
ORP participants can leave the entire balance of their accounts to their families after they die. TRS participants can designate one beneficiary who will receive a lifetime pension payout after they die. There are other retirement income options available to the beneficiaries of members in the ORP and TRS. Please consult the retirement system you are affiliated with for more details.
Making the Choice
So, which plan is best for you? Age is one key factor in the decision. Older employees may give greater weight to the fact that TRS participants can keep their health insurance in retirement after just 10 years on the job.
Prior work history is another factor. A new full-timer with many years of adjunct service or other work for a New York City or State agency can get TRS pension credit for this work. A new full-timer who already has an open-vested TIAA-CREF retirement account from another institution can vest immediately.
Contact the PSC (at 212-354-1252) if you would like to discuss your decision with a pension counselor.