Editor’s Note – To keep our members informed on the pension issues that concern them most, PBA Pension Consultant Joe Maccone will be writing a regular column in a question-and-answer format responding to your inquiries about pension and retirement issues. Send your questions to Joe Maccone at the PBA office, 40 Fulton Street, New York, NY 10038. In his first column, Joe answers some of his most frequently asked questions.

The short answer is no. Members are assigned a contribution rate based on their age at the time of their appointment to the department. The younger the member when appointed, the higher the rate. This rate is then applied to all pensionable earnings for the first 20 years of your career. (After that, contributions may be made on a voluntary basis.) Member contributions and the interest they earn are referred to as “accumulated deductions.” Your “required contribution” is the total that your accumulated deductions would have amounted to after 20 years on the job, regardless of whether or not you contributed to the fund. Therefore, to receive the maximum pension benefit you must contribute for the full 20 years and have earned all the interest. Your overtime earnings are not relevant to the discussion.

Should I continue to contribute to my pension or would it be better for me to put that money in the Deferred Compensation Plan?

The answer depends on your personal circumstances and on which Deferred Compensation Plan you choose. As explained above, members must contribute to their pension accounts for 20 years. Failure to do so will result in a shortage in your pension account and a reduced pension. When contemplating contributing to the Deferred Compensation Plan rather than your pension, you must consider the loss of interest in your pension account. Since July 1,1988, the Pension Fund has been paying 8.25% interest on your account. This return on your investment is not subject to New York State or city taxes. Therefore, it equates to an approximate 9.50% return in the federal-, state- and city-taxed Deferred Compensation Plan, and that’s the figure you should compare it to when considering a switch.

Clearly, you should never switch from making pension contributions to investing in the Deferred Compensation Plan’s Stable Income Fund since that investment pays a return of only 5 or 6%. Any member who makes that switch is guaranteed to lose since the return is below that of the Pension Fund. If, however, you invest in one of the Deferred Compensation Plan’s equity funds, you may over time receive a greater return than the Pension Fund pays. The bottom line is that this is a personal decision members must make for themselves. Just remember, in today’s world of volatile equity markets, a guaranteed 8.25% return not subject to state or city taxes is a good investment.

That sounds like a great investment. Is there any way I can contribute more into my pension?

There are two methods for making extra contributions to your pension account. The first is by waiving the ITHP (Increased Take-Home Pay). This would allow you to contribute an additional 5% of your earnings into your pension account. The contributions would go in federally tax-deferred, just like your regular pension deduction. They would receive the same 8.25% return, not subject to state and city taxes.

The second method is the 50% additional deduction. This allows you to contribute 50% above whatever you are currently investing. This method receives the same 8.25% return but the contributions do not go in federally tax-deferred. So, if you can afford only one, use the ITHP waiver.

Copies of both applications can be downloaded from the Pension Fund website at http://nyc.gov/nycppf