Beneficiary's Guide to Death Benefits by terrypete

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									                                        Distributions Series: Topic 2




                       Beneficiary’s Guide
                        to Death Benefits
Code 6.2                                                                                                      9/04




One of the primary responsibilities of the Teachers’ Retirement System of the City of New York (TRS) is
to provide death benefits to the beneficiaries of our members. We realize that the death of a loved one
can be a difficult time. With this in mind, TRS is committed to efficiently processing death benefits. To
assist beneficiaries, we have described the death benefit filing process in this brochure. We hope that you
find this information helpful.


           TYPES OF DEATH BENEFITS                         refer to the Calculating Your Benefit section of this
                                                           brochure for more information.
All TRS members participate in the Qualified
Pension Plan (QPP), a defined-benefit plan under           The major steps in the death benefit filing process
Section 401(a) of the Internal Revenue Code (IRC).         are outlined in the box below and explained in
When a member dies, his/her designated bene-               detail throughout this brochure.
ficiary(ies) may be eligible to receive a QPP death
benefit.
                                                               Steps in the Death Benefit Filing Process
TRS members also have the option of participating
                                                            1. Beneficiary (or other representative) notifies TRS
in the Tax-Deferred Annuity (TDA) Program, a
                                                               of member’s death.
defined-contribution plan under Section 403(b) of
the IRC. When a TDA participant dies, his/her               2. Beneficiary (or other representative) sends TRS
designated TDA beneficiary(ies) may be eligible to             a certified, original death certificate and any
receive a TDA death benefit or establish a TDA                 checks or payments received after the member’s
account with TRS.                                              death.
Members may designate different beneficiaries               3. TRS calculates benefit(s) and sends Benefit
under the QPP and the TDA Program. If the mem-                 Package to beneficiary(ies).
ber does not designate a beneficiary, any death             4. Beneficiary files “Claimant’s Statement”
benefit due would be paid to the member’s estate.              (code DB17) and submits any other necessary
QPP and TDA death benefits are calculated based                forms or information.
on whether a member dies while in-service, after            5. TRS processes benefit(s) for payment.
separating from service, or after retirement. Please




                                                       1
       APPLYING FOR A DEATH BENEFIT                         When returning any checks or payments to TRS,
                                                            please enclose a note to indicate that they are
The death benefit process begins when TRS is notified
                                                            being returned due to the member’s death, and
of a member’s death. When contacting TRS in this
                                                            include all pertinent member information (e.g., TRS
regard, please provide the following information:
                                                            membership or retirement number and Social
 • Member’s name                                            Security number). You should also keep copies of all
 • If the member was a retiree: Member’s TRS                checks and correspondence that you send to TRS.
   retirement number, which may be found on the
   monthly retirement check stub or the quarterly
   Electronic Fund Transfer (EFT) statement
                                                                 RECEIVING YOUR BENEFIT PACKAGE

 • If the member had not yet retired: Member’s TRS          Beneficiaries of retirees should receive their Benefit
   membership number, which can be found on                 Package approximately four to six weeks after TRS
   any personalized correspondence from TRS or in           has received a certified, original death
   the top left corner of the member’s pay stubs            certificate and any TRS payments that must be
                                                            returned. However, it may take several weeks longer
 • Member’s date of death                                   for beneficiaries of in-service members to receive
 • Member’s Social Security number                          their Benefit Package due to additional information
                                                            required from outside agencies to complete benefit
 • Your name, address, and phone number
                                                            calculations.
Before TRS can begin to calculate the death benefit
                                                            The Benefit Package consists of a Benefits Letter that
that may be due, we must receive a certified, origi-
                                                            indicates the amount of money that is payable to
nal death certificate. In addition, some TRS pay-
                                                            the beneficiary(ies), as well as the relevant forms
ments may need to be returned to TRS, as described
                                                            that must be filed with TRS in order to claim a bene-
below.
                                                            fit. Beneficiaries who are eligible to receive both
If the deceased member was retired, any monthly             QPP and TDA death benefits may receive a separate
retirement allowance checks and TDA annuity pay-            Benefit Package for each benefit.
ments received, in or after the month of death, must
be returned to TRS, unless the member died on the
last day of the month of death. Any TRS payments            SUBMITTING THE REQUIRED DOCUMENTATION
for this period that were cashed, deposited, or cred-       In order to claim the benefit due you as a bene-
ited to the member’s account through EFT must also          ficiary, you must complete a “Claimant’s Statement”
be refunded to TRS; a personal check or money               and return it to TRS with any other items your
order should be made payable to the “Teachers’              Benefits Letter indicates. Other TRS forms that you
Retirement System of the City of New York” for the          may need to file, which would be supplied in your
corresponding amount. Please refer to the member’s          Benefit Package, include the following:
bank statement for the deposited and/or credited
amounts. You may also contact our Member                     • “Beneficiary’s Election Form for Method of
Services Center at 1 (888) 8-NYC-TRS to obtain the             Payment” (code DB12), which you would file to
amount due to TRS. Please note that, if the member             select a payment method for your benefit.
had funds in TRS’ Variable Annuity Programs, the             • “Benefit Claim Form Under Section 1310”
monthly retirement payment changes from month to               (code DB14), which you would file in order to
month; see the Calculating Your Benefit section.               claim a benefit payable when there is no bene-
If the deceased member had not yet retired, any TRS            ficiary or estate. The recipient of this payment
checks not cashed or deposited by the member                   will be determined according to his or her rela-
should be returned to TRS; these may include excess            tionship to the deceased member, as indicated
withdrawals, QPP or TDA loans, and TDA with-                   on the form.
drawals. These funds would be distributed as part of
the death benefit.

                                                        2
The following items may also be requested in your                             QPP Beneficiaries
Benefits Letter, but would not be supplied in your
                                                            If the deceased member was a retiree, TRS must
Benefit Package:
                                                            verify all final retirement payroll information and
 • Certified, original death certificate for a bene-        make calculations based on the payment option
   ficiary who predeceased the member                       that the member chose at the time of retirement.
 • Certified letters granting authority to executors        Please refer to the Retirement Payment Options:
   (Letters Testamentary) or administrators (Letters        Tiers I/II and TDA Annuitization Options brochure
   of Administration), etc., if the benefit is being        (code 7.3) and/or the Retirement Payment Options:
   paid to the member’s estate                              Tiers III/IV brochure (code 7.4) for more information
                                                            on retirement payment options.
 • New York State Tax Waiver (if the member died
   before February 1, 2000)                                 Two other benefits may be payable under the QPP.
                                                            The first is a fractional installment of the final retire-
 • Your marriage certificate, if you are a spouse           ment allowance payment for the month of death.
   beneficiary                                              This payment represents the number of days in the
 • Your certified birth certificate                         month that the member was alive and would be
                                                            payable to the designated “fractional” QPP bene-
 • Renunciation letter and proof of filing in
                                                            ficiary(ies). If the member died on the last day of the
   Surrogate’s Court
                                                            month, no fractional benefit would be payable since
Beneficiaries may receive payment within two                the member collected a benefit for the entire
months from the date that TRS receives all the              month.
required documentation requested in the Benefit
                                                            The second additional benefit is applicable only if
Package. Please note that this time frame is an
                                                            the deceased was a Tier II, III, or IV member who
estimate that depends on our timely receipt of
                                                            had Death Benefit #2 coverage as an in-service
correct information from beneficiaries.
                                                            member (see the QPP tier benefits information on
                                                            pages 4 and 5). A lump-sum amount under Death
         CALCULATING YOUR BENEFIT                           Benefit #2 would be payable to the member’s desig-
                                                            nated beneficiary(ies). The amount of the payment is
Death benefits are usually calculated based on the          based on the benefit that would have been payable
member’s account balances as of the date of death,          as of the member’s retirement date, depending on
at which time interest and/or investment return stop        the time period between the member’s retirement
accruing. If the member had funds in TRS’ Variable          date and his/her death. Benefits are calculated
Annuity Programs, the unit value in effect during           according to the following time periods:
the month of death would be used to determine the
dollar value of the funds in those programs. TRS’            • If the member died within the first year after
Variable Annuity Programs are available to Tiers I/II          retiring, the amount would be 50% of the
members for their QPP funds, and to members in all             benefit in effect at retirement.
tiers for their TDA funds. The unit value represents         • If the member died within the second year after
the monthly value attributed to each of the Variable           retiring, the amount would be 25% of the
Annuity Programs based on each portfolio’s closing             benefit in effect at retirement.
market value as of the end of the preceding month.
                                                             • If the member died within the third year after
Please see the following information about QPP and
                                                               retiring or later, the amount would be 10% of
TDA benefit calculations.
                                                               the benefit in effect at age 60; however, if retire-
                                                               ment occurred before age 60, the amount would
                                                               be 10% of the benefit in effect at retirement.




                                                        3
(If the deceased member was a retiree, please skip      (ITHP) balance, and an amount based on salary and
to the “TDA Beneficiaries” section on page 6.)          years of Total Service Credit.
If the deceased member had separated from serv-         The following table shows how the member’s Total
ice and maintained membership, (e.g., had not           Service Credit affects the death benefit payable.
withdrawn his/her TRS funds), but died before
reaching his or her effective retirement date, the
beneficiary(ies) would generally receive only a                                              Amount of Tier I
                                                             Years of Service Credit
refund of the member’s QPP contributions plus                                                 Death Benefit
accrued interest and/or investment return. (If the
member had five years of Total Service Credit, then                                       One-half the member’s
interest and/or investment return would accrue up                                           earnable salary in
                                                                 Less than 10             the year immediately
to the date of death; if the member did not have five
                                                                                          before the date of the
years of Total Service Credit, then interest and/or
                                                                                             member’s death.
investment return would accrue up to the earlier of
the member’s date of death, or seven school years                                         The member’s earnable
after the member separated from service.)                        At least 10                salary in the year
However, if the member had at least 10 years of                but less than 20            immediately before
Total Service Credit at the time of death, but was                                           the date of the
not yet eligible for a service retirement, the death                                        member’s death.
benefit payable would equal 50% of the amount of
the Ordinary Death Benefit that would have been                                           Two times the member’s
payable had the member died on the last day that                                             earnable salary in
service was rendered.                                             20 or more                the year immediately
                                                                                           before the date of the
If the deceased member was an in-service member,                                              member’s death.
TRS must verify final account information from
payroll sources, obtain complete salary and service     Note: The member’s earnable salary is the average annual
histories from all previous employers, and adjust       salary in the year immediately before the date of death. It is
account balances to reflect any loan balances or        generally not affected by any approved leave of absence with
excess distributions. This information is forwarded     or without pay.
to the Office of the Actuary to complete the deter-     If the member is eligible for a service retirement at
mination of QPP benefit amounts. Please note that       the time of death, or dies within the first 30 days
this process may take several months due to the         after retiring, the death benefit would be the greater
involvement of outside agencies.                        of the applicable amount above, or a benefit based
Tier Status                                             on the reserves that would have been payable under
                                                        Option I Modified had the member retired on the
The QPP benefit payable to the beneficiary of an        day before (s)he died. (Option I Modified is a retire-
in-service member depends in part upon the              ment payment option that provides a lump-sum
deceased member’s tier status in TRS. There are four    benefit to the designated beneficiary(ies) based on
tiers of membership; in most cases, tier status         available reserves.)
depends on when the member last joined TRS. QPP
death benefits for each tier are summarized below.      Tier II, III, or IV
Tier I                                                  If a Tier II, III, or IV member is in active service, and
                                                        dies with at least one year of Total Service Credit
When an in-service Tier I member dies before            since last joining TRS, the member’s designated
becoming eligible for retirement, the QPP death         beneficiary(ies) can apply to receive Ordinary
benefit would equal the member’s Annuity Savings        Death Benefit coverage.
Fund (ASF) balance, Increased-Take-Home-Pay



                                                         4
Beneficiaries of Tier II members can apply to receive    The following table shows the age-reduction
the balance in the member’s ASF, whereas the bene-       factors that affect the benefit payable under Death
fit payable to beneficiaries of Tiers III/IV members     Benefit #2.
would be the balance in the Member Contributions
Accumulation Fund (MCAF) and the Annuity
                                                                                    Percentage of Benefit
Savings Accumulation Fund (ASAF).
                                                          Age at Date of Death          Payable After
In addition to one of the benefits described above,                                      Reduction
the beneficiaries of Tiers II, III, and IV members
                                                              60 or under                  100%
would receive the greater of either Death Benefit #1
or Death Benefit #2, even if the member had                        61                       95%
elected Death Benefit #1 coverage. Please note that                62                       90%
members who joined TRS after January 1, 2001 will
                                                                   63                       85%
be automatically enrolled in Death Benefit #2.
Death Benefit #1 and Death Benefit #2 are                          64                       80%
described below.                                                   65                       75%
QPP Benefit Plan Descriptions (Tier II, III, or IV)                66                       70%
The following death benefit plan descriptions                      67                       65%
assume that the Tier II, III, or IV member was in                  68                       60%
active service and died with at least one year of
                                                                   69                       55%
Total Service Credit since last joining TRS.
                                                                   70                       50%
Ordinary Death Benefits
 • Death Benefit #1 would equal 1/12 of the
   member’s last 12 months’ regularly earned            Accidental Death Benefits
   salary multiplied by each full year of Total         An Accidental Death Benefit may be paid to benefi-
   Service Credit, to a maximum of three times the      ciaries of members of all tiers in lieu of an Ordinary
   member’s annual salary. (This maximum would          Death Benefit in the following circumstances:
   apply to members who have 36 or more years of
                                                         • The in-service member’s death was the natural
   Total Service Credit.) If a member dies in service
                                                           and proximate result of an accident that was
   after becoming eligible to retire without a bene-
                                                           sustained during the performance of duty, but
   fit reduction, the beneficiary(ies) would receive
                                                           was not caused by the member’s willful
   the greater of either Death Benefit #1 or a bene-
                                                           negligence; and
   fit equal to the pension reserves that would have
   been payable.                                         • The beneficiary (or other representative) applies
                                                           for an Accidental Death Benefit within two years
 • Death Benefit #2 would equal one year’s salary
                                                           of the member’s death (except for beneficiaries
   if the member completed one year of member-
                                                           of Tier IV members, who must generally apply
   ship service, two years’ salary if the member
                                                           for an Accidental Death Benefit within 60 days
   completed two years of membership service,
                                                           of the member’s death).
   and three years’ salary if the member completed
   three or more years of membership service. If        Please be aware that certain legal restrictions apply
   the member remains in service to age 61, the         to the payment of Accidental Death Benefits and
   in-service death benefit would be reduced by         should be considered before applying for this bene-
   5% for each succeeding year until age 70, after      fit. For more information about Accidental Death
   which time the benefit would equal 50% of the        Benefits, please contact TRS’ Member Services
   benefit payable at age 60 or under.                  Center at 1 (888) 8-NYC-TRS.




                                                    5
                TDA Beneficiaries                       • Funds in this account may only be invested in
                                                          the Variable Annuity Programs, not in the Fixed
If the member had a balance in the TDA Program
                                                          Annuity Program;
when (s)he died, a TDA death benefit would be
payable in accordance with his/her most recent          • If the member was receiving Required Minimum
TDA beneficiary designation on file with TRS. If the      Distribution (RMD) payments, they would con-
deceased was an in-service member or a member             tinue to be made in accordance with the IRS
with TDA Deferral Status, the benefit payable would       guidelines;
equal the member’s TDA balance as of one day            • If the beneficiary establishes a TDA account,
prior to his/her death.                                   (s)he may not elect any other form of payment,
As of October 15, 2003, beneficiaries of a                such as annuitization; however, withdrawals (as
deceased participant in the TRS TDA Program               long as they comply with TRS and IRS rules and
became eligible to defer distribution of TDA death        regulations) would be allowed; and
benefits by establishing a TDA account with TRS.        • The beneficiary’s designated beneficiary(ies)
For a beneficiary to be eligible to establish an          would not be able to establish an account with
account, the deceased member must have been a             TRS and would have to make a lump-sum with-
TRS TDA Program participant in active or deferred         drawal of any TDA death benefit upon the
status who died on or after October 15, 2003; the         original beneficiary’s death.
value of the funds available to each beneficiary for
establishing an account must be $5,000 or greater;     For members who annuitized their TDA funds at or
and the deceased member must not have elected          after retirement, the TDA death benefit payable
to annuitize his/her TDA Program funds upon            would be based on the payment option that they
retirement.                                            chose on their TDA Retirement Application. Please
                                                       refer to the Retirement Payment Options: Tiers I/II
Eligible beneficiaries who elect to keep their funds   and TDA Annuitization Options brochure for infor-
with TRS must establish an account within six          mation on retirement payment options.
months of the member’s date of death by filing a
“TDA Enrollment Form for Beneficiaries”                In addition, if a member annuitized his/her TDA
(code TD80). This election would be irrevocable;       funds, a fractional installment of the final TDA
however, upon establishing a TDA account, bene-        annuity payment for the month of death may also
ficiaries may withdraw their TDA funds at any time     be payable. This payment represents the number of
(provided the withdrawal(s) complies with TRS and      days in the month that the member was alive and
Internal Revenue Service (IRS) rules and regula-       would be payable to the designated “fractional”
tions). Once enrolled in the TDA Program, the          TDA beneficiary(ies). If the member died on the last
beneficiary(ies) should also file a “Designation of    day of the month, no fractional benefit would be
TDA Beneficiary Form” (code EN8).                      payable since the member collected a benefit for
                                                       the entire month.
Members and their beneficiaries should be aware of
the following account guidelines:
 • The beneficiary must be an individual (a trustee,             PROCESSING YOUR BENEFIT
   estate, or organization named as a beneficiary is   This step cannot begin until TRS receives the
   not eligible to participate);                       “Claimant’s Statement,” and any other required
 • If the beneficiary is a minor, a legal guardian     forms and documentation, as previously noted. TRS
   must be appointed to act on his/her behalf;         will return any incomplete/incorrect forms and doc-
                                                       umentation with a letter of explanation; in this case,
 • The beneficiary may not make new contribu-          your benefit payments would be delayed.
   tions to the account;
                                                       In most cases, death benefits for deceased in-service
 • The beneficiary may not apply for loans from        members are calculated as lump-sum payments.
   the account;


                                                       6
However, if the deceased member was a Tier I                  portion of any lump-sum death benefit that is
in-service member, and the QPP benefit is at least            eligible for rollover, but is paid directly to a
$10,000, the beneficiary(ies) may have the option             spouse beneficiary (other than a “fractional”
to annuitize the benefit. This option is available to         payment or a continuing payment). In addition,
all TDA beneficiaries for TDA funds of $10,000 or             the IRS requires that TRS withhold 10% of any
more. Before an annuity can be calculated for a               lump-sum death benefit paid directly to a non-
beneficiary, (s)he must submit a photocopy of                 spouse beneficiary (even if this amount is not
his/her birth certificate to TRS. No benefits due the         otherwise taxable); however, the non-spouse
member’s estate may be annuitized.                            beneficiary may elect to have a percentage
Please note that, if the deceased member resided              greater than 10% withheld. Any withheld
outside of New York State at the time of death, the           amount will be sent to the IRS as credit toward
laws governing the distribution of death benefits             the beneficiary’s federal taxes for the year of
may vary. In such a case, the beneficiary(ies) should         distribution.
contact the appropriate agencies in that state              • The spouse beneficiary may roll over all or part
regarding the distribution guidelines and provide             of the taxable portion of a lump-sum QPP death
TRS with copies of the distribution documentation.            benefit to an IRA(s) or an eligible Section 401(a)
                                                              Plan(s) by filing a “QPP Direct Rollover Election
                                                              Form” (code DB32) in conjunction with a
 TAX CONSEQUENCES OF DEATH BENEFITS                           “Claimant’s Statement.” The spouse beneficiary
Lump-sum QPP death benefit payments are fed-                  may also roll over or directly transfer a lump-
erally taxed in the year that they are received               sum TDA death benefit to an IRA(s), or to an
(except for any portion attributable to after-tax             eligible Section 403(b) Program(s) by filing a
member contributions). They are not subject to                “TDA Direct Rollover Election Form”
New York State or New York City taxes; however,               (code DB34a) in conjunction with a “Claimant’s
beneficiaries residing in a state other than New York         Statement.”
should check with their state tax agency about the          • The non-spouse beneficiary(ies) may have all or
tax consequences of these payments. TDA benefits              part of a lump-sum TDA distribution directly
paid in a lump sum are subject to federal, state, and         transferred to an eligible Section 403(b)
local taxes.                                                  Program(s) by filing a “TDA Direct Transfer
QPP benefits distributed to beneficiaries as an               Application” (code DB34b) in conjunction with
annuity are subject to federal income taxes. They             a “Claimant’s Statement.”
are not subject to New York State and New York             Notes:
City taxes; however, beneficiaries residing in a state
                                                            • Beneficiaries would receive the required forms
other than New York should check with their state
                                                              in their Benefit Package.
tax agency about the tax consequences of these
payments. TDA payments distributed as an annuity            • Non-spouse beneficiaries are not eligible to roll
are fully taxable; however, state and city tax exemp-         over QPP death benefit payments.
tions may apply.                                            • RMDs are annual distributions of TDA funds that
Beneficiaries may elect one of the following choices          are required once a member reaches a certain
for a lump-sum benefit payment:                               age limit. Any portion of TDA benefits represent-
                                                              ing the RMD payable for that year is ineligible
 • Both the spouse beneficiary and non-spouse
                                                              for rollover; the beneficiary is required to
   beneficiary(ies) may receive directly all or part
                                                              receive the RMD as taxable income.
   of the benefit payable. All beneficiaries who
   want 100% of the benefit paid directly to them          TRS recommends that you consult with an attorney
   must file a “Claimant’s Statement.” The IRS             or tax advisor regarding any specific tax questions
   requires that TRS withhold 20% of the taxable           you may have.



                                                       7
RECEIVING YOUR DEATH BENEFIT PAYMENT                       bring photo identification that includes a signature.
                                                           Any checks that are not picked up within five
TRS generally mails death benefit payments to ben-
                                                           business days after issuance will be mailed.
eficiaries at the end of each month. If you do not
receive your check within 10 business days of the
expected date, please file an “Affidavit for Missing
                                                                     ADDITIONAL INFORMATION
Check (And Authorization to Stop Payment)” (code
BK2) with TRS. You may obtain forms and publica-           If you would like additional assistance regarding
tions through our website at www.trs.nyc.ny.us, or         your status as a beneficiary, please contact our
by calling 1 (888) 8-NYC-TRS and selecting Option          Member Services Center. Our representatives are
3 on the TRS Service Line’s main menu.                     trained to assist you. Please have the following
                                                           information available if you are inquiring about the
Beneficiaries who are receiving lump-sum payments
                                                           status of your benefit:
may arrange to pick up their check at our office
Monday through Friday, 8:30 a.m. to 5:00 p.m. If you        • Member’s Social Security number;
request to pick up your check, it would be available        • Member’s TRS Membership Number or
at our Walk-In Center for five business days after            Retirement Number; and
issuance. Before coming to TRS, you should confirm
that your check is available by calling TRS’ Member         • Member’s status (in-service, separated from
Services Center. When picking up a check, you must            service, or retired) at the time of death.




             You may obtain forms and publications           The information provided in this publication
                     through our website at                  is based on currently available information,
                       www.trs.nyc.ny.us,                    which may be subject to change, and, as
                or by calling 1 (888) 8-NYC-TRS              such, should not be solely relied upon.
                 and selecting Option 3 on the               TRS suggests that you consult with an
                 TRS Service Line’s main menu.               attorney and/or tax advisor should you have
                                                             any specific legal or tax questions
                                                             concerning the information contained herein.
                                                             In all cases, the provisions of the governing
                                                             laws, rules, and regulations will prevail.




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