Tiers III/IV Summary Plan Description. Welcome to TRS. Introduction to TRS. Dear Member: TRS' Commitment to Our Members

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1 Tiers III/IV Summary Plan Description The following information was published in November 2003 as a Summary Plan Description for Tiers III/IV members of TRS. Some of the information has since been amended in SPD Update documents and other TRS publications. As such, this publication should not be solely relied upon, as it is based on information that is subject to change. TRS suggests that you consult with an attorney and/or a tax advisor if you have any specific legal or tax questions concerning this information. In all cases, the specific provisions of the governing laws, rules, and regulations prevail. Welcome to TRS Dear Member: The Teachers' Retirement System of the City of New York (TRS) is pleased to provide you with this Summary Plan Description (SPD), which highlights the benefits of TRS membership. If you are a new member, we welcome you to TRS and look forward to serving you throughout your membership. We encourage you to familiarize yourself with the benefits highlighted in this booklet and save it for future reference. If you have been a member of TRS for some time, this updated version of the SPD will also be a helpful tool. It reflects all the benefit improvements that have impacted Tiers III/IV members since we issued the previous SPD version. With history as a guide, it is likely that TRS' benefits will continue to evolve. Those changes may affect certain descriptions in this document. The laws, rules, and regulations that govern TRS will prevail at all times. TRS keeps you updated on changes to our benefits and services through a multifaceted communications program, which includes the following resources: We provide both an online and print version of this SPD. We publish an SPD Update to describe the changes that impacted the SPD that year. We announce all changes promptly in our "News Bulletins," a feature available both on TRS' website and the TRS Service Line, our 24-hour automated information system that can be reached by calling 1 (888) 8-NYC-TRS and selecting Option 1. We regularly update our comprehensive series of publications to reflect the latest available information. The latest versions of these publications are available through our website and the TRS Service Line. Our member newsletters - In-Service News for in-service members and Benefits Report for retirees - contain regular updates on our benefits and services. Members receive new issues three times each year. If you need additional information about TRS' benefits or services, you are welcome to write or visit TRS' offices in lower Manhattan at 55 Water Street, New York, NY You may also call our Member Services Center toll-free at 1 (888) 8-NYC-TRS. Our knowledgeable representatives will assist you with your inquiries. Introduction to TRS TRS' Commitment to Our Members The Teachers' Retirement System of the City of New York (TRS) was founded in 1917 to provide eligible New York City educators with a retirement plan that they could depend on. TRS membership still offers that same security today, and much more, thanks to a dramatic expansion of benefits and services over the years. Our members are committed to preparing New York City's students for the future by providing them with the best education possible. Similarly, TRS is committed to "Building Better Tomorrows" for our members by developing innovative ways to achieve the major goals of our mission: Collecting contributions efficiently; Investing retirement funds prudently; Disbursing member benefits responsibly; and Delivering superior levels of member service. Our state-of-the-art phone system centralizes all incoming calls through one toll-free number: 1 (888) 8-NYC-TRS. You can access our 24-hour automated TRS Service Line, which offers many of the same features as our website. You can also speak with a knowledgeable Member Services Representative in our Call Center about a general inquiry or (by using 1

2 your PIN) a member-specific inquiry. Representatives are available to assist you Monday through Friday from 8:30 a.m. to 5:00 p.m., except on New York City holidays, when government offices are closed. You can visit our Walk-In Center on the second floor at 55 Water Street in lower Manhattan to meet with a Member Services Representative, verify account information, obtain TRS publications and forms, or pick up loan checks. Our Walk-In Center is easily accessible through the entrance at the southeast corner of the building, facing the Vietnam Veterans Memorial Plaza. (You must bring a photo ID with a signature to enter 55 Water Street and to verify your account information.) Representatives are available to assist you Monday through Friday from 8:30 a.m. to 5:00 p.m., except on New York City holidays. You can mail an inquiry to TRS' Correspondence Unit at 55 Water Street, New York, NY 10041, and we will research your inquiry and provide you Membership Benefits at a Glance TRS membership offers the following key benefits: A monthly retirement allowance through our Qualified Pension Plan (QPP) upon meeting certain age and service credit requirements; The opportunity to set aside additional funds for retirement on a pre-tax basis and invest them in a combination of investment plans available through our Tax-Deferred Annuity (TDA) Program; Low-interest loans from the QPP or TDA Program after just one year of credited service or TDA participation, respectively; Disability coverage upon meeting certain requirements; and Death benefit coverage, which enables members to provide for their beneficiaries. The Services TRS Provides Our mission statement above reflects TRS' commitment to delivering superior levels of member service. As part of this commitment, we offer a variety of informational resources to our members: 2 Through our website (at you can read about important TRS news, access your account information with a confidential Personal Identification Number (PIN), apply for a QPP and/or TDA loan, view your current beneficiary information, change your permanent address, enroll in the TDA Program, change your TDA Program account contribution rates and/or investment elections, access TRS publications and forms, and get answers to Frequently Asked Questions (FAQs). Our state-of-the-art phone system centralizes all incoming calls through one toll-free number: 1 (888) 8-NYC-TRS. You can access our 24-hour automated TRS Service Line, which offers many of the same features as our website. You can also speak with a knowledgeable Member ServicesRepresentative in our Call Center about a general inquiry or (by using your PIN) a member-specific inquiry. Representatives are available to assistyou Monday through Friday from 8:30 a.m. to 5:00 p.m., except on New York City holidays, when government offices are closed. You can visit our Walk-In Center on the second floor at 55 Water Street in lower Manhattan to meet with a Member Services Representative, verifyaccount information, obtain TRS publications and forms, or pick up loan checks. Our Walk-In Center is easily accessible through the entrance at thesoutheast corner of the building, facing the Vietnam Veterans Memorial Plaza. (You must bring a photo ID with a signature to enter 55 Water Streetand to verify your account information.) Representatives are available to assist you Monday through Friday from 8:30 a.m. to 5:00 p.m., except onnew York City holidays. You can mail an inquiry to TRS' Correspondence Unit at 55 Water Street, New York, NY 10041, and we will research your inquiry and provide youtiers III/IV Summary Plan Description with a written response. You will receive three issues of a member newsletter each year. In-service members receive In-Service News, and retirees receive Benefits Report. These newsletters keep you updated on TRS' investment performance, legislation impacting TRS' benefits, and new member services. You have access to more than 50 comprehensive publications that provide detailed summaries of specific TRS benefits and services.

3 If you are an in-service member, you will receive our "Quarterly Account Statement" (QAS), which summarizes your QPP account balances, contributions, investment elections, loan status, and account activity for the reporting period; if you are a TDA participant, you will receive a separate QAS for your TDA Program account. You will also receive an "Annual Benefits Statement" (ABS) each fall, which summarizes your Total Service Credit, lists your designated beneficiaries, and provides benefit estimates and benefit projections to certain retirement-eligible members. If you are a member with TDA Deferral status, you will receive a "TDA Quarterly Statement," which summarizes your TDA account information. For more information about the member services provided by TRS, you may consult the following TRS publications: Contacting TRS, Using the TRS Website, and the TRS Member's Companion. TRS Membership and the QPP Eligibility for TRS Membership TRS membership is required for some New York City educators and optional for others. The following rules apply to membership at TRS: Appointed Department of Education (DOE) Teachers and Pedagogues -If you are a teacher or pedagogue appointed to the public schools maintained by the Department of Education of the City of New York, you are required to be a TRS member and will automatically become one as of the first day of the month following your appointment date. Department of Education Paraprofessionals -If you are a paraprofessional employed by the Department of Education in one of the titles below, you have the option of joining TRS. Your membership would begin on the day that TRS receives your "Tiers III/IV Enrollment Application" (code EN10). Auxiliary Teacher Bilingual Professional Assistant Educational Assistant Educational Associate Family Assistant (A & B) Family Associate Family Worker Health Aide Parent Program Assistant Teacher Aide Charter School Employees -If you are a non-trs member employed by a new Charter School (i.e., one that is not maintained by the New York City Department of Education), you should check with your school administrator regarding pension coverage since such schools may apply to provide TRS coverage for employees; if eligible, your TRS membership date would begin on the date that you are hired by the Charter School. If you are newly employed by a conversion Charter School (i.e., one that was formerly maintained by the New York City Department of Education), you are required to be a TRS member and will automatically become one as of the date that you are hired. If you are already a TRS member when your Charter School (either new or conversion) employment begins, your TRS membership date would remain in effect. For eligible paraprofessionals, your membership would begin on the day that TRS receives your enrollment application. Full-time City University of New York (CUNY) Instructional Staff* -If you are a full-time CUNY instructional staff employee, you must join either TRS or the Optional Retirement Program. Once you join the Optional Retirement Program, you may not elect to join TRS at a later date. If you do not join the Optional Retirement Program within 30 3

4 days of your CUNY appointment, you would automatically become a TRS member. Your membership would begin on the day that TRS receives your enrollment application or 30 days after your CUNY appointment, whichever comes first. Adjunct CUNY Instructors* -If you are an adjunct CUNY instructor, you have the option of joining TRS. Your membership would begin on the day that TRS receives your enrollment application. *Note: If you are employed by the CUNY Research Foundation, you would not be eligible for TRS membership. If you are a retired member of another New York City or New York State public retirement system, you may be eligible for TRS membership if you first suspend your retirement allowance from your other retirement system. In such a case, you must keep your retirement allowance suspended throughout the period of your TRS membership. If you are not eligible to join TRS, contact the New York City Board of Education Retirement System (BERS) or the New York City Employees' Retirement System (NYCERS) to inquire about eligibility requirements in those systems. Enrolling in TRS As the previous section explains, individuals in certain titles cannot initiate a TRS membership until they file a "Tiers III/IV Enrollment Application." However, filing an enrollment application and submitting the necessary date-of-birth documentation are essential steps for every member, including any member whose TRS membership begins automatically. Members would be ineligible to receive TRS benefits until they submit this information. These materials: Help TRS determine your eligibility for certain plan benefits; Help TRS provide you with accurate account statements; Help TRS provide you with benefit estimates when you become eligible for retirement; and Help New York City determine the necessary funds to set aside for your retirement allowance. If your TRS membership is mandatory, you will receive a "TRS Welcome Kit," which includes an enrollment application, as well as forms that will enable you to enroll in TRS' Tax-Deferred Annuity (TDA) Program and designate beneficiaries for your funds. If you have the option of joining TRS, you may obtain an enrollment application through TRS' website or the TRS Service Line; after you file your enrollment application, TRS will send you a "TRS Welcome Kit." Contributions to the QPP All TRS members participate in TRS' Qualified Pension Plan (QPP), a retirement plan administered under Section 401(a) of the Internal Revenue Code. The QPP combines features of a defined-benefit pension plan with those of a defined-contribution pension plan. Contributions to your future benefit are paid by both you and your employer, as follows: TRS' pension benefit obligation is funded by contributions from our members' employers (e.g., the Department of Education or the City University of New York). In order to help fund your retirement allowance, you must contribute 3% of your regular compensation to your QPP account until you have 10 years of membership or credited service.* These contributions are deducted from your paycheck and deposited into your Member Contributions Accumulation Fund (MCAF) account. By law, your contributions earn 5% interest. The Department of Education makes a Supplemental Contribution to the accounts of certain members who reach the maximum of their salary schedule. This amount, ($550 per year for supervisors and $400 per year for other eligible members) would be deposited into your Annuity Savings Accumulation Fund (ASAF). This Supplemental Contribution is not provided to paraprofessionals, Charter School employees, or CUNY employees. * Note: Earnings are now pensionable for per session work performed on or after November 24, 1998 by TRS members. Even if you previously chose to opt out of the designated period (November 24, 1998 to October 22, 2002), pension contributions may still be required for per session work performed after October 22, Any QPP contributions you made prior to July 1, 1989 were federally taxed when they were taken from your paycheck. However, any QPP contributions made on or after July 1, 1989 receive federal tax-deferred treatment and are not subject 4

5 to federal taxation until they are received as part of a benefit or withdrawal; your member statements will reflect this amount as Section 414(h) contributions. State and local taxes are taken from contributions at the time they are made, but your retirement allowance would be exempt from New York State or New York City income taxes. QPP Beneficiaries It is important that you file a "Designation of QPP Beneficiary Form" (code EN6) in conjunction with your TRS enrollment application. If you die while still in active service, any death benefit due would be payable to your designated QPP beneficiary(ies). If you do not designate a beneficiary by filing this form, any death benefit due would be paid to your estate. It is important that you keep your beneficiary designation(s) updated at all times while you are an in-service member. You may change your QPP beneficiary designation(s) or update the address information for your QPP beneficiary(ies) by filing a new "Designation of QPP Beneficiary Form." Each filing supersedes the previous filing, and TRS would use the most recent filing when determining the benefits payable. Under New York State law, retirement benefits are considered marital assets, and are subject to "equitable distribution" in a divorce. If a court has issued a domestic relations order (DRO) in conjunction with your divorce, your former spouse may be entitled to a designated portion of your TRS benefits. A DRO may impact your benefits as an in-service member and as a retiree, and may impact your right to withdraw or take loans from your TRS funds. You may also need to complete your beneficiary designations in accordance with the requirements established in the DRO, as well as make certain elections at retirement to comply with any court orders. For more information, you may consult TRS' The Effect of Divorce on TRS Benefits brochure. Tier Status Tier status determines many of the benefits for which TRS members are eligible. As a TRS member, you belong to one of the following four tiers, generally depending on the date you last became a TRS member. Tier I members joined TRS before July 1, Tier II members joined TRS after June 30, 1973 but before July 27, Tier III members joined TRS after July 26, 1976 but before September 1, Tier IV members joined TRS after August 31, All new TRS members begin in Tier IV. Your tier status may change if you are reinstated to a previous membership or if you transfer an eligible membership with a different tier status from another retirement system. For more information, you may consult TRS' Tiers and Membership Numbers brochure. Transferring a Membership to TRS If you are a member of one of the following retirement systems, you may transfer your membership to TRS if you become employed in a TRS-eligible position: The New York City Board of Education Retirement System; The New York City Employees' Retirement System; The New York State and Local Employees' Retirement Systems; and The New York State Teachers' Retirement System. If you want to transfer an eligible membership to TRS, you must notify your previous retirement system. That system would transfer your service credit and accumulated pension funds to TRS. In the case of eligible retirees who are on deferred payability or who did not receive any retirement allowance payments from their previous system, the retirement application from that system would be considered withdrawn. Members would have no minimum service requirement following the transfer before becoming eligible for a (potentially higher) TRS retirement benefit. Members who had already received a retirement allowance payment(s) from their previous system would also be eligible 5

6 to transfer to TRS under these provisions, but they first must repay that system any retirement allowance amount they have received. The transfer would be permitted after the repayment is verified by TRS. In all cases, the tier membership you held in your previous retirement system would also transfer as part of the process. However, you would be considered a Tier IV TRS member until the transfer process is completed, even if you were a Tier I, II, or III member in your previous retirement system. Any necessary adjustments would be made after your transfer is completed. Membership/Tier Reinstatement If you are in active membership status and you previously lost membership rights in TRS or another New York City or New York State public retirement system, you may apply for reinstatement to your previous membership. If you are reinstated to a membership that had entitled you to rights in a previous tier, that tier status would also be reinstated. To begin the reinstatement process, you must file a "Membership/Tier Reinstatement Request Form" (code SD42) with TRS. TRS would then determine your eligibility and notify you of any cost involved. If you are eligible and would like to be reinstated, you must then apply for reinstatement and must pay back the amount of contributions refunded when your previous membership ended. The cost would include 5% interest compounded annually from the date of the refund to the date of repayment. Tiers III/IV members who are reinstated to a Tiers I/II membership may apply to receive a refund for any prior service purchase they made relative to the reinstated membership. Such a refund would include 5% annual interest from the date of the last service credit payment to the date of the refund. If you do not apply for a refund, the funds would remain in your QPP account and may provide for increased benefits, including a higher retirement allowance. For information comparing benefits for Tiers III/IV members with benefits for Tiers I/II members, you may consult TRS' Tier Comparison brochure. TRS' TDA Program The Benefits of TDA Participation TRS' Tax-Deferred Annuity (TDA) Program, established under Section 403(b) of the Internal Revenue Code, is an optional program that enables members to save additional money for retirement by investing on a tax-deferred basis. Contributions are automatically deducted from your paycheck. Taxes are deferred on your contributions and on the investment return you earn. This combination provides several major benefits over investing the same amount in a comparable after-tax investment: Since taxes are deferred, more of your money is invested, and your funds can accumulate more quickly. The earlier you start contributing, the greater the impact that compounding will have. This is true even if you are able to put aside only a small percentage of your earnings. You pay less current income tax and have higher net income. You would become eligible to take loans from your TDA funds. In addition, your expenses for participating in the TDA Program are much lower than they would be for most comparable investments, such as mutual funds. There are no administrative fees for investing in the Fixed Annuity Program, and accumulations in the Variable Annuity Programs incur only a nominal monthly charge of 15/1000 of 1%. For more information, you may consult TRS' TDA Program Summary booklet. Enrolling in the TDA Program If you are an in-service member, you may initially enroll in the TDA Program at any time by using the "TDA Filings" feature of our website. You may also file a hardcopy "TDA Enrollment Form" (code TD1), which you may order through our website or the TRS Service Line. In addition, enrollment materials are included in your "TRS Welcome Kit." Enrolling in the TDA Program enables you to do the following: 6

7 Designate the percentage of your salary that you want to contribute to the TDA Program, up to the allowable maximum; and Elect how to invest your TDA funds. TDA Beneficiaries It is important that you designate a beneficiary(ies) for your TDA funds by filing a "Designation of TDA Beneficiary Form" (code EN8) when you enroll in the TDA Program. If you do not designate a TDA beneficiary, any TDA benefit due upon your death as an in-service member (or as a member with TDA Deferral status; see "TDA Options Upon Retirement") would be paid to your estate. It is important that you keep your beneficiary designation(s) updated at all times. You may change your TDA beneficiary designation(s) or update the address information for your TDA beneficiary(ies) by filing a new "Designation of TDA Beneficiary Form." Each filing supersedes the previous filing, and TRS would use the most recent filing when determining the benefits payable. Under New York State law, retirement benefits are considered marital assets and are subject to "equitable distribution" in a divorce. If a court has issued a domestic relations order (DRO) in conjunction with your divorce, your former spouse may be entitled to a designated portion of your TRS benefits. A DRO may impact your benefits as an in-service member and as a retiree, and may impact your right to withdraw or take loans from your TRS funds. You may also need to complete your beneficiary designations in accordance with the requirements established in the DRO, as well as make certain elections at retirement to comply with any court orders. For more information, you may consult TRS' The Effect of Divorce on TRS Benefits brochure. The Flexibility of Contributing to the TDA Program You may contribute as little as 1% of your salary to the TDA Program and as much as your designated Maximum Contribution Rate. This rate is based on your salary and the allowable maximum contribution amount the Internal Revenue Service (IRS) has established for that year. The chart below shows the general maximum contribution amounts through 2006, as well as additional "catch-up" contributions that eligible members may make. Participation in the TDA Program offers you flexibility and convenience. For example: 7 You may elect to contribute a designated percentage of your salary, or you may elect "maximum" and thereby automatically contribute each year at your maximum eligible rate. You may change your TDA contribution rate or stop making TDA contributions at any time by filing a TDA Contribution Rate Change through the "TDA Filings" feature of our website, or by filing a hardcopy "TDA Contribution Rate Change Form" (code TD4). To resume making contributions, you need to file either an online TDA Contribution Rate Change or a hardcopy "TDA Contribution Rate Change Form." Unless you elect to change your TDA contribution rate or stop making TDA contributions, your TDA contributions would continue automatically from year to year either at your current rate or at your new maximum rate. The latter would occur if you elected "maximum" or if your current rate exceeds your new maximum. Changes to your TDA contribution rate generally occur with the first payroll that occurs at least 60 days after TRS receives your valid election.

8 Options for Investing TDA Funds To enable you to tailor your TDA portfolio to your individual needs, TRS offers you three different TDA investment choices. You may invest your TDA funds in any combination of our three investment programs, using multiples of 5%: The Fixed Annuity Program, which offers a guaranteed rate of return set by the New York State Legislature. The current 8 1/4% annual rate is guaranteed through June 30, 2004, and the rate is guaranteed to never fall below 7%. The Variable A Annuity Program, which consists mainly of equity investments. Its financial objective is to capture the return of the broad equity market, while attempting to control its short-term volatility. The Variable B Annuity Program, which includes Guaranteed Investment Contracts (GICs), fixed-income securities, and other stable-value investment vehicles. Its financial objectives are to preserve principal and provide a steady rate of return. Note: It is important to review the past performance of these investment choices before you make your investment elections. However, past performance is not a guarantee of future performance. When you contribute to the Variable Annuity Programs, your contributions purchase "units." For actuarial purposes, the total number of your units is automatically increased by.3274% (or 4% annually). The "unit value" for both Variable A and Variable B is announced on TRS' website and the TRS Service Line on a monthly basis. This value is determined by multiplying the preceding month's unit value by the monthly net change in the value of the Program's portfolio. In addition, the unit value is discounted by.3274% to offset the automatic increase in the number of your units. New TDA participants make their investment elections through the online "TDA Enrollment" feature or on the "TDA Enrollment Form." As shown below, current TDA participants may change their investment elections on a quarterly basis by using the online "TDA Investment Election Change" feature or by filing a "TDA Investment Election Change Form" (code TD45). Note: If the filing deadline listed above is on a weekend, the actual deadline would be the last business day of the preceding month. TDA Withdrawal Restrictions You may withdraw any or all of your TDA funds: If you have reached age 59 1/2; or If you have separated from service; or If you make a Direct Transfer of your TDA funds to another qualified Section 403(b) Program. If you are an in-service member who has not yet reached age 59 1/2: You may withdraw your Pre-1989 funds (i.e., the TDA contributions and earnings you accumulated as of December 31, 1988) at any time. You may withdraw your Post-1988 contributions only if a sudden and heavy financial emergency leaves you unable to reasonably meet certain expenses through loans or other resources. As defined in the Internal Revenue Code, hardship conditions include the payment of certain medical or funeral expenses, post-secondary school tuition for you or a dependent, the purchase of a principal residence, and payment to prevent eviction or foreclosure. To apply, you must file a "TDA Hardship Withdrawal Application" (code TD44). (See "Tax Consequences of Withdrawals.") 8

9 Loans Applying for a Loan You may become eligible to take loans from your QPP funds and, if you are a TDA participant, from your TDA funds. To be eligible, you must generally be an in-service member or on a leave of absence (although members with TDA Deferral status may also take out TDA loans; see "TDA Options Upon Retirement"). In addition, you must have at least one year of TRS membership before you can take out a QPP loan, and must have participated in the TDA Program for at least one year before you can take out a TDA loan. However, this one-year service requirement would not apply if you transferred your membership to TRS from an eligible retirement system and had at least one year of membership service with that system. You may take up to one QPP loan and one TDA loan within a 12-month period. You may apply for a QPP and/or TDA loan, even if you have an outstanding loan balance from that same program, as long as you have not defaulted on your loan. Through December 31, 2003, if you have an outstanding QPP and/or TDA loan, current IRS regulations allow the new loan amount you request to be added to your outstanding loan balance. In such a case, your new loan balance would consist of the new amount you request plus the prior outstanding balance. This balance would be subject to the repayment terms, interest, and insurance charges in effect when the new loan is issued. However, effective January 1, 2004, new IRS regulations no longer allow members to combine outstanding loan balances with new loans. Instead, any new loan requested would be treated as a separate loan balance, and each loan balance would be subject to a separate repayment period, interest charges, and insurance premiums. You may apply for a QPP or TDA loan online through the "TRS Loans Center" feature of our website, (however, you may not apply online for loans in conjunction with retirement). You may also apply for a QPP or TDA loan by filing a hardcopy "QPP Loan Application" (code LO6) or "TDA Loan Application" (code LO15). TRS issues loan checks on a weekly basis. In order for a loan check to be mailed to your home address on a given Wednesday, TRS must generally receive your loan application by the close of business on Wednesday of the preceding week. If a holiday occurs during a given week, TRS must receive your loan application by the first business day of that week. If you apply for a loan in conjunction with retirement, TRS must receive your application before your effective retirement date. If you intend to retire, and you are eligible for a loan that you want disbursed to you before your retirement date, you must file for that loan before filing for retirement, and you must wait for that loan to be issued. Otherwise, filing for a loan after you have submitted your retirement application or in conjunction with your retirement would mean that the loan would be processed after your retirement date. Available Loan Amounts The minimum QPP and TDA loan amount you may request is generally $1,000. However, if you have an outstanding loan, the minimum additional loan amount that you may request from either program is generally $250, provided that your total outstanding loan balance is at least $1,000 for that program. The maximum loan amount you may request depends on the following factors: QPP Loans If you have at least five years of membership service, the maximum (new) QPP loan amount you may request would be the lesser of the following: A) $50,000, less your highest combined outstanding QPP loan balance during the previous 12-month period, less your highest combined outstanding TDA loan balance during the previous 12-month period; or B) 75% of the value of your MCAF, less your current outstanding QPP loan balance. If you have less than five years of membership service, the maximum (new) QPP loan amount you may request would be the least of the following: the "A" and "B" restrictions listed above and C) the greater of (i) 50% of the combined value of your QPP and TDA accounts, less your current combined outstanding QPP and TDA loan balance, or (ii) $10,000, less your current combined outstanding QPP and TDA loan balance. If you take a QPP loan in conjunction with filing for your retirement, the maximum (new) QPP loan amount you may request would be the amount described in restriction "B" above. You may elect to limit your loan to the amount of available tax-free funds in your account. 9

10 TDA Loans If you have at least five years of membership service, the maximum (new) TDA loan amount you may request would be the lesser of the following: A) $50,000, less your highest combined outstanding TDA loan balance during the previous 12-month period, less your highest combined outstanding QPP loan balance during the previous 12-month period; or B) 75% of the value of your TDA account, less your current outstanding TDA loan balance. If you have less than five years of membership service, the maximum (new) TDA loan amount you may request would be the least of the following: the "A" and "B" restrictions listed above and C) the greater of (i) 50% of the combined value of your QPP and TDA accounts, less your current combined outstanding QPP and TDA loan balance, or (ii) $10,000, less your current combined outstanding QPP and TDA loan balance. If you take a TDA loan in conjunction with filing for your retirement, the maximum (new) TDA loan amount you may request would be the amount described in restriction "B" above. If you are a participant in the Deferred Compensation Plan (DCP), your eligibility for a QPP and/or TDA loan is contingent upon TRS' verification of any status and balances you may have in the DCP account. This may cause a further delay in the approval of the disbursement of your loan or may be grounds for denying your loan application. Costs of a Loan You are charged monthly interest on your outstanding loan balance at the rate in effect when your loan was issued. At publication time, the QPP loan interest rate was 7%, and the TDA loan interest rate was 8 1/4%. Upon payment, TDA loan interest is credited to your TDA account. Your loan is fully insured in the event of your death as of 30 days after the date the loan is issued. Prior to that date, there would be no insurance coverage. Insurance coverage on your loan would end as of your effective retirement date or if you are in default on the loan. The costs for insurance coverage are as follows: Insurance premiums on QPP loans are included in your regular loan payments, as long as you maintain an outstanding balance and your loan is not in default. The premium will not exceed 1% of the outstanding loan balance as of July 1 of each year. At publication time, the rate was.2%. Any uninsured loan balance outstanding after you die would be deducted from your MCAF account; this would reduce any benefits payable to your beneficiaries. Insurance premiums on TDA loans are included in your regular loan payments at a rate of 3/10 of 1%, as long as you maintain an outstanding balance and your loan is not in default. A nonrefundable service charge is added to each loan you take (and may be added to any action you take that necessitates a recalculation of your repayment amount) to cover the administrative costs of issuing a loan. At publication time, the service charge was $30. Repaying a Loan With the exception of loans taken at retirement, all QPP and TDA loans must be repaid within five years (60 months). If you are an active member, loans are normally repaid through payroll deductions. If you are on a leave of absence, you would normally make monthly loan payments. If you are an inactive member with vested status, you would normally make monthly loan payments. If you are a member with TDA Deferral status, you would normally make monthly TDA loan payments. Members on a leave of absence or with TDA Deferral status, as well as inactive members with vested status, should send these payments directly to TRS; payments are generally due on the 15th of each month. At any time, you may elect to repay your outstanding loan balance in a lump sum. If you take a leave of absence, you automatically qualify for a 12-month grace period when loan payments need not be made. During the grace period, your loan payment amount would be adjusted for the interest and insurance charges that would accrue, and your loan payments would be recalculated accordingly when you return to active service. If your leave exceeds the 12-month grace period or if you opt not to take advantage of the grace period, you must make monthly loan payments directly to TRS. Your loan would be considered in default if you have any loan balance outstanding five years after the loan's issuance date (or if you have missed three consecutive monthly payments). If your loan is considered in default, TRS would request that you make a lump-sum payment within 30 days. If TRS does not receive payment in that time, the following rules would apply: 10

11 The outstanding QPP loan balance would be deemed a distribution for tax purposes and would be reported to the IRS on a 1099-R Form for that tax year. This amount would be subject to federal taxes. If you live outside of New York State, state and city taxes may also apply. The balance would remain due and continue to accrue interest until it is repaid to TRS or until you retire, when it would be offset against your retirement benefits. The outstanding TDA loan balance would become a taxable distribution. The loan would be liquidated to the extent that you have TDA funds available for withdrawal. Any remaining loan balance would be considered an outstanding debt and would continue to accrue interest until you repay the amount, or until funds later become available to liquidate it. Separating from Service If you have an outstanding loan balance when you separate from service, you may repay the balance in a lump sum within 30 days of notification by TRS. If TRS does not receive payment in that time, the following rules would apply: If you transfer your membership to another eligible New York City or New York State public retirement system when you separate from service, the outstanding QPP loan balance would be transferred to your new retirement system for repayment to that system. If your new retirement system has a Section 403(b) Program with a loan provision, you may transfer the outstanding TDA loan balance. Otherwise, your outstanding TDA loan balance must be repaid in a lump sum within 30 days of notification by TRS, or it would be considered a taxable distribution. In such a case, you may elect to roll over any taxable portion of your distribution to an eligible IRA(s) or Section 401 Plan(s) within 60 days of notification by TRS. If you do not have vested rights when you separate from service and you do not transfer your membership, your outstanding QPP loan balance would be considered a distribution, and your QPP funds available for withdrawal would generally be reduced by the amount outstanding on the date of your separation from service. If you have an outstanding TDA loan balance, it would be considered a distribution. If you have vested rights when you separate from service and you do not transfer your membership, your QPP loan balance would remain outstanding and would continue to accumulate interest. You would have the option of repaying the balance in a lump sum within 30 days or electing to make monthly payments directly to TRS. As a vested member, you may elect TDA Deferral status when you separate from service, which would allow you to maintain an outstanding TDA loan and make monthly payments directly to TRS. Please keep in mind that your loan would be considered in default if you have any loan balance outstanding five years after the loan's issue date or if you have missed three consecutive monthly payments. Prior to your retirement, you must pay off your total outstanding loan balance in a lump sum in order to avoid the loan being treated as a distribution. Any QPP loan balance you have remaining upon your effective retirement date would be considered a distribution and would reduce the retirement allowance you would otherwise receive. If you take a QPP loan in conjunction with retirement, IRS rules require that TRS withhold 20% of any taxable QPP loan amount over $200 that you do not request to be directly rolled over into an IRA(s) or Section 401 Plan(s). This 20% would be sent to the IRS as credit toward your taxes for the year of distribution. Similarly, if you take a TDA loan in conjunction with retirement and you do not elect TDA Deferral status, IRS rules require that TRS withhold 20% of any TDA loan amount over $200 that you do not instruct us to directly roll over into an IRA or Section 403(b) Plan. This 20% would be sent to the IRS as credit toward your taxes for the year of distribution. If you elect TDA Deferral status upon retiring, you may maintain an outstanding TDA loan and make monthly payments directly to TRS. The taxable portion of a distribution resulting from an outstanding loan at retirement would be rollover-eligible. In accordance with IRS rules, 20% of the taxable portion would be withheld against any subsequent cash payment made directly to you in the same tax year. If there are any outstanding loans when a new loan at retirement is calculated, the new loan and the combined balance of all outstanding loans would be subject to withholding. (See "Tax Consequences of Withdrawals.") For more information, you may consult the following TRS publications: QPP Loans, TDA Loans, and QPP Loans vs. TDA Loans: Tiers III/IV. 11

12 Service Credit Types of Service Eligible for Crediting Your Total Service Credit is a critical factor in determining your eligibility for, and the amount of, many TRS benefits. This total, also known as your qualifying service, consists of the following: Membership Service, which includes any credited service you render as a TRS member. Transferred Service, which includes any service you transfer from an eligible retirement system to TRS as part of a membership transfer. Optional Service (that has been purchased and credited) including the following types of service: 1) Prior Service -Any creditable service you rendered with New York City or New York State before joining TRS that was not transferred to TRS. 2) Amman Service -Regular substitute teaching and/or per diem service you rendered during a leave of absence or after separating from service. 3) Military Service -Eligible military service that either interrupted your service as a substitute teacher or was performed during specified periods of war, even if you were not a TRS member at that time. Under limited circumstances, you may also be eligible to receive service credit for certain leaves of absence without pay. These include leaves for public employment in another New York State or New York City position and service as an officer or staff member of a collective bargaining unit. Before TRS can approve such credit, your employer must first officially recommend that service credit be granted for the leave. As a reminder, if you were previously employed by the CUNY Research Foundation, you would not have been eligible for TRS membership. Therefore, you would not be eligible for service credit for such employment. Mandatory Service Purchase You are required to purchase two types of mandatory service while you are an in-service member: Membership Service Deficit -The amount of QPP contributions you must pay for the period between your membership date and the date that 3% pension deductions were first taken out of your paycheck, or for other periods during which payroll deductions were interrupted. Transfer-in Service Deficit -This represents any membership service you rendered with an eligible public retirement system that you transferred to TRS, but had not yet purchased from that system. Within the first few months of your membership, TRS will send you a Cost Letter that provides the amount and cost of your mandatory service purchase. The cost is 3% of the salary you earned during the time that service was rendered plus 5% annual interest, which is the interest that would have accrued had you been making contributions as a TRS member. In general, you may purchase your mandatory service either in a lump sum or through a payment plan over a period of time equivalent to the amount of the service deficit. Your Cost Letter will indicate the deadline for purchasing this amount in a lump sum. You must file a "Mandatory Service Purchase Election Form" (code SB20) to indicate how you want to purchase your service. If TRS does not receive this form and lump-sum payment by the date indicated on the Cost Letter, and if you are eligible for a payment plan, such a payment plan would automatically begin. Annual interest in the amount of 5% would be added to the cost of the payment plan. For more information, you may consult TRS' Service Purchase For Tiers III/IV Members brochure. Optional Service Purchase You have the option of purchasing credit for your eligible prior service, Amman service, and military service. If TRS is aware that you have optional service eligible for purchase, within the first few years of your membership, TRS will send you a Cost Letter that provides the amount and cost of your optional service purchase. The cost is 3% of the salary you earned during the time that service was rendered plus 5% annual interest, which is the interest that would have accrued had you been making contributions as a TRS member. 12

13 To claim service that is not documented on the Cost Letter, you must provide TRS with written documentation of that service. All of the following rules apply: The documentation must be on official agency letterhead; The documentation must contain the exact time period of prior service that you are claiming (e.g., total hours or days worked) with a year-by-year breakdown; The documentation must show the status of your employment during the service (e.g., full time or part time); The documentation must detail your salary history and title during the service (e.g., showing the effective date of any annual salary or hourly rate changes); and For prior service rendered in New York City, the documentation must show that you were on a City payroll and/or that the City had the right to hire and fire you. TRS will review your claim and issue an updated Cost Letter if there is more creditable service available for purchase To purchase optional service, you must file an "Optional Service Purchase Election Form" (code SB19). All such service must be purchased before your effective retirement date. Annual interest in the amount of 5% would be added to the cost of any payment plan. Prior Service -In general, you may be eligible to purchase your prior service in a lump sum, through a transfer of funds from your TRS TDA account, or through payroll deductions ranging from 1-10 years. You may also have additional available payment options. Except as noted below, purchased prior service would be credited to members who have completed at least two years of membership service. To be eligible for purchase, this service must meet at least one of the following criteria: The service was rendered while you were employed in a TRS-eligible position, but before you enrolled in TRS (e.g., service rendered as an eligible paraprofessional or as an adjunct CUNY instructor that preceded TRS membership). Retirement credit was previously granted for the service in an eligible New York City or New York State retirement system, and this service was eligible to be transferred to TRS but was not transferred (e.g., you lost membership rights for a period due to separation from service). The service was rendered while you were ineligible for membership in a public retirement system (e.g., service as a substitute teacher). The service predates membership in an eligible New York City or New York State retirement system, but would have been creditable at the time service was rendered had you been a member of that retirement system. Amman Service -In general, you may be eligible to purchase Amman service (i.e., regular substitute teaching and/or per diem service you rendered during a leave of absence or after separating from service) in a lump sum or through payroll deductions that would occur over a period of time equivalent to your Amman service. You may also have additional available payment options. This service would be credited upon full payment. This service may be purchased only upon return to active service with TRS. Military Service -You may purchase credit for military service through a number of methods; however, you may only receive credit once for a designated period of service. One type of military service credit was established by the Federal Re-Employment Rights Act. It generally provides up to four years of credit for military service if such service interrupted your service as a substitute teacher. You would receive credit for any such service you purchase after you have completed at least five years of membership service. To be eligible, you must meet all of the following criteria: You must have taught solely as a regular substitute teacher; You must have been appointed under a substitute license; Your substitute teaching service must have been interrupted by your military service; You must have returned to regular substitute teaching service no later than 90 days after your discharge; 13

14 You must submit the following official documentation, which must indicate exact dates: a notice from your employer of your appointment as a New York City substitute teacher, a notice of your entry into military service, a notice of your separation from military service (i.e., the DD-214 military discharge document), and a notice from your employer of your resumption of substitute teaching in New York City; and You must purchase the applicable service in a lump sum. A second type of military service credit is provided in the Federal Military Law. As part of this law, under certain limited circumstances, you may be able to gain credit for military service during a leave of absence without pay. A third type of military service credit was established by New York State, and enables you to purchase a maximum of three years of service credit. To be eligible for this credit, you must have at least five years of Total Service Credit and must have rendered military service based on at least one of the following criteria: During World War II: From December 7, 1941 to December 31, 1946 During the Korean War: From June 27, 1950 to January 31, 1955 During the Vietnam Conflict: From February 28, 1961 to May 7, 1975 In Lebanon: From June 1, 1983 to December 1, 1987 In Grenada: From October 23, 1983 to November 21, 1983 In Panama: From December 20, 1989 to January 31, 1990 In the Persian Gulf*: From August 2, 1990 to the end of hostilities * Service in the Persian Gulf includes service in Iraq, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Oman, the Gulf of Aden, the Gulf of Oman, the Red Sea, and the airspace above these locations. You must pay the cost of this service in a lump sum. Unlike the purchase of other optional service, no interest is included in the cost, which is as follows: In general, the cost is 3% of your salary earned during the 12 months of active service preceding your application, multiplied by the number of years of military service for which you are applying. If you are on a leave of absence, the cost would be 3% of the last 12 months of salary you earned, multiplied by the number of years of military service for which you are applying. To apply for this credit, you must file a "Military Service Credit Request Form" (code SD68) and supply official documentation verifying the military service period(s) for which you are claiming credit (e.g., a copy of your official military discharge form--dd214; a copy of the certificate you received for your Expeditionary Medal, if applicable). If you completed your military service, your documentation must indicate that you were honorably discharged. For service in Lebanon, Grenada, or Panama, your documentation must indicate that you received an Expeditionary Medal for your service. For more information, you may consult the following TRS publications: Leaves of Absence Without Pay and Service Purchase For Tiers III/IV Members. Crediting Equivalencies for Members Not Employed Full Time You may receive a maximum of one year of service credit per year. Members in regularly scheduled, full-time positions receive a year of service credit for each full school year of service rendered. TRS adjusts the service credit for members in part-time positions to reflect the reduced amount of service they have rendered compared to members in full-time positions. The following guidelines apply: 14 To receive credit for substitute teaching service (whether as prior service, service while on leave, or service as a transferred contributor), you must serve a minimum of 20 days of service in that position during a school year. Service totaling less than 170 days (the amount equivalent to a full school year) would be prorated. To receive credit for paraprofessional service, you must complete at least 233 hours of service in that position during a school year. Service totaling less than 935 hours (the amount equivalent to a full school year) would be prorated.

15 To receive credit for adjunct teaching service prior to the school year, you must have rendered at least 90 hours of service in that position during a school year. To receive credit for subsequent adjunct teaching service, you must complete at least 45 hours of service in that position during a school year. Service totaling less than 360 hours (the amount equivalent to a full school year) would be prorated. To receive credit for adult education teaching service, you must complete at least 255 hours of service in that position during a school year. Service totaling less than 1,020 hours (the amount equivalent to a full school year) would be prorated. Members employed by the Department of Education may work under special programs that provide them with pensionable earnings (e.g., summertime Chapter 683 employment). This employment may increase your Final Average Salary. However, if you have a regularly scheduled, full-time position, this employment would not increase your service credit because you would have already received a full year of service credit for the school year. For more information, you may consult TRS' Service Credit Equivalency Guidelines brochure. Receiving Credit for Multiple Employment You may attain Multiple Employment Membership status if you are an in-service member and you have rendered employment in two or more TRS-eligible positions during the same school year. Your primary position is the one on which your membership is based. Your secondary position(s) is any additional subsequent position you held on or after January 1, 1995 that would independently entitle you to TRS membership. Multiple Employment Membership status may increase funds in your various TRS accounts and may positively affect your Final Average Salary when your retirement allowance is calculated. If you qualify for this status, you should file a "Multiple Employment Membership Status Employment History Data Form" (code RW67) before your retirement. In order to receive credit for your service in any secondary position, you must make any required pension contributions. For more information, you may consult TRS' Multiple Employment Membership Status brochure. Separating From Service Before Retirement TRS strongly suggests that you contact us before you separate from service to determine how it may affect any benefits for which you may be eligible. Attaining Vested Rights Your options when you separate from service (i.e., when you resign from, or are terminated from, your TRS-eligible position) depend on whether you are a vested member at that time. You are generally considered vested when you have at least five years of Total Service Credit. That is when you meet the minimum requirement for receiving a reduced retirement allowance. (Note: If you separated from service prior to July 14, 1993, you must have had 10 years of service credit to have been considered vested.) Maintaining Membership Rights If you separate from service after attaining vested status, you may maintain your TRS membership by leaving your funds with TRS. Your funds would continue to accrue interest and/or investment return, and you would become eligible to receive a retirement allowance upon reaching age 55. If you separate from service and maintain your TRS membership, your designated beneficiary(ies) would be entitled to receive death benefits in the event of your death. (See "Death Benefits.") If you are not a vested member when you separate from service, your TRS membership would continue for seven school years, and your funds would continue to accrue interest during that time. You may maintain your membership by obtaining another TRS-eligible position within those seven school years, by transferring your membership to another eligible public retirement system in New York State, or by becoming a transferred contributor. If you do not maintain your membership through one of these methods, your membership and tier rights would expire seven school years after you separate from service. At that time, your TRS funds would no longer accrue interest and/or investment return and must be withdrawn. Note: If you separated from service prior to July 14, 1993, your TRS membership rights would have continued for only five calendar years after your separation date; in addition, your TRS funds (QPP and, if applicable, TDA) would have ceased accruing interest and/or investment return as of 1998, or as of five calendar years after your separation date, whichever is earlier. In order to have maintained your membership rights, within those five calendar years, you would have had to obtain another TRS-eligible position, file to become a transferred contributor, or transfer your membership to another eligible public retirement system. 15

16 Becoming a Transferred Contributor If you obtain a position enabling you to gain membership in another New York City public retirement system within 60 days of your separation from service, you may elect to retain your current TRS membership rights instead of becoming a member of the other system. You may do so by filing a "Transferred Contributor Election Form" (code EN17) with TRS. If you have not attained vested status by the time you separate from service, TRS must receive this form within seven school years of your separation from service. As a transferred contributor, you would continue to contribute to the QPP (unless you have at least 10 years of membership or credited service, at which time QPP contributions would stop) and receive TRS services and benefits. You may also maintain your TDA account and make investment elections for your past TDA accumulations; however, you generally would not be permitted to make TDA contributions unless your new employer is the Department of Education, a Charter School, or the City University of New York. Transferring Membership to Another Retirement System If you obtain a position enabling you to gain membership in one of the following public retirement systems, you may transfer your TRS membership to that system: The New York City Board of Education Retirement System; The New York City Employees' Retirement System; The New York State and Local Employees' Retirement Systems; and The New York State Teachers' Retirement System. To do so, you must file a "TRS Membership Transfer Form" (code RW39) with TRS. If you have not attained vested status by the time you separate from service, TRS must receive this form within seven school years of your separation from service. Members who separated from service before July 14, 1993 without vested status must have filed this form within five years of their separation date. As part of your membership transfer to another system, TRS would transfer your tier status, service credit, annuity accumulations, and pension reserves. However, your ASAF funds would not be transferred because other retirement systems do not have an equivalent fund. As a result, you may either receive your ASAF funds as a withdrawal or have TRS effect a direct rollover of the balance to an IRA. Withdrawing QPP Funds If you have less than 10 years of credited service when you separate from service, you may withdraw your MCAF and ASAF funds. However, withdrawing these funds would terminate your TRS membership, your tier rights, your participation in the TDA Program, and (if you are vested at the time) your right to receive a QPP retirement allowance from TRS. If you are later reappointed to a TRS-eligible position, you would be treated as a new member and placed in the tier for new members (currently, Tier IV). However, you may be eligible for membership/tier reinstatement. To withdraw your QPP funds, you must file an "Application for Withdrawal of QPP Accumulations" (code RW41). You may elect that TRS effect a direct rollover of all or part of the taxable portion of your withdrawal by filing a "QPP Direct Rollover Election Form" (code RW29) along with your withdrawal application. (See "Tax Consequences of Withdrawals.") For more information, you may consult TRS' Separating From Service brochure. TDA Options Upon Separation If you separate from service, your TDA contributions would stop. In addition, the following rules would apply: 16 If you have vested rights when you separate from service, you may keep your TDA account active by electing TDA Deferral status. This would enable you to continue accruing interest/investment return on your funds, maintain a TDA loan, take out a new TDA loan (when eligible), and change your TDA investment elections on a quarterly basis.* To elect this status, you must file a "TDA Deferral Status Election Form for Vested Members" (code TD31) within 30 days of the date on TRS' notification letter.

17 If you have not attained vested rights and you do not withdraw your QPP funds, your TDA funds remaining at TRS would continue to accrue interest/investment return either for seven school years after your separation from service or until you withdraw your QPP funds, whichever occurs first. You may withdraw your TDA funds by filing a "TDA Withdrawal Application" (code TD32). You may elect that TRS effect a direct rollover or direct transfer** of your TDA withdrawal by filing a "TDA Direct Rollover Election Form" (code TD22) or a "TDA Direct Transfer Application" (code TD15) with your withdrawal application, as applicable. If you have attained vested rights, withdrawing your TDA funds would not affect your rights to a QPP retirement allowance. If you withdraw your QPP funds, your participation in the TDA Program would automatically terminate, and your funds would stop accruing interest/investment return. The value of your TDA account would then be paid to you. * If you have attained vested rights, you do not withdraw your QPP or TDA funds, and you do not elect TDA Deferral status, your TDA funds would continue to accrue interest/investment return; however, you would not be eligible to maintain a TDA loan, take out a new TDA loan, or change your TDA investment elections. If you transfer your membership to an eligible New York City or New York State public retirement system that has a Section 403(b) Program, you may also transfer your TDA funds to your new system. If your new system does not have a Section 403(b) Program, you must file a "TDA Withdrawal Application" to withdraw your TDA funds and may file a "TDA Direct Rollover Election Form" or a "TDA Direct Transfer Application"** with your withdrawal application. ** Please note that, as a result of new IRS regulations governing Section 403(b) Programs, Direct Transfers are currently not available to TDA participants. On the advice of outside counsel, TRS has suspended all processing of Direct Transfers pending further clarification from the IRS. (See "Tax Consequences of Withdrawals" below.) For more information, you may consult TRS' TDA Deferral Status brochure. Tax Consequences of Withdrawals The taxable portion of your QPP withdrawal and any amounts you withdraw from the TDA Program (other than hardship withdrawals and Minimum Required Distributions) may be rolled over to an eligible plan. Federal, state, and city taxes may apply to any withdrawn amount that is not issued through a direct rollover or (in the case of a TDA withdrawal) a direct transfer*, or that you do not subsequently roll over within 60 days of the date on the withdrawal check. If you elect a direct rollover, the TRS check representing funds withdrawn would be made payable directly to the IRS-qualified Individual Retirement Account (IRA) or other eligible successor program that you select. In such a case, no taxes or withholding would apply to the withdrawal. If you elect a direct transfer* of your TDA funds, your distribution would be directly transferred to an IRS-qualified Section 403(b) Program. If you receive the funds yourself, TRS must report the direct withdrawal to the IRS on a 1099-R Form. If the amount of the withdrawal exceeds $200, TRS must also withhold 20% of the withdrawn amount (for other than TDA hardship withdrawals) and send it to the IRS as credit toward your federal income taxes for the year of distribution. Within 60 days of the date on the withdrawal check, you may roll over all or part of the withdrawn amount to an IRA(s), eligible Section 401 Plan (for QPP withdrawals), or qualified Section 403(b) Program (for TDA withdrawals). The amount of that rollover can include the portion that TRS withheld, but you would need to replace the withheld amount with funds from other sources. Any amount of the withdrawal that is not rolled over within that period (including the 20% that TRS withheld) would be taxed in the year of distribution. * Please note that, as a result of new IRS regulations governing Section 403(b) Programs, Direct Transfers are currently not available to TDA participants. On the advice of outside counsel, TRS has suspended all processing of Direct Transfers pending further clarification from the IRS. 17

18 The IRS will impose an additional 10% tax on all direct withdrawals unless you make the withdrawal under one of the following conditions: After you reach age 59 1/2; If your separation from service occurs during or after the year in which you reach age 55; To pay federally deductible medical expenses; or In conjunction with your disability retirement. Service Retirements Eligibility Requirements The following eligibility rules apply for service retirements: Unreduced Payment Plan You must have completed at least 5 years of Total Service Credit and must be at least age 62, or you must have completed at least 30 years of Total Service Credit and must be at least age 55, at the time you cease active service. You must retire directly from active service. You would receive unreduced retirement allowance payments as of your retirement date. Reduced Payment Plan You must have completed at least 5, but less than 30, years of Total Service Credit and be at least age 55, but under age 62. You would receive reduced retirement allowance payments as of your retirement date. (See the "age-reduction table.") Vested Reduced Payment Plan You must have completed at least 5 years of Total Service Credit and be under age 55. You would be able to receive reduced retirement allowance payments as of your 55th birthday. (You may file a retirement application within 90 days of your 55th birthday.) (See the "age-reduction table.") If you are a Tier III member and elect a Tier III retirement, you must have completed at least 5 years of service after July 1, In addition, if you retire under Tier III, you may be able to defer payability of your retirement allowance until as late as your 65th birthday (e.g., in order to lower or eliminate the reduction factors that would apply if you retire before age 62). (See "Calculation of a Retirement Benefit" below.) Calculation of a Retirement Benefit As a service retiree, you will receive monthly payments of your QPP retirement allowance for the rest of your life. Your retirement allowance is generally made up of two components. The regular pension portion of your retirement allowance is based on factors such as your Total Service Credit and Final Average Salary (FAS), and it is partially funded by your Member Contributions Accumulation Fund (MCAF) balance at retirement. Your MCAF account contains your QPP contributions with interest, including any payments made for service credit. The second portion of your retirement allowance is based on your Annuity Savings Accumulation Fund (ASAF) balance. An ASAF account contains monthly supplemental contributions that the Department of Education provides to certain eligible employees who reach the maximum of their salary schedule. At retirement, any ASAF funds you have are transferred into an Annuity Reserve Accumulation Fund (ARAF), which is paid as part of your retirement allowance. 18

19 Your FAS is calculated as follows: Your FAS would generally be the average of your highest three consecutive annual salaries during your periods of total credited service. If the salary you earned during any year included in the three-year period exceeds the average salary of the previous two years by more than 10%, the amount in excess of 10% would be excluded from the calculation. If the period used to determine your FAS is the three-year period immediately preceding your effective retirement date, and if you were on an authorized leave of absence at partial pay or no pay during that period, the leave would be excluded from the calculation. In such a case, an equal amount of time immediately preceding that three-year period (up to one year) would instead be used in the calculation. The following table shows how a service retirement calculation differs based on tier and Total Service Credit. If you retire before your 62nd birthday and you have less than 30 years of Total Service Credit, your benefit would be reduced. The following table shows the effect of the reduction. * October 1, 2000 was the effective date of the law that changed the Tier IV reduction factors. Tier IV members may only elect a Tier IV retirement benefit. If you are a Tier III member, you may elect to receive either Tier III or Tier IV benefits when you file your retirement application; however, you may not combine the provisions of the two plans. Once you elect to receive a benefit under Tier III or Tier IV, your election is irrevocable. Therefore, Tier III members should note the differences between the tier plans and carefully consider their choice. (For example, if you retire under Tier III, your retirement allowance would be reduced by 50% of the Social Security benefit you accrued in public employment within New York State. This reduction would take effect when your retirement allowance payments begin or when you reach age 62, whichever is later.) The payment option you elect would also impact the amount of your retirement allowance. For more information, you may consult TRS' Service Retirement Plans and Benefits for Tiers III/IV brochure. 19

20 Taxability of a Retirement Benefit Your retirement allowance is subject to federal taxes. TRS will mail you an IRS Form W-4P with your first retirement allowance check. On this form, you may indicate your marital status and the number of your dependents -factors that help determine the amount of federal taxes that will be withheld from your retirement allowance checks. If you do not file this form, TRS is required to compute your withholding based on a default status of married with three dependents. You may change your election at any time by filing a new Form W-4P. Your retirement allowance is exempt from New York State and New York City income taxes. However, if you live outside New York, your retirement allowance may be subject to taxation by the state or city in which you live. TRS suggests that you check the governing tax laws in your state or city of residence. Each January, TRS will send you a 1099-R Form showing the total amount of retirement allowance payments that TRS distributed to you for the previous year, as well as the federal taxes withheld from those payments. On your tax return, you should indicate the amount of your retirement allowance payments under the "Total Pensions and Annuities" section. You should indicate the amount of your federal withholding under the "Federal Income Tax Withheld" section. Cost-of-Living Adjustments The following service retirees receive a permanent cost-of-living adjustment (COLA) to their retirement allowance payments: Retirees who are at least age 62 and have been retired for at least five years; and Retirees who are at least age 55 and have been retired for at least ten years. Surviving spouses who are designated annuitants of deceased TRS members and who are receiving continuing benefits for life would receive a COLA adjustment of 50% of the benefit that would have been payable to their spouse. Effective with the September 2000 payroll, eligible retirees received a "catch-up" adjustment. This amount was based on the first $18,000 of the fixed retirement allowance. Retirees who were not eligible in September 2000 would begin receiving their "catch-up" adjustment as soon as they become eligible. The COLA provides an annual adjustment between 1% and 3%, based on half of the Consumer Price Index (CPI) for the year ending March 31. This increase would be calculated on the lesser of the first $18,000 of the fixed retirement allowance or the maximum fixed allowance. Tier III -If you elect a Tier III retirement and your payability date occurs after you have reached age 62, but before you become eligible for the COLA described above, your retirement allowance payments would be subject to a cost-of-living increase (or decrease) based on changes in the CPI. The following conditions apply: If your payability date occurs after you reach your 65th birthday, your payments would be adjusted by 3% or the change in the CPI, whichever change is smaller. This adjustment is known as the full escalation (or de-escalation) rate. In any case, your benefit would not be reduced below the amount of your initial payment at retirement. If your payability date occurs on or after your 62nd birthday, but before your 65th birthday, the full escalation (or de-escalation) rate for your payments would be reduced by 1/36 for each month that your payability date precedes your 65th birthday. If you defer commencement of your retirement allowance payments beyond the date you are eligible to receive immediate payments, your benefits would be subject to the full escalation (or de-escalation) rate until the date your payments commence. Once you become eligible for the COLA, your retirement allowance payments would be increased by the higher of the COLA or the Tier III cost-of living plan. Disability Benefits TRS offers the following disability benefits: ordinary disability, accident disability, and lump-sum disability. 20

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