In Current Pension Topics of Oct. 9 and Nov. 16, I wrote:

"The city (taxpayer) can satisfy all of its borrowing needs at an interest cost of about 1.5 percent. So why does the city borrow the member's Accumulated Deductions/Annuity Savings at a minimum interest cost of 5 percent? An interest-bearing savings account is hardly the optimum way to save for retirement. The mandatory pension deduction is crying out for alternative investments."

"With that said, there are two portions to the retirement allowance: An annuity portion funded with the member's accumulated deductions/annuity savings, and a pension portion funded by the city."

"PROPOSAL: The city's five Qualified Pension Plans will become non-contributory by eliminating the annuity portion of the retirement allowance. Rather than contributing to the Qualified Pension Plan, the member will be required to contribute, at his or her full pension rate, to the Deferred Compensation Plan of the City of New York. This will be a grand-slam for both parties. The city (taxpayer) will save billions in interest payments by no longer borrowing the members' Accumulated Deductions/Annuity Savings, and the Qualified Pension Plan member will gain access to an excellent investment choice menu."

"A discussion of City borrowing the Accumulated Deductions/Annuity Savings of pension plan members at a minimum interest cost of 5 percent would be incomplete without including the fact that the City also borrows the retirement savings of participants in the Tax-Deferred Annuity (TDA) Plan of Teachers' Retirement System at a minimum interest cost of 7 percent. For the fiscal year ended June 30, 2019 TDA participants lent the City $24 billion and the City paid them $1.7 billion in interest."


  1. As I said on Oct. 9, the city (taxpayer) can satisfy all of its borrowing needs at an interest cost of about 1.5 percent.
  2. There is no other 403(b)/457(b)/401(k) plan in the nation where plan participants have the option to lend their retirement savings to their sponsoring employer."

"PROPOSAL: The City will no longer borrow the retirement savings of TDA participants. TDA participants will have the option to lend their retirement savings, at prevailing interest rates, to life insurance companies."

For the fiscal year that ended June 30, TDA participants lent the city $27.7 billion and the city paid them $1.85 billion in interest. These amounts are guaranteed to increase every year because participants continue to contribute to their TDA savings and the city continues to pay them at least 7 percent in statutory interest. Note: The city borrows 72 percent of all TDA assets.

Simply put, city borrowing the retirement savings of its employees is a dumb idea—really dumb. The employee should not be the city's bank.

That being said, my proposal would generate an annual interest-cost savings of $4+ billion for the city. The city could redirect these savings by contributing 3 percent of salary to the employee's account with the Deferred Compensation Plan.

My proposed retirement-benefit package would consist of:

  1. A defined benefit pension plan funded solely by the City.
  2. A required deferred compensation plan contribution funded jointly by the employee (full pension rate) and the city (3 percent).

The package is cost-neutral to both the employee and the City.

As always, I welcome your questions.

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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