ANSWER: That’s not entirely accurate. To best answer your question I should explain how a pension loan at retirement affects one’s pension benefit.

Pursuant to current pension law, at the time of retirement members may take a final loan from their pension accounts for up to 90% of their total balance. If the member takes that final loan, it ceases to be a loan when the member comes off the active payroll and then is treated as a shortage in the member’s pension account. Shortages can occur due to your final pension loan, prior pension loans or by the member not contributing into his or her pension account. Shortage amounts are multiplied by the member’s actuarial factor and one’s pension is then reduced by the resulting amount for life. (The actuarial factor is defined as the value of money per $1,000 based on your age at retirement and whether you retire on a service or disability pension.)

The fact that the pension is reduced for life has led some members to complain that the reduction isn’t fair. They should realize, however, that they’re not paying off a loan since retirees are not allowed by law to have pension loans and have shortages instead. That’s why the Pension Fund doesn’t go after the retiree’s estate to recover the “loan” if he or she dies shortly after retirement.

Think of it as if you were paying only the interest on a mortgage without ever having to repay the principal. The amount you owe on the mortgage never goes down since it has never been paid back. You should also remember that the retiree, by taking the final loan, then has access to the money and can invest it. If the retiring member decides not to take the final loan, his or her pension will be larger but the city will keep the money not borrowed and left in the pension system upon the retiree’s death.

Now to get back to your question: As stated above, when a member retires with a service pension, that pension will be reduced by the actuarial value of the shortage for life. So instead of receiving a 50% pension after 20 years, the retiree receives something less than 50% depending on the size of the shortage and the age of the retiree. This is also the case if the member retires on an ordinary disability (non-line-of-duty) or a vested pension.

Three-quarter accidental disability pensions, however, are treated differently. It’s true, as you stated, that shortages don’t affect a 3/4 pension. But there is a difference in your pension depending on whether or not you take the final loan.

The reason is that the Pension Fund provides an additional benefit for all funds left in your pension account. This additional benefit is computed by taking the member’s actuarial factor and multiplying it by all money left in your pension account. The resulting amount is then added to your 3/4 pension. So whereas your 50% service pension, due to your shortage, will provide a benefit of less than 50%, your 3/4 disability pension (75%) is never reduced due to your shortage and, in fact, will be increased to above the 75% if you leave money in your pension account.

Confusing? No doubt, but the good news is that when you file for retirement, the Pension Fund counselor will show you the exact amount you can borrow and what your pension will be with and without taking the loan. Although I took a maximum pension loan at retirement and am very glad I did, this is a very personal major decision. It’s important to remember that in this as well as other important decisions at the time of retirement, members should consider seeking professional advice before making those decisions.

PBA Pension Consultant Joseph Maccone will answer your retirement and pension questions in print. Write to him at the PBA, 40 Fulton St., NY, NY 10038, or or email jmaccone@nycpba.org.