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What is a defined benefit plan & defined contribution plan - YouTube
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Congratulations on your new position! You
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may now be eligible to participate in
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the new Voluntary Defined Contribution
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retirement plan, or VDC. You are eligible
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if you were hired on or after July 1st
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2013 by a New York State public employer,
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which include a New York State public
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agency, local government, school district,
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or public benefit corporation, and your
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estimated annual salary rate is $75,000
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or greater, and you are an unrepresented
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employee. This video will explain the
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difference between the various New York
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State public employer defined benefit
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plans, which include the New York State
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and Local Retirement System, the New York
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State Teachers’ Retirement System, and New
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York City pension plans, such as the New
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York City Employees’ Retirement System,
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and the Voluntary Defined Contribution
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program or VDC. As a new full-time
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employee, you have just 30 days to decide
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which plan is best for you. If you don't
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make the decision yourself, you'll
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automatically be default enrolled in a
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New York State or New York City defined
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benefit plan. It's very important to
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understand the difference, and this video
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will describe some key differentiating
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factors. Both plans are sound financial
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options for savings for your retirement,
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but they do have differences. Only you
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can decide which one is best for you. The
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NYSLRS, NYSTRS, and New York City
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Pension plans are defined benefit plans,
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meaning the amount of money you'll
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receive in retirement will be a fixed
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amount determined by the number of years
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you've worked, how much you've earned, and
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your retirement age. This gives you a
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predictable secure level of income for
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life, in the form of a monthly annuity
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payment, once you retire. Some of the
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contributions to the plans are made by
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your New York State public employer
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based on your tier, hire date and salary.
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The rest will come from you. You are
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required to contribute between 3% and 6%
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of your gross salary annually, depending
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upon how much you earned. All the
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investment choices are handled by the
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plans, and investment returns do not
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affect the
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amount you get in retirement. These plans
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reward your long-term service to the New
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York State system, and may be a good
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option, but there is an important thing
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to consider. The contributions made by
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your employer
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don't become vested or owned by you
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until you've reached a minimum of 10
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years of full-time service credit. 20
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years of full-time service credit are
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required to receive the maximum benefit.
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That means if you're no longer employed
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by your employer before vesting, you will
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not be eligible for a pension benefit,
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and will receive only the contributions
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you made yourself, plus interest. That's
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potentially a lot of money.
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The Voluntary Defined Contribution
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Program is a defined contribution plan,
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meaning the amount of money you'll
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receive at retirement will depend on how
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much is contributed to the plan over the
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years, the performance of your
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investments, and the income options
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chosen at retirement. Like the Retirement
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System Plans, you'll start by
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contributing between 3% and 6%
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of your gross salary annually,
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depending upon how much you earn. These
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contributions are deducted from your
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salary on a pre-tax basis. Your employer
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will also contribute to the plan based
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on your tier, hire date and salary. If
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you're no longer employed by your
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employer at any time after the 366-day
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vesting period, all of your own
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contributions, plus interest, and the
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vested contributions from your employer
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are yours to keep.
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With the VDC, you also have the ability
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to choose your own investments to
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reflect your lifestyle and goals,
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including fixed or variable annuity
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options that can still supply guaranteed
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lifetime income with flexible choices
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and the ability to leave assets to your
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beneficiaries. You have a choice of four
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investment providers, each of which
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offers their own set of investment
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products and services which you should
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consider carefully. Choosing between the
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New York State or New York City
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Retirement System plans and the
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Voluntary Defined Contribution Program
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is an important decision. In a nutshell:
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Both plans include employer and employee
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contributions and the ability to keep
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the contributions you've made if you're
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no longer working for your employer. Both
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allow you to own the pension benefit too,
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but in the case of the New York State or
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New York City System plans
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only if you have ten years or more of
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full-time service credit. Both plans
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offer fixed income in retirement that is
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not subject to market fluctuations while
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the Voluntary Defined Contribution
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Program also offers variable income
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based on the performance of your
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investments. Under the VDC, you have the
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freedom to choose investments that suit
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your lifestyle and goals, but not under
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the New York State or New York City
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System plans. While you may just be
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starting a new job, someday you'll be
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retiring too, so make the choice that's
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right for you. If you need help deciding,
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contact your benefits representative. Or
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speak directly with one of the
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investment providers available in the
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plan.
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