Effective Jan. 1, 2004, new procedures at the New York City Employees’ Retirement System (NYCERS) will affect the advantages members now have when they combine the outstanding balances of their old loans into new loans. In the future they may have to pay higher monthly installments or incur a greater tax liability than currently. These changes at NYCERS result from implementing modified IRS regulations. Until Dec. 31 of this year, a member may still borrow under the current more generous procedures.

IF YOU CURRENTLY HAVE AN OUTSTANDING LOAN AND ARE THINKING ABOUT TAKING ANOTHER, DO IT NOW. DO NOT WAIT UNTIL 2004. IT MAY BE TO YOUR ADVANTAGE TO DO IT TODAY.

The new IRS regulations narrow the measures used to determine that portion of the loan considered an early pension distribution and liable to income taxes. Beginning next year, the cut-off point between taxable and non-taxable parts of a loan will be lowered. This means that the amount a member will be able to borrow tax-free in 2004 and after will be less than today.

NYCERS is looking at a number of ways to minimize for members the consequences of these changes. None have been finalized as of this writing. In the future a member may be able to pay off the old loan before applying for the new refinanced amount. A member may also be able to consolidate the outstanding portion of the old loan with a new amount but pay it off during the time remaining on the old loan. This choice would raise monthly repayments.

Another possibility to be offered by the retirement system would allow the member to continue with the old loan while taking out a new one. NYCERS in the past has only allowed members to carry one loan at a time. Once the new procedures are in place, a member will be able to have outstanding more than one loan within permissible borrowing limits. Each loan will be administered separately.

To go the route of multiple outstanding loans, NYCERS will need updated computer software and support staff to administer the new procedures. These are not yet in place. It is expected that everything should be up and running after next summer.

If you have any questions, please contact NYCERS at 1-347-643-3000.