Domestic Relations Orders and a Member's Retirement ...

Domestic Relations Orders and a Member's Retirement Benefit

A Guide to DROs and NYSTRS Benefits

New York State Teachers' Retirement System 10 Corporate Woods Drive, Albany, NY 12211 (518) 447-2900 | (800) 348-7298 |

February 2019

A. System Overview

1. Introduction

This guide is intended to provide basic information about the New York State Teachers' Retirement System (the "System" or "NYSTRS") and the way in which the System administers Domestic Relations Orders ("DROs"). The guide is intended to answer commonly posed questions about the benefits the System provides, the impact a DRO might have on a member's benefits, and the procedures the System follows when it receives proposed and final DROs. This guide also provides sample language for a DRO.

This guide is based upon the System's current understanding of the law. It is not intended to be a substitute for New York law or the rules and regulations governing the System, which law and rules may be subject to change.

Questions about the matters discussed in this guide may be directed to the System's Legal Department at (800) 348-7298 or (518) 447-2900, Ext. 6200 or email legal@.

Although this guide is available on the System's website and thus may potentially be accessed by System members and their current or former spouses, this guide is not intended to provide legal advice to members and spouses and may not be relied upon for that purpose. Members and spouses are strongly urged to seek the advice of their own attorney or attorneys regarding the matters discussed in this guide.

2. What is NYSTRS?

NYSTRS is a public employee retirement system established and operating pursuant to Article 11 of the Education Law.

NYSTRS provides retirement and death benefits principally to active and retired teachers and administrators in the public schools of New York State (outside of New York City). All full-time teachers in such schools are required to be members of the System. Part-time teachers in such schools have the right, but are not required, to join the System.

Practice Pointer: When a party is a public employee, it is incumbent upon an attorney to verify which entity will be providing the party's retirement benefits. NYSTRS is only one of eight public employee retirement systems in the State of New York. Other public employee pension plans in New York include the New York State and Local Employees' Retirement System, the New York State and Local Police and Fire Retirement System, the New York City Employees' Retirement System, the New York City Teachers' Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the New York City Board of Education Retirement Fund. New York also has so-called "optional retirement programs" for professional employees of SUNY, CUNY and the State Education Department. Participation in these programs is generally in lieu of participation in one of the eight public employee retirement systems.

3. What type of retirement plan does NYSTRS administer?

NYSTRS is a governmental defined benefit plan.

As a governmental plan, the System is specifically exempt from the provisions of Title I of ERISA, including ERISA ?206. See ERISA ?4(b)(1), 29 USC ?1003(b)(1). As a governmental plan, the System is also exempt from many of the provisions of the Internal Revenue Code applicable to private sector retirement plans. See e.g. IRC ?401(a)(last sentence); 26 USC ?401(a)(last sentence). Thus, the System is exempt from the provisions of IRC ??401(a)(11) and 417 and ERISA ?205 which require private sector plans to provide joint and survivor annuities and pre-retirement survivor annuities.

As a defined benefit plan, the System provides benefits calculated pursuant to benefit formulas established by law which take into account the teacher's credited service and compensation. The System generally does not maintain separate accounts for each participant.

Practice Pointer: Because the System is a governmental defined benefit plan, it may not be like private sector retirement plans an attorney may have encountered in other matrimonial actions. Private sector retirement plans are generally subject to the Employment Retirement Security Act (ERISA) and are subject to various Tax Code provisions applicable only to private sector plans. Additionally, private sector retirement plans are often defined contribution plans, not defined benefit plans. It is, therefore, important for an attorney used to dealing with private sector retirement plans to understand the important legal differences between the System and a typical private sector retirement plan.

B. NYSTRS Benefits

1. What types of benefits are provided by NYSTRS?

NYSTRS provides three types of benefits:

1. A retirement benefit, i.e., a monthly benefit payable for the life of the member after the member has retired from teaching service. The calculation of this benefit takes into account the New York public service of the member credited with the System and the member's salary earned from such service. Most NYSTRS members retire for service and receive a service retirement benefit. Some members retire for disability and receive a disability retirement benefit.

2. A post-retirement survivor benefit, i.e., an annuity or other form of optional benefit which is payable after the member dies in retirement. In order for an optional post-retirement survivor benefit to be payable, the member must have elected the form of benefit at the time of retirement. The election of an optional form of benefit (an "option") reduces the size of the monthly retirement benefit payable to the member during retirement. To provide context, it may be noted that only about one-third of recent NYSTRS retirees elected some optional form of retirement benefit providing a post-retirement survivor benefit; in other words, a significant majority of recent retirees did not elect any form of optional survivor protection when they retired.

3. A death benefit, i.e., a lump sum benefit payable upon the member's death. A potentially very significant active service death benefit is payable if the member dies while in active service. A more modest pre-retirement vested member death benefit is payable if the member dies outside of active service and prior to retirement, provided the member had at least 10 years of credited service at the time of death. An ordinarily very modest post-retirement death benefit is payable upon the death of a member in retirement, provided the member had a date of membership on or after July 1, 1973 and was in active service at the time of retirement.

Practice Pointer: NYSTRS' Active Members' Handbook describes the benefits provided by the System in lay terms. The System has also prepared a Compilation of Laws Covering NYSTRS containing the most relevant laws governing the System and the benefits it pays. It includes a two-page preface to assist the reader. These documents are available in the Legal Publications section of the Library page on the NYSTRS website at .

2. How are NYSTRS benefits calculated?

As NYSTRS is a defined benefit plan, benefits are generally not a function of the contributions made by, or on behalf of, the member. Rather, NYSTRS benefits are determined using formulas which typically take into account the member's tier, compensation and service credited in the System. For example, Tier 1-4 members of the System with 30 years of service credited in the System may be entitled to retire on or after age 55 with a retirement benefit equal to 60% (i.e., 2% X 30 years) of their "final average salary." Generally, the more service credit the member has accrued, the greater the member's benefit. Similarly, the greater the member's regular salary, the greater the member's benefit.

3. What are membership tiers and how do they affect the benefit calculation?

NYSTRS has a tiered benefit structure. In other words, the laws governing the precise benefits a member will receive and their calculation will vary somewhat, depending upon the member's tier. Tier structure is based on dates of membership as follows:

Tier 1 2 3 4 5 6

Date of Membership Before 7/1/73 7/1/73--7/26/76 7/27/76--8/31/83 9/1/83--12/31/09 1/1/10--3/31/12 On or After 4/1/12

Practice Pointer: Although Tier 3 members are entitled to a distinct Tier 3 benefit calculation, Tier 3 members are also entitled to retire instead under the Tier 4 benefit calculation and, in the System's experience, usually do so. Tier 3 members typically prefer the Tier 4 benefit calculation because the Tier 3 calculation requires the retirement benefit to be reduced commencing at age 62 when the retiree becomes eligible for Social Security.

4. What entitlements do members and retirees have to contributions made to NYSTRS?

Employer contributions go into a single pool which is used to pay all benefits to all members and retirees. No member or retiree has any specific right to any contributions made by an employer on his or her behalf either at retirement or at any other time.

Certain Tier 1 and 2 members may have made contributions to what is called the Annuity Savings Fund (ASF) maintained by the System. If so, they are entitled to receive an annuity at retirement based upon those contributions and the interest which has accumulated on those contributions. Alternatively, they may withdraw their accumulated contributions at retirement. Before retirement, they have the right to obtain loans against their accumulated contributions.

Tier 3, 4, 5 and 6 members are required to make contributions to the System. Tier 3 and 4 members make contributions for the first 10 years of service or membership, whereas Tier 5 and 6 members are required to make contributions their entire working career. Tier 3, 4, 5 and 6 members who have fewer than 10 years of credited service may withdraw their accumulated contributions if they cease teaching and wish to terminate their NYSTRS membership. Unlike the Tier 1 and 2 member contributions to the Annuity Savings Fund, the contributions of Tier 3, 4, 5 and 6 members help fund all the benefits provided by the System and do not result in any distinct benefit payable to the contributing members at retirement. However, a Tier 3, 4, 5 or 6 member's accumulated contributions will be refunded in the event the member dies prior to retirement. Additionally, Tier 3, 4, 5 and 6 members have the right to borrow against their accumulated contributions.

5. Why are NYSTRS benefits of significance in a divorce?

New York courts have determined that a NYSTRS member's benefits are marital assets subject to equitable distribution upon the member's divorce pursuant to Domestic Relations Law ?236, to the extent those benefits were acquired during the marriage. See Majauskas v. Majauskas, 61 NY2d 481 (1984). Accordingly, when a NYSTRS member is divorced, a court may determine that the member's spouse is entitled to share in the member's benefits.

6. Does a divorce automatically nullify a member's designation of the former spouse as the beneficiary of his/her death benefit?

Prior to the enactment of Chapter 173 of the Laws of 2008, the answer to this question was "no." Chapter 173, however, now generally provides that a divorce, annulment or judicial separation revokes a member's prior designation of a former spouse as beneficiary of certain death benefits and retirement options, except as provided by the express terms of the judgment or decree, or a DRO. Under Chapter 173, the former spouse is treated as having predeceased the member.

In such cases, if a member wishes to retain the former spouse as beneficiary, the member must file a new Designation of Beneficiary For In-Service or Post-Retirement Paragraph 2 Death Benefit (NET-11.4) form with the System following the divorce, annulment or judicial separation.

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