As a NYSLRS member, you are part of a defined benefit plan, also known as a traditional pension plan. Defined benefit plans provide several advantages over the 401(k)-style plans offered by many private employers. Perhaps the greatest benefit is that, once you meet the minimum age and service requirements established by your retirement plan, you will receive a monthly pension payment for the rest of your life.
Defined benefit pension plans, including your NYSLRS plan, are calculated based on a preset formula and provide a specified payment amount at retirement.
These plans are supported by contributions from both members and employers. However, the biggest contributor to your pension plan is the New York State Common Retirement Fund. Over the past 20 years, the Fund’s investment returns have covered 75 percent of the cost of pensions.
With defined benefit plans, retirement assets are pooled, and the investment risk is shared. These plans are usually administered by professional managers, whose long-term investment strategies reduce the impact of market turmoil.
Defined benefit plans provide important advantages for state and local government employers. For one, offering these plans makes it easier to recruit and retain qualified employees. Employers can reduce the risk of employee turnover, which can help cut training costs and improve productivity.
Defined benefit plans also help support state and local economies because they provide a steady, reliable stream of retirement income for many retirees across New York State and the nation.
Defined benefit pension plans are often confused with 401(k)-style retirement savings plans, which are known as defined contribution plans.
With a defined contribution plan, the employer, employee or both make contributions to an individual retirement account, and the money in the account is invested. Though the plan may offer pre-packaged investment options, in many cases, it is the responsibility of the employee to make investment decisions.
At retirement, the employee will have an account that includes the accumulated value of contributions and investment returns minus any fees. The amount of money the employee has at retirement depends on the investment returns of their individual account, so market downturns, especially near retirement, can affect the value of the benefit.
During retirement, the employee must develop a strategy to draw down enough money to pay for retirement. However, if they withdraw too much, they run the risk of outliving their savings.
Another big difference between defined benefit and defined contribution plans is how they are funded. With defined contribution plans, employers may contribute a set amount or “match” all or part of an employee’s contributions, but not all defined contribution plans include employer contributions. The result is that employee contributions are usually higher in defined contribution plans. Financial advisers recommend employees contribute at least 10 percent of their gross earnings to their defined contribution plans throughout their careers, and some recommend contributions of 15 percent or even 20 percent.
NYSLRS administers nearly 300 retirement plan combinations, but all are defined benefit plans and share certain features.
- Provide a guaranteed lifetime retirement benefit;
- Offer a pension that is based on final average earnings and years of service;
- Provide a right to pension benefits (vesting) with five years of service credit;
- Build a cost-of-living adjustment (COLA) into pensions to help offset the effect of inflation; and
- Include disability and death benefits.
Here are some of the major differences between defined benefit plans, like those NYSLRS offers, and defined contribution plans, such as a 401(k)s.
|Defined Benefit Plan
|Defined Contribution Plan
|Traditional pension plans, such as those offered by NYSLRS.
|401(k), 403(b), 457(b) and other similar plans.
|Guaranteed monthly payments for life.
|Payments are not guaranteed to last through retirement.
|Benefit amount is fixed, based on earnings and years of service. (For NYSLRS, the calculations are established by law.)
|Benefit amount is limited to the accumulated contributions and investment returns.
|In public-sector plans, employees usually contribute a defined amount.
|Employees choose how much to contribute.
|Employers contribute to a pool of funds to cover benefits for all participants in the plan.
|Employers may contribute nothing; they may pay a set amount; or they may “match” all or part of what an employee contributes.
|Contributions from employers and employees are pooled together and invested by professional asset managers.
|Each employee has an individual investment portfolio. The employee makes investment decisions or invests in a packaged investment option.
|Investment risk is pooled, so a market downturn does not affect benefits.
|Employee is responsible for all investment risk. A market downturn could affect benefits.
Review your retirement plan publication for a complete description of your benefits. Visit our Find Your NYSLRS Retirement Plan Publication page and follow the steps to find yours.
Today, NYSLRS is one of the largest public retirement systems in America, serving nearly 1.2 million members, retirees and beneficiaries. Close to 3,000 participating employers make annual contributions to help fund the future benefits of their employees.
Comptroller Thomas P. DiNapoli is the trustee responsible for the Common Retirement Fund. He and his investment staff have worked hard to ensure solid returns for the Fund. As a result, NYSLRS is one of the best-funded public retirement systems in the country. In fact, in 2021, the Fund commemorated 100 years of strength and security. The Fund is well-positioned to meet the challenges of the future and to provide retirement security for NYSLRS members, retirees and beneficiaries for generations to come.