New York’s public-school personnel belong to one of two Teachers’ Retirement Systems (TRS). Those employed by the City School District of New York are members of the Teachers’ Retirement System of the City of New York (City TRS). All others are members of the Teachers’ Retirement System of the State of New York (State TRS).

In the mid1960s broker/dealers began selling commission-based 403(b) annuities to members of the State TRS. It was not uncommon for the Teacher to be charged a commission of 5 percent on each contribution. City Teachers demanded parity but were told that the city would not sign the necessary Salary Reduction Agreement because of the predatory costs associated with commercial annuities.

At this juncture, the Board of Trustees of the city TRS began to examine the feasibility of having its own 403(b) plan to supplement the guaranteed pension. I was told: “Why pay a commission to a middleman when we can have our own 403(b) plan?”

The plan was launched in 1970. Currently it offers six investment options, all at de minimis cost. The plan is a national model of how to apply fiduciary principles to 403(b) plans.

With that said, the State TRS decided against having its own 403(b) plan. This catastrophic mistake is the sole reason why members of the State TRS have, for 50 years, been the very easy prey of the 3-percent broker/dealer. See: “New York State Officials Open Probe on 403(b) Sales to Teachers.” The Wall Street Journal, 10/2/19.

Q. When must a resident of the State of New York pay state income tax on withdrawals from the Deferred Compensation Plan of the City of New York? P.E.

A.: It all depends on the amount of the withdrawal and the age of the resident. Prior to age 59.5 the entire withdrawal is taxable. After age 59.5, withdrawals smaller than $20,000 are tax free. If the withdrawal is larger than $20,000, the first $20,000 is tax-free with the remainder taxable. See: Publication 36 from by the New York State Department of Taxation.

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by phone at (732) 536-9472, or via email at

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