ANSWER: Before I answer your question it would be beneficial first to explain how a vested pension is calculated as well as what benefits are lost by taking early retirement.
Members are eligible for the standard service retirement pension after completing 20 years of uniformed service. If you retire with exactly 20 years your pension is calculated at 50% of your total pensionable compensation earned during the final 12 months immediately preceding your retirement date or the three-year average, whichever is greater. (For a further explanation of total pensionable compensation, you can refer to my article in the Spring 2005 edition of The PBA Magazine.) A 50% pension for 20 years of service equates to 2 1/2% per year. Members are eligible for vested (early) pensions after completing at least 5 years of uniformed service. They receive the same 2 1/2% of total pensionable earnings for each year of uniformed police service. Therefore, if a member has 10 years of service his pension would be 25% (2 1/2 % x 10) of his total pensionable earnings. As with a 20-year pension, vested pensions are reduced due to any shortage in the member’s pension account.

Facts to Remember Concerning Vested Retirement:

Members who retire on a vested pension do not start receiving their retirement allowance until they reach the 20th anniversary of their date of hire.

Members who leave active service on a vested retirement have no city paid medical coverage until they start receiving their pension.

Vested members are not eligible for health and welfare benefits from their union until they start collecting their pension.• Vested members do not receive terminal leave.

Longevity pay is not pensionable for vested pensions. Longevity pay currently is $3,745 for 5 years, $4,745 for 10 years, $5,745 for 15 years and $6,770 for 20 years.

Prior state pension credit is not used for vested retirements until the member has at least five years in the NYPD.

Members hired after 7/1/2000 have their pensions calculated on their last 12 months of pensionable earnings. They cannot use the three-year average.

Members hired after 12/27/2001, although being able to retire on a vested pension with five years of service, would not be eligible for city paid medical coverage unless they retire with at least 10 years of service.

Members who retire on a vested pension will not receive the Variable Supplement Fund benefit.

In an effort to answer your question on whether it is a good idea to retire with 16 years you should ask yourself the following questions. Is there another job waiting for me? Will I be able to provide medical coverage for my family and myself until I start receiving my pension? Does it make financial sense to receive a smaller pension?

The answer to the last question can really be an eye-opener. Let’s assume that your total pensionable earnings in your last 12 months were $70,000 ($75,745 minus $5,745 longevity). A 16-year vested pension would be $70,000 X 40% or $28,000 per year.

Now what would your pension be if you stayed four more years with no increase in your salary other than you now receive pensionable credit for the $4,745 you received for your five- and 10-year longevity pay? (Remember, no longevity pay is pensionable for vested members.

The five- and 10-year longevity become pensionable after 20 years. The 15- and 20-year longevity become pensionable after the member attains 25 years of service.) Your 20-year pension would be $74,745 X 50% or $37,372 per year. As a service retiree you would also receive the $12,000 Variable Supplement Fund benefit for a total retirement allowance of $49,372.

The above example doesn’t take into consideration the reduction in your pension due to any shortage in your pension account since such a shortage would similarly affect both pensions. More importantly, it doesn’t consider any increase in salary received from contract settlements from your 16th through 20th years. Obviously, the $74,745 total pensionable earnings should be higher with four years of raises.

The bottom line is, you worked hard over 16 years for your vested pension. You worked nights, weekends, holidays, missed your children’s birthdays and little-league games. Why let the city off the hook so they can pay you a smaller pension than you deserve. By staying just four more years you can nearly double what the city will be providing you for the rest of your life.

The closer you get to 20 years, the less financial sense it makes to retire early. The only reasons to retire with 16 years are either there is a very well-paying job being offered to you that must be taken immediately or you hit the lottery. If neither one happens, it’s not a good idea to retire early.

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.