Understanding TRS' Financial and Accounting Terms

Understanding TRS’ Financial

and Accounting Terms

As a member of the Teachers’ Retirement System of the City of New York (TRS), you receive many TRS

communications and have access to dozens of our publications. Many of these include financial and

accounting references that may be unfamiliar to you. This brochure defines some of the accounting and

financial terms that we use. We hope that you will find it helpful.

1099 Forms

—A 1099-R is a statement that TRS sends in

January to members who received a distribution from

TRS during the previous year. Interest associated with

retroactive retirement allowance payments would be

reported on a separate 1099-INT form, which is also sent

in January.

• For more information, please refer to the

1099 Forms brochure.

Annuity Savings Accumulation Fund (ASAF)—An

account containing a monthly supplemental contribution

provided by the Board of Education to Tier III and Tier IV

members who have reached the maximum of their salary

schedule. The supplemental contribution is not provided

to adjuncts, college employees, or paraprofessionals.

Annuity Savings Fund (ASF)—An account containing

Tier I or Tier II members’ Qualified Pension Plan (QPP)

contributions, reflecting investment results and any

withdrawals. Loans and excess withdrawals also affect

this account.

Certified Rate—The percentage of salary that Tier I or

Tier II members would need to contribute to the QPP to

meet the minimum accumulation required for full

benefits under Plan A (Tier I) or Plan C (Tier II). This rate

varies based on factors such as age and credited prior

service.

Compounding—A method of crediting interest by

which interest accumulates on the principal amount

invested, as well as on any accumulated interest.

Defined-Benefit Plan—A retirement plan, such as TRS’

QPP, that guarantees a retirement allowance to

participants and is typically based on the participants’

service and salary before retirement.

Defined-Contribution Plan—A retirement plan, such

as TRS’ Tax-Deferred Annuity (TDA) Program, in which

the benefit to participants is based on the amount that is

contributed to the plan. The contribution rate is generally

defined as a percentage of the participants’ salary.

Direct Rollover—A distribution in which payment of

QPP funds is made directly to an Individual Retirement

Account (IRA) or another Section 401(a) Plan, or which

the payment of TDA Program funds is made directly to

an IRA or another Section 403(b) Plan. Unlike Direct

Withdrawals, Direct Rollovers are not subject to current

taxes and penalties.

• For more information, please refer to the

Withdrawals, Rollovers, & Transfers brochure.

Direct Transfer—A distribution in which payment of

TDA funds is made directly to a Section 403(b) Plan

whose withdrawal rules are at least as restrictive as those

of TRS’ TDA Program. Unlike Direct Withdrawals, Direct

Transfers are not subject to current taxes and penalties.

Direct Transfers are also not subject to the withdrawal

restrictions that Direct Withdrawals and Direct

Rollovers are.

• For more information, please refer to the

Withdrawals, Rollovers, & Transfers brochure.

Direct Withdrawal—A distribution of QPP or TDA

funds in which the payment is made directly to

members. Any funds that are received through a Direct

Withdrawal are taxable, and the IRS requires TRS to

withhold 20% of the withdrawn amount, except for

TDA hardship withdrawals. In addition, an IRS-imposed

10% tax may also apply in some cases.

• For more information, please refer to the

Withdrawals, Rollovers, & Transfers brochure.

Distribution—A payment from TRS, which may have

certain tax implications and penalties.

Excess—Any amount that Tier I or Tier II members have

accumulated above their required minimum

accumulation in their QPP account.

Extract of Balance—An account statement provided to

members on request, which reports QPP and TDA

contribution amounts, overall account balances, and

outstanding loan amounts, as of a specific date.

FICA—Social Security payroll taxes that are collected

under the authority of the Federal Insurance

Contributions Act (FICA) are sometimes called “FICA

taxes.” Under FICA Class A, Social Security tax is

deducted from Tier I or Tier II members’ gross salary, in

addition to their TRS pension contributions.

FICA Offset—A method whereby Tier I or Tier II

members may change the rate of their QPP

contributions. By electing FICA Class C, pension

contributions are reduced by the amount of the Social

Security tax paid.

Final Average Salary (FAS)—A calculation used to

compute the retirement allowances of TRS members.

For Tier I members, the FAS is generally the annual

salary earnable during the last year of the most recent

position they held for at least three years. For Tier II,

Tier III, and Tier IV members, the FAS is generally the

average of their highest earned three consecutive

salaries, with certain limitations.

Hardship Withdrawal—A method by which TDA

participants, who would otherwise be ineligible, may

withdraw all or part of their post-1988 TDA

contributions. To be eligible, members must have had a

sudden and heavy financial emergency that left them

unable to reasonably meet certain expenses, and other

TRS resources must be unavailable to them. Hardship

conditions include the payment of certain medical

expenses, payment of funeral expenses, payment of

post-secondary school tuition, the purchase of a

principal residence, or payment to prevent eviction

or foreclosure.

• For more information, please refer to the

TDA Program Summary booklet.

Increased-Take-Home-Pay (ITHP)—An amount

contributed by the City of New York toward the

retirement allowance of Tier I and Tier II members. This

amount, which equals 2

% of the members’ gross

salary, reduces the contributions that the members

would have to make to the QPP and thereby increases

their take-home pay. Members may waive their ITHP,

which would reduce their take-home pay but provide

them with a higher annuity benefit upon retirement.

Individual Retirement Arrangement (IRA)—A

savings vehicle designed to provide post-retirement

income. Depending on the type of IRA, taxes may be

deferred on contributions or on the earnings that the

contributions generate. Members may have their QPP

or TDA funds directly rolled over to an IRA, subject to

certain restrictions.

Internal Revenue Service (IRS)—The department of

the federal government that regulates, among other

things, taxes and investment plans. The Internal

Revenue Code (IRC) outlines the applicable laws

and regulations.

Investment-in-Contract—This represents the

contributions that members made towards their

retirement allowance, which accumulated in either the

ASF (Tier I/Tier II members) or MCAF (Tier III/Tier IV

members). Interest and investment returns are not

reflected in the investment-in-contract.

Loan Insurance—For all TDA loans and for QPP loans

issued to Tier III and Tier IV members, full insurance

coverage begins 30 days after a loan check is issued,

and insurance premiums are included in regular loan

payment amounts. For QPP loans issued to Tier I and

Tier II members, partial insurance coverage begins 30

days after a loan check is issued; this coverage gradually

increases and reaches full coverage 90 days after the

loan check is issued, up to a $10,000 limit. Tier I and

Tier II members are not charged for the insurance on a

QPP loan. Insurance on a loan would be terminated if

the borrower defaults on a loan payment.

• For more information, please refer to the QPP Loans

brochure and/or the TDA Loans brochure.

Member Contributions Accumulation Fund

(MCAF)

—An account containing Tier III or Tier IV

members’ QPP contributions with interest, including

any amounts that they paid to purchase prior service

credit. Loans also affect this account.

Minimum Accumulation—The minimum amount that

Tier I and Tier II members must contribute to their QPP

account to be eligible for full retirement benefits.

Required Minimum Distribution (RMD)—The

amount that certain participants in TRS’ TDA Program

must receive from their TDA funds in a given year to

meet the IRS’ distribution regulations. RMDs only apply

to TDA participants who are still in service at age 75

and retirees who are at least age 70

and have TDA

Deferral status.

• For more information, please refer to the

Required Minimum Distributions brochure.

Post-1986 Funds— The amount of contributions and

investment return accumulated after December 31,

1986. In the Tax Reform Act of 1986, the IRS made a

distinction between “post-1986” and “pre-1987” funds.

For QPP funds, post-1986 funds are taxable. For TDA

funds, distribution of post-1986 funds must begin by

April 1 of the year following a) the year in which the

member reaches age 70

, or b) the year in which the

member separates from service, whichever is later.

Pre-1987 Funds—The amount of contributions and

investment return accumulated as of December 31,

1986. In the Tax Reform Act of 1986, the IRS made a

distinction between ”post-1986” and “pre-1987” funds.

For QPP funds, pre-1987 contributions are considered

tax-free. For TDA funds, distribution of funds must

begin by the year in which members reach age 75.

Qualified Pension Plan (QPP)—TRS’ retirement plan

is a Section 401(a) Plan that provides retirement

allowances to eligible members. Tier I and Tier II

members’ QPP accounts include ASF and ITHP;

Tier III and IV members’ QPP accounts include MCAF

and ASAF.

Section 401(a) Plan—TRS’ QPP is a retirement plan

administered under this section of the IRC. The QPP

combines features of a defined-benefit plan with those

of a defined-contribution plan. Benefits are provided

through employer contributions, member contributions,

and investment income.

Section 403(b) Plan—TRS’ TDA Program is a tax-

deferred plan administered under this section of the IRC.

These plans, which are administered by a hospital,

educational institution, public or nonprofit employer,

allow employees to contribute pretax dollars to a

company-sponsored investment plan.

Section 414(h)—The section of the IRC that changed

how members’ contributions to the QPP were taxed.

Before Section 414(h) took effect, contributions were

federally taxed before being collected. Under Section

414(h), contributions made after February 1993 for Tier I

and Tier II members and after July 1989 for Tier III and

Tier IV members are not federally taxed until

distribution. The contributions reduce the members’

gross salary for federal income tax purposes and

become taxable when the members receive them as

a distribution.

Section 415—The section of the IRC that established

limits for retirement benefits that members acquire as a

result of a plan change enacted after October 14, 1987.

Plan changes occur periodically due to new legislation

(e.g., early retirement incentives).

Social Security Offset—A federally-required reduction

to the retirement allowance of Tier III members equal to

50% of the Social Security benefit they accrued while

they were in public employment with New York State

or its political subdivisions (e.g., New York City). The

reduction takes effect on the date their payments

commence or upon their reaching age 62, whichever

is later.

Tax-Deferred—Tax-deferred refers to a type of

investment option in which the payment of taxes due on

the amount invested (and/or its earnings) is postponed

until the funds are withdrawn from the investment and

received by the participant.

Tax-Deferred Annuity (TDA) Program—TRS’

optional investment program is a Section 403(b) Plan

that allows members to save money for retirement on a

tax-deferred basis.

• For more information, please refer to the

TDA Program Summary booklet.

TDA Post-1988 Balance—TDA contributions and

earnings a member has accumulated after December

31, 1988. In-service members who have not yet

reached age 59

may only withdraw their post-1988

contributions in cases of hardship. However, they may

not withdraw their post-1988 earnings.

TDA Pre-1989 Balance—TDA contributions and

earnings accumulated as of December 31, 1989. Pre-

1989 Funds may be withdrawn at any time, but may be

subject to taxes, penalties, and withholding.

Tax Equity and Fiscal Responsibility Act (TEFRA) of

1982

—In accordance with this act, members may elect

whether 10% withholding will be applied to certain

distributions they receive from TRS. If members do not

make a withholding election at the time of distribution,

TRS would automatically withhold 10%. In all cases,

members would be able to claim withheld amounts as

tax paid on their tax return for the year of distribution.

Unit Values—A monthly value attributed to each

Variable-Return Program based on each portfolio’s

closing market value as of the end of the

preceding month.

W-4P Form—An IRS form that retirees may file with

TRS to change their federal tax withholding election for

their retirement allowance payments.

Zero Rate—The QPP contribution rate for which Tier I

and Tier II members are eligible once they have met

their minimum accumulation and have at least 20 years

of qualifying service.

Code 1.6

This publication should not be solely relied upon, as it is based on currently available 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.

Teachers’ Retirement System of the City of New York

55 Water Street, New York, NY 10041

www.trsnyc.org • 1 (888) 8-NYC-TRS

For your convenience, TRS forms and publications are available on our website.

If you require additional assistance, we encourage you to contact our Member Services Center at 1 (888) 8-NYC-TRS.

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