Important Facts and Considerations for The 3 FDNY Pension Tiers

Understanding New York City Fire Department (FDNY) Pension is an important step when going through a divorce. If you are a firefighter in NYC and a member of the Fire Pension Fund, your benefits and retirement depend on when you became a member. If you joined between July 1, 1973, and June 30, 2009, you are a Tier II member. If you joined after July 1, 1981, you are covered by the Improved Benefits Plan (IBP).

This is an overview of the FDNY Pension. For a deeper dive, you can read the FDNY Pension Fund’s 2022 annual review.

FDNY Pensions, Tier I, II or III

There are three tiers of pension, depending on when you joined. First, it’s important to note that firefighters who became members of the Fund between July 1, 1973, and June 30, 2009, are Tier II members. Anyone who joined the FDNY Penison after June 30, 2009, is in Tier III and that will be discussed below.

All firefighters who become members of the NYC Fire Pension Fund on or after July 1, 1981, are covered only by the “Improved Benefits Plan” (IBP). Unless specifically stated otherwise, all information in this summary refers to members of the IBP only.

FDNY Pension: The Contributions

Both Tier I and Tier II members contribute a percentage of all earnings through payroll deductions to a 20-year plan. The contribution rate is based on age at appointment. Member contributions earn interest, currently 8 1/4% per year. Contributions are required for the first twenty (20) years of allowable fire service. After 20 years, contributions will continue unless the member submits a written request to the Pension Fund to discontinue the contributions.

Contributions and any interest earned are referred to as “accumulated deductions.” The amount of accumulated deductions required to be in the member’s account at any given time is referred to as the “minimum required contribution.” The total minimum required contribution is determined on the member’s 20th anniversary. Contributions made above the minimum required are referred to as “excess” contributions.

In addition to the required contributions, members may make additional contributions equal to 50% of their required employee contributions on a voluntary basis. These additional contributions are not covered by section 414(h) of the Internal Revenue Code, so they are subject to immediate federal, state, and city income taxation. However, they can provide an additional annuity or may be withdrawn as a lump sum at retirement.

Increased Take-Home Pay

Employer contributions are also made by the City of New York to the Fund. The City of New York also pays a portion of employee contributions, known as “Increased-Take-Home-Pay” (ITHP), which currently equals 5% of gross salary. Members may waive the ITHP and contribute at the full employee rate. These additional contributions are covered by section 414(h) of the Internal Revenue Code and are therefore federally tax-deferred.

To increase take-home pay, required employee contributions may be reduced up to the amount of Social Security (FICA) contributions. If required contributions are less than FICA contributions, the member will not be making any pension contributions, thereby creating a deficit in their retirement account. Members must keep this in mind when making contributions to the Fund.

Service and Accidental Disability Retirees

At retirement, Service and Accidental Disability retirees can choose to take any excess contributions as either a lump-sum payment or as an additional annuity. Members retiring for Ordinary Disability are required to take a lump-sum payment of any excess.

Potential Tax Consequences and Rollovers

Members should note that a withdrawal of 414(h) contributions and interest is subject to federal tax in the year withdrawn. In addition, members who are under age 50 at retirement may also be subject to an additional 10% federal tax penalty and should consult a tax advisor prior to withdrawal.

Retiring members may request a direct rollover of any taxable excess into a qualified plan such as the NYC Deferred Compensation/401K plans or an IRA, in order to defer payment of federal tax.

The Twenty-Year Rule for Regular Retirement

Twenty (20) years of allowable fire service are required for Service Retirement. This service includes all member service rendered as a uniformed member of the New York City Fire Department in the competitive class of the civil service, credit for service rendered in the uniformed force of the New York City Police Department immediately preceding service in the uniformed force of the New York City Fire Department, and

In summary, the New York City Fire Pension Fund offers retirement benefits to firefighters who have completed 20 years of allowable fire service, which includes uniformed service in the New York City Fire Department, the New York City Police Department, the New York City Employees’ Retirement System, and other uniformed forces. The retirement allowance is calculated based on factors such as final salary, total earnings after the 20th anniversary, average annual earnings of the last five years, and excess contributions, among others.

Contribution Rates

It is important for firefighters to understand the contribution rates, minimum required contributions, and excess contributions to their pension accounts. Members are required to contribute a percentage of all earnings through payroll deductions to a 20-year plan, and the contribution rate is based on their age at appointment. Contributions earn interest, and any accumulated deductions required to be in the member’s account at any given time is referred to as the “minimum required contribution.”

Furthermore, the City of New York makes employer contributions to the Fund and also pays a portion of employee contributions. Members may choose to waive the Increased-Take-Home-Pay (ITHP) and contribute at the full employee rate, which is covered by section 414(h) of the Internal Revenue Code and is therefore federally tax deferred. Members may also make additional contributions equal to 50% of their required employee contributions on a voluntary basis, which are not covered by section 414(h) of the Internal Revenue Code and are subject to immediate federal, state, and city income taxation.

FDNY Pension Buy Back Credits

Chapter 646, also known as Tier Reinstatement, allows a member who was previously a member of any New York public retirement system to be deemed a member of the current retirement system as of the original date of such previous ceased membership. This may allow for a tier change or tier reinstatement, which can have a significant impact on pension benefits.

Meanwhile, Chapter 552 of the Laws of 2000 – Prior Service Credit – allows a member who was eligible for membership in any New York State or New York City retirement systems but did not become a member of such system to purchase pension credit for the period of time they were eligible for membership. This program also allows a member to purchase pension credit for membership service in any New York City or State retirement system that may have been lost or withdrawn. The service purchased pursuant to Chapter 552 can either be non-uniformed service, which increases the pension’s value but does not change the retirement date, or uniformed service, which changes the retirement date.

The Military Service program, RSSL §1000, allows a member to purchase credited service for up to three years of military service rendered prior to the commencement of public employment. A member must have at least five years of pension credit to be eligible to receive credit under this law.

Overall, buyback credit programs can provide valuable opportunities for public retirement system members in New York City to increase their pension benefits. If you’re considering taking advantage of these programs, it’s important to understand the eligibility requirements and potential impacts on your pension benefits. Consult with a financial advisor or a retirement specialist for more information.

FDNY Buy Back Credits Maybe Marital or Separate Property

FDNY Buyback credit may be marital or separate property. If the service happened before marriage, then that credit will be separate property. If it is separate property, then this percentage will not be subject to marital distribution. A pension appraisal will need to be performed to figure out these numbers. Here’s a link to an article on equitable distribution and here’s a link to an article on pensions in a divorce.

Lump Sum Buy-Outs

Finally, retiring members may choose to take any excess contributions as either a lump-sum payment or as an additional annuity. However, members who are under age 50 at retirement may also be subject to an additional 10% federal tax penalty and should consult a tax advisor prior to withdrawal. Retiring members may request a direct rollover of any taxable excess into a qualified plan such as the NYC Deferred Compensation/401K plans or an IRA, in order to defer payment of federal tax.

However, if you have divorced then any withdrawal may be affected by the Judgment of Divorce. If you are involved in an active divorce, then you will be prohibited from removing this money until the action is resolved.

FDNY Pensions: Disability Retirement

Up to now, we’ve been discussing regular retirement. Disability retirement is different in both the calculation and its impact on divorce.

One type of disability retirement allowance is an ordinary disability retirement, which is available to members who have been found disabled by the Subchapter II 1-B Medical Board and the Fire Pension Fund Board of Trustees. This retirement allowance is calculated based on the member’s credited service.

If a member has less than ten years of credited service, their pension will be equal to 33 1/3% of their final average salary, plus an annuity based on their Annuity Savings Fund (ASF) balance in excess of the required amount, minus the annuity value of any shortage. For members with ten or more years of credited service, their pension will be equal to 50% of their final average salary, plus an annuity based on their ASF balance in excess of the required amount, minus the annuity value of any shortage.

For members with twenty or more years of credited service, their pension will be equal to 1/40th of their final average salary multiplied by the number of years of city-service, plus an annuity based on their ASF balance in excess of the required amount, minus the annuity value of any shortage.

Accidental Disability Retirement

Another type of FDNY Pension is accidental disability retirement, which has no minimum service requirement. To be eligible for this type of retirement, the member must have been found physically or mentally unable to perform their regular job duties due to an accidental injury received in the line of duty. The disability cannot be the result of the member’s own willful negligence.

The pension for an accidental disability retirement allowance is calculated based on a member’s final salary, earnings after their 20th anniversary, the actuarial value of the ITHP reserve account, and the actuarial value of accumulated deductions. However, there is a deduction for the annuity value of any outstanding loans at the time of retirement.

It’s important to note that for members retiring on or after January 1, 2009, accidental disability pensions are federally taxed on a portion of their earnings. However, the entire accidental disability retirement allowance is exempt from New York State and New York City income tax. Additionally, there is no credit for prior non-uniformed City service for Improved Benefits Plan members granted an accidental disability pension.

Accidental Disability Retirement and Divorce

The FDNY Accidental Disability Retirement might be the separate property of the Firefighter. It also might not be. This is a complex area of the law. Also, a mistake in drafting a settlement agreement could ensure that the Accidental Disability Retirement becomes marital property.

If the Accidental Disability Retirement is calculated based on time in service, the courts will find it to be marital property. Also, if the divorce agreement does not specifically identify the Accidental Disability Retirement, then it will find that it is marital property.

FDNY Survivor Annuities – The Death Gamble.

As retirement nears, many members of the FDNY Pension Fund are faced with the decision of selecting a retirement allowance option. The maximum retirement allowance is the largest benefit that can be received, but it does not provide any survivor benefits. However, options are available that can provide continued pension benefits or lump-sum payments to a beneficiary, albeit with a reduced retirement allowance during the retiree’s lifetime.

For Tier 1 members appointed prior to July 1, 1973, Option 1 is available. This option sets up an initial pension reserve, with any unused portion awarded to the beneficiary upon the retiree’s death. Options 2, 3, and 4 offer joint and survivor benefits or lump-sum payments to a beneficiary, with varying percentages of the reduced pension allowance to be received by the beneficiary after the retiree’s death.

Five-Year or Ten-Year Certain Options are available only to Tier 2 members appointed after July 1, 1973. These options provide a reduced monthly lifetime allowance, with the option for a lump sum or monthly payments for the remainder of the five or ten years should the retiree die within that timeframe.

It’s important to note that any option selected cannot be changed once the member receives their first full pension check. Additionally, 50% of any cost-of-living adjustments (COLAs) are paid to a spouse under certain options.

In the unfortunate event of a member’s death before retirement, there are two types of death benefits available: the Death Gamble Benefit and the Accidental (Line-of-Duty) Death Benefit. Eligible beneficiaries for the latter are dictated by statute and payable in a specific hierarchy, with any COLA received on the 50% pension payable from the NYC Fire Pension Fund and any Social Security benefits received by the beneficiary subtracted from the State’s portion of the benefit.

Divorce and the Lure of the Death Gamble

Often when facing an imminent divorce or when actively involved in a divorce, there is a strong impulse to take the Death Gamble. Don’t. Judges can and will punish a firefighter who does so.

The problem is that FDNY pension is marital property. The spouse has an ownership interest in their share whether they remarry or the firefighter dies. If the Firefighter takes the Death Gamble and dies first, the spouse will lose their share of the pension.

The divorce judge can force the firefighter to take out an insurance policy and pay the entire premium. Or the judge can give the other spouse more of the marital property. For example, the spouse might be award 75% of the house instead of 50%.

If the firefighter takes the Death Gamble after the divorce has started they maybe held in contempt of court.

FDNY Pension Tier III Benefits

The FDNY Pension Tier III is mandatory for all firefighters hired on and after July 1, 2009. Here are the key Points:

• Enhanced Plan members are required to contribute 3% of their pensionable salary plus an additional 2.1% for the first 25 years of credited service.
• The rate of additional contributions may vary depending on future cost calculations, and the maximum total contribution is currently limited to 6%.
• Contributions for Enhanced Plan members who were mandated into the plan are federally tax-deferred, while contributions for members who opted to join the plan before September 8, 2016, are taxable.
• To be eligible for retirement benefits, a member must have the minimum required amount of accumulated contributions, which includes the required contributions and the interest earned.
• ITHP (Increased-Take-Home-Pay) applies to certain members and refers to the City paying a portion or the entire required rate by making the contribution on the member’s behalf.
• A deficit occurs when a member’s pension account balance falls below the minimum required. Members are responsible for any account shortages and can make a lump sum payment or bi-weekly payroll deductions to reduce and eliminate any deficit.
• A member may withdraw excess funds within six months of appointment or at the time of retirement.
• Loans are not allowed under Tier 3.
• Credited service refers to allowable Uniformed service, which includes service as a Uniformed member of the New York City Fire Department, credit for service rendered in the Uniformed force of the New York City Police Department, credit for service as a Police Officer or Firefighter in the New York State and Local Police and Fire Retirement System, and credit for military service acquired pursuant to applicable law.
• Prior service credit laws allow members to purchase credited service for prior military or public service.
• Members may transfer to the NYC Fire Pension Fund from another public retirement system within the State of New York, and former EMS employees who joined NYCERS prior to July 1, 2009, may transfer to become Tier 2 members.
• Military service with the federal government may be credited, and active members with five years of credited service are eligible to purchase up to three years of military service for pension credit.

FDNY Pension versus Deferred Compensation

Up until now, we’re been addressing the pension. A pension is money a worker receives on a monthly basis after they retire.

A deferred compensation account, whether it is a 401(k) or a 403(b) is money that is placed in an account that can be drawn upon after the retiree reaches a certain age.

Deferred compensation, if earned during the marriage is subject to division. Money that was added to the account before the marriage or after the divorce is not part of the divorce. Calculating the value of the premarital money is complex and special outside experts are hired by the court (and paid for by the parties) to figure it out.

FDNY Pension and Equitable Distribution

The FDNY Pension may be subject to being divided in a divorce. Division of the regular pension is very simple. The court divides the years on the job with the years of marriage. That resulting number is the marital share. The spouse gets half of that number. For example, assume that the firefighter was on the job for 20 years and married with 10 overlapping years. The martial share is 50%. The spouse gets 25%. If the marriage was 20 years overlapping the job, the marital share of the FDNY Pension is 100% and the spouse gets 50%.

The Variable Supplemental Fund

The Variable Supplemental Fund (VSF) is a part of the FDNY Pension. A firefighter who gets a regular retirement will be entitled to receive $12,000 at the end of every year. The VSF is marital property and is subject to equitable distribution in the same manner as the pension. To determine the ex-spouse’s share the courts will divide the years marriage with the years on the job.

When a firefighter has a disability retirement, they will not get the VSF.

Questions About FDNY Pensions and Divorce?

Call Port and Sava, a veteran-owned law firm for a free 15 Minute Consultation to discuss the FDNY Pension and its impact on your divorce. (516) 352-2999.