Frequently Asked Questions

General

General Information Questions
What is my Retirement Plan?
Your Retirement Plan is a Hybrid and has two components, a pension component and an annuity component. The pension, also called a Defined Benefit Plan, requires mandatory employee contributions, which are deductions withheld from your paycheck every pay period. The pension is a retirement plan funded by employer contributions, employee contributions and earnings from the assets of the System. The annuity component is voluntary, where employees can elect to participate. It’s called the Annuity Savings Fund. The annuity permits you to make voluntary contributions, which, while employed earns between 0% and 5.25% annually. You may contribute between 3%, 5% or 7% of your pay. You can also change voluntary contributions throughout the year. The voluntary contributions you make are yours to withdraw once you meet plan criteria.

If you hired before July 1, 2014 you may have two retirement plans. The Legacy Plan which has its own rules and the Hybrid Plan which is applicable to all those that have hired on or after July 1, 2014.

How much are my mandatory contributions?
Your mandatory contribution is currently 4% of your base compensation. The 4% is deducted on a pre-tax basis. This rate can change depending on the funding of the plan. Please see the Plan of Adjustment (POA) Combined Plan Document for more details.

Can I opt out of the Hybrid pension plan?
No.

May I take out my Hybrid pension as a lump sum amount while working?
No.

When Can I Retire Questions

When can I retire?

Component II (Legacy)

You may elect a service retirement if you have at least 30 years of credited service; or, if hired after January 1, 1996, 30 years of service and 55 years of age; or, if you are age 60 or older and have at least 10 years of credited service; or, if you are age 65 or older and have at least 8 years of credited service. An actuarially reduced service retirement benefit may be elected at any age with 25 or more years of service.      

 

Years of Service

After Jan. 1, 1996

Age 60-64

Age 65 or older

Actuarially Reduced

Accumulated Service Credit

30 years

30 years and age 55

At least 10 years

At least 8 years

25 + years

Component I (Hybrid)

Members may retire at age 62 with at least 10 years of service or refer to the transition chart, if applicable.

 

Transition Chart

Age as of July 1, 2014

Normal Retirement Age

61 years

60 years and 0 months

60 years

60 years and 0 months

59 years

60 years and 3 months

58 years

60 years and 6 months

57 years

60 years and 9 months

56 years

61 years and 0 months

55 years

61 years and 3 months

54 years

61 years and 6 months

53 years

61 years and 9 months

 

Can I elect a reduced early pension benefit?

Legacy
A reduced early pension is an election to receive your pension before you are eligible for a service retirement.  You must have at least 25 years of credited service to receive a reduced early pension benefit.  You may elect a reduced early pension benefit in lieu of a deferred benefit. The value of the reduced early pension benefit is the actuarial equivalent of a vested pension. You have 90 days after your separation from the City to elect the reduced early pension benefit.

Hybrid
You must have at least 30 years of credited service and have attained age 55, and have not attained your Normal Retirement Date, to receive a reduced early pension benefit.

May I take out my Hybrid Pension as a lump sum amount?   
Upon retirement, GRS employees may elect to receive a refund of their contributions in lieu of receiving a Hybrid Pension.  

If I am a former employee returning to work for the City, am I vested in the new hybrid pension plan?
A service check is needed to determine if you’re vested in both plans.  Please contact the Retirement System’s Office to request a service check.  {Link to the RSCD contact info}

How do I apply for retirement?
To apply for retirement, follow these steps:

  • Request a Service Check and Benefit Estimate from the Retirement System.
  • Contact your Human Resources Representative and obtain an “Intent to Retire” Letter.
  • Contact the Retirement System at 313-224-3362 and request an appointment for your Exit Interview. 
  • Select your retirement options during the Exit Interview
Military Service Questions
Will I get credit for military service?

If you are granted a leave of absence to enter the military while you are employed by the City, you will be given service time credit as if your service was uninterrupted, provided you return to City service after completing military duty within the period of time prescribed by law. You will not make contributions while you are in military service, but interest will continue to be credited to your accumulated contributions. Mandatory contributions will have to be paid for the time missed upon the return of the employee.

If you were granted pre-employment military service credit in the Legacy Plan it cannot be used to qualify for earlier retirement. It can only be used to increase the amount of pension benefit you will receive upon retirement.

How long is the process to receive Military Service Credit?
It takes 4-6 weeks to complete the process.

Calculations Questions
Will I get credit for military service?

If you are granted a leave of absence to enter the military while you are employed by the City, you will be given service time credit as if your service was uninterrupted, provided you return to City service after completing military duty within the period of time prescribed by law. You will not make contributions while you are in military service, but interest will continue to be credited to your accumulated contributions. Mandatory contributions will have to be paid for the time missed upon the return of the employee.

If you were granted pre-employment military service credit in the Legacy Plan it cannot be used to qualify for earlier retirement. It can only be used to increase the amount of pension benefit you will receive upon retirement.

How long is the process to receive Military Service Credit?
It takes 4-6 weeks to complete the process.

Vested Questions

If I resign before my retirement age, will I still receive a retirement allowance?
You may be eligible to receive a vested retirement allowance if you have at least 10 years of credited service.  You may collect at age 62.

When is a pension vested?
A pension benefit is vested when a member has at least ten 10 years of credited service. A member shall be credited with a year of vesting service for each plan year commencing on or after July 1, 2014 during which the member performs 1,000 or more hours of service for the employer.  

If I’m a former employee and vested in the legacy pension plan can I draw an actuarial reduced benefit from the hybrid plan instead of waiting until age 62?
You can receive a vested retirement with 30 years of service and age 55 in Hybrid Plan.

Beneficiary Questions

Can I name someone other than my spouse as my beneficiary?
You may designate any person as your beneficiary.

What if I die before my retirement eligibility, does my beneficiary receive a pension?

Legacy and Hybrid
If you die before you are eligible to begin drawing your Vested Retirement Allowance, your spouse is not eligible for any allowance/benefits. They would, however, receive any balance in your Annuity Savings Fund plus interest earned in a lump sum upon request.

Accidental Death Benefit; Performance of Duty
(1) If a Member is killed in the performance of duty in the service of the Employer, or dies as the result of illness contracted or injuries received while in the performance of duty in the service of the Employer, and such death, illness or injury resulting in death, is found by the Board to have resulted from the actual performance of duty in the service of the Employer, the Member’s surviving Spouse shall be entitled to a monthly annuity benefit equal to the Member’s Retirement Allowance at the time of his death, unreduced for early payment. Such benefit shall be payable until the surviving Spouse’s death.

(2) The minimum annual Retirement Allowance payable to a surviving Spouse with respect to (1) above shall be equal to ten percent (10%) of the Member’s Average Final Compensation determined as of the date of the Member’s death.

Death Benefits for Surviving Spouses Generally
If any Member dies while in the employ of the Employer (other than in the performance of duty) after the date such Member has earned ten or more years of Credited Service, the Member’s surviving Spouse shall receive a Retirement Allowance. The Retirement Allowance payable to the Spouse shall be computed in the same manner in all respects as if said Member had (i) retired effective the day preceding the Member’s death, notwithstanding that the Member had not attained his or her Normal Retirement Date, (ii) elected a Joint and One Hundred Percent Survivor Allowance as described in Section 8.1, and (iii) nominated the surviving Spouse as Beneficiary.

Refund of Accumulated Mandatory Contributions Upon Death of Member
If a Member dies while employed by the City or following termination of employment and the Member is not eligible for a benefit the Member’s Accumulated Mandatory Employee Contributions to the Retirement System at the time of death shall be paid to the Beneficiary nominated in a written designation duly executed by the Member and filed with the Board. In the event there is no such designated Beneficiary surviving, the Member’s Accumulated Mandatory Employee Contributions shall be paid to the Member’s estate. If a Member who dies without a legal will has not nominated a Beneficiary, the Member’s Accumulated Mandatory Employee Contributions at the time of death may be used to pay burial expenses if the Member leaves no other estate sufficient for such purpose. Such expenses shall not exceed a reasonable amount as determined by the Board.

Benefits Offset by Compensation Benefits; Subrogation
(1) Any amounts which may be paid or payable to a Beneficiary on account of a Member’s death under the provisions of any Workers’ Compensation, pension, or similar law, except federal Social Security old-age and survivors’ benefits, shall be an offset against any amounts payable from funds of the Retirement System on account of the Member’s death. If the present value of the benefits payable under said Workers’ Compensation, pension, or similar law, is less than the Pension Reserve for the Retirement Allowance payable by the Retirement System, the present value of the said Workers’ Compensation, pension, or similar legal benefit shall be deducted from the amounts payable by the Retirement System, and such amounts as may be provided by the Retirement System, so reduced, shall be payable as provided in this Combined Plan Document.

(2) In the event a person becomes entitled to a pension payable by the Retirement System because of an accident or injury caused by the act of a third party, the Retirement System shall be subrogated to the rights of said person against such third party to the extent of the benefit which the Retirement System pays or becomes liable to pay.

Who should my beneficiary contact in the event of my passing
Contact the Retirement System to report the death of an employee.

How long does it take for the death benefit claim to be processed?
It takes approximately 8 to 10 weeks to process death claim benefits.

Divorce Questions
Suppose my spouse and I divorce before or after I retire, are my benefits affected?
If your accrued retirement benefits are included as a marital asset in a divorce property settlement, the courts can allocate the marital portion of your pension and/or annuity among the involved parties under an Eligible Domestic Relations Order (EDRO). You should consult with your attorney concerning Public Act 46 of 1991.
Annuity Questions
When will I be eligible to withdraw from my Legacy/Hybrid Annuity?
Legacy
You may withdraw from your Component II (Legacy) Annuity Plan if:
• You are separated (retirement/resignation/termination/layoff) from service with the City.
You are allowed a one-time withdrawal if:
• You are an employee receiving a duty/non-duty disability benefit
• You are converting from a duty/non-duty disability to a service retirement.
• You are an active employee with at least 25 years of service

Hybrid
You may only withdraw from your Component I (Hybrid) Annuity Plan if you are separated from service (retirement/resignation/termination/layoff) with the City.

How can I start/stop my annuity contributions?
In order to start or stop your voluntary contributions, you must contact the City Payroll Office at (313) 628-2550 and complete a Voluntary Contribution Election Form.

How much can I borrow from my annuity plan?

Legacy
The minimum amount you can borrow from the Annuity Loan Program is $1,000.00. The maximum amount you may obtain is the lesser of (i) one-half (50%) of your current annuity balance or (ii) $10,000.00 reduced by the outstanding balance of any loans from the annuity account.

Hybrid
The Component I (Hybrid) Annuity Loan Program is not yet available.

What happens to my annuity loan if I resign/retire from the City?
If you resign or retire from the City and you have an outstanding annuity loan, First Independence Bank will send you an “Employment Separation Letter” where you will be given the option to:

(a) default on your loans (in which case you will be issued a 1099)
(b) pay your loan balance in full.

If I experience a hardship (emergency), can I withdraw from my annuity early?
Hardship withdrawals from the annuity plan are not permitted

How is the interest rate on my Defined Contribution Plan (Annuity) monies determined?
Earnings credited to a member’s voluntary annuity contributions shall be no less than zero and no greater than the lesser of (i) 5.25% or (ii) the actual investment return net of expenses of the Retirement Systems’ invested reserves for the second plan year immediately preceding the plan year in which the annual return is credited.

How can I obtain my annuity balance?
Annual annuity statements are mailed at the end of each fiscal year, June 30. However, you can request a current statement of your annuity balance at any time. You can request a statement in person, over the phone or via written request.

Can I leave my Defined Contribution Plan (Annuity) monies in my Retirement System Account after I retire?
Upon retirement you may elect to “annuitize” your entire or a portion of your annuity balance. If you choose to annuitize, you will receive a monthly annuity benefit (included in your pension check) based on your contributions, your chosen pension option, and your age. You may refer to your Benefit Estimate for the monthly annuity rate.

Disability Questions

What if I become totally or permanently disabled?
The Retirement System no longer processes disability retirements for General City Employees.  Please contact your Human Resources Representative for available options. 

How much income can I earn while on disability which was obtained prior to July 1, 2014?
As an employee on duty/non-duty disability, you are able to earn up to your active salary, less what you receive in disability payments each calendar year.

 

Example: 

Annual Salary (while active)  $20,000.00 Gross 
Disability Benefit $ -5,000.00 Gross 
Allowable Outside Earnings  $15,000.00 Gross 

 

If you exceed the allowable amount, your disability allowance will be reduced to recover the overpayment. The Board is required to adjust future pension payments to recoup all overpayments.
Investment Questions

How are retirement systems funds invested?
The Board of Trustees of the Retirement System is responsible for the proper operation of the Retirement System.  The investments of all Retirement System’s assets (which consist of the assets of the Defined Benefit and Annuity Savings Fund) are made by the Board of Trustees as authorized by State Law. It is Board policy to prudently invest pension funds so that the highest return is attained among the safest investments. To assist in carrying out these responsibilities, the Board utilizes the services of Investment Advisors who make recommendations to the Board of Trustees regarding investments in accordance with the authority and limitations provided by law.

As a result of the Plan of Adjustment (POA), the Investment Committee is authorized to assist in carrying out these responsibilities.  The Board and Investment Committee directs the Chief Investment Officer and Investment Consultant to make recommendations to the Board of Trustees and the Investment Committee regarding investments in accordance with the authority and limitations provided by law.

Retirement Options Questions

What are the equate retirement options and how does it affect me?
If you retire before age 65, you may elect the Social Security Coordination Option. Under this option, you would be paid an increased allowance until you become eligible to receive Social Security Benefits at either age 62 or 65, and a reduced retirement thereafter.

To Illustrate:You are age 60 with a projected retirement allowance of $1,000 per month and an estimated Social Security Benefit at age 62 of $680 per month. Your monthly retirement income until age 62 would be $1,000. When you begin to receive a Social Security Benefit at age 62, your estimated monthly income would increase to $1,680 ($1,000 plus $680). You could level the amount of your monthly income by electing the Social Security Coordination Option at the time you retire. Under this option, your retirement allowance until age 62 could be increased to $1,550. At age 62, your estimated retirement allowance would be decreased to $870. The sum of your reduced estimated retirement allowance ($870) and your estimated Social Security Benefit ($680) could be $1,550 which is the same estimated amount you were receiving before age 62, so your monthly income should remain level.

Can I protect myself in case my beneficiary dies before me?
You can provide lifetime protection for your designated option beneficiary by electing an alternative retirement allowance, with or without the Pop-Up Option, at the time you retire. You cannot change your election or your option beneficiary after you’ve cashed your first pension check.

What is the "Pop-Up" Option?
The "Pop-Up" Option is a retirement option that you may elect which allows for your retirement to be changed in the event your beneficiary predeceases you. The additional cost associated with this option is borne by the retiree and his/her beneficiary.  The cost is an actuarial value that is determined by the age of the retiree and their designated beneficiary at the time of application.

Joint and 100% Survivor Allowance with Pop-up

If you select this option, you would receive an actuarially reduced retirement allowance for as long as you live, with the added provision that upon your death the option beneficiary designated by you, at the time you elect the Pop-Up, would begin to receive 100% of your actuarially reduced retirement allowance for the remainder of their life; however, if your beneficiary predeceases you, your benefit would automatically change to the straight life amount.

To Illustrate:You are age 60 with a straight life retirement allowance of $1,000 a month. Your designated option beneficiary is also age 60. Your actuarially reduced retirement allowance would be $820.40 per month with Pop-Up, payable as long as your designated option beneficiary survives. If your beneficiary predeceases you, your benefit would automatically change to the straight life amount of $1,000 a month.

Joint and 75% survivor allowance with pop-up: 

If you select this option, you would receive an actuarially reduced retirement allowance for as long as you live, with the added provision that upon your death the option beneficiary designated by you, at the time you elect Pop-Up, would begin to receive 75% of your actuarially reduced retirement allowance for the remainder of their life; however, if your beneficiary predeceases you, your benefit would automatically change to the straight life amount.

To Illustrate:  You are age 60 with a straight life retirement allowance of $1,000 a month. Your designated option beneficiary is also age 60. Your actuarially reduced retirement allowance would be $858.97 per month with Pop-Up, payable as long as your designated option beneficiary survives. If your beneficiary predeceases you, your benefit would automatically change to the straight life amount of $1,000 a month.

Joint and 50% survivor allowance with pop-up:

If you select this option, you would receive an actuarially reduced retirement allowance for as long as you live, with the added provision that upon your death the option beneficiary designated by you, at the time you elect Pop-Up, would begin to receive 50% of your actuarially reduced retirement allowance for the remainder of their life; however, if your beneficiary predeceases you, your benefit would automatically change to the straight life amount.

To Illustrate: You are age 60 with a straight life retirement allowance of $1,000 a month. Your designated option beneficiary is also age 60. Your actuarially reduced retirement allowance would be $901.34 per month with Pop-Up, payable as long as your designated option beneficiary survives. If your beneficiary predeceases you, your benefit would automatically change to the straight life amount of $1,000 a month.

Joint and 25% survivor allowance with pop-up:

If you select this option, you would receive an actuarially reduced retirement allowance for as long as you live, with the added provision that upon your death the option beneficiary designated by you, at the time you elect Pop-Up, would begin to receive 25% of your actuarially reduced retirement allowance for the remainder of their life; however, if your beneficiary predeceases you, your benefit would automatically change to the straight life amount.

To Illustrate: You are age 60 with a straight life retirement allowance of $1,000 a month. Your designated option beneficiary is also age 60. Your actuarially reduced retirement allowance would be $948.11 per month with Pop-Up, payable as long as your designated option beneficiary survives. If your beneficiary predeceases you, your benefit would automatically change to the straight life amount of $1,000 a month.

See the chart below for examples of actuarially reduced retirement allowances with the Pop-Up Option, based on several combinations of age.

Pension Check Questions

When will I receive my first pension check?

Refer to the chart below:

General City

Effective date of Retirement, First Pension Check

1-16 through 2-15

April 1

2-16 through 3-15

May 1

3-16 through 4-15

June 1

4-16 through 5-15

July 1

5-16 through 6-15

August 1

6-16 through 7-15

September 1

7-16 through 8-15

October 1

8-16 through 9-15

November 1

9-16 through 10-15

December 1

10-16 through 11-15

January 1

11-16 through 12-15

February 1

12-16 through 1-15

March 1

Example, if you are a General City Employee and your effective date of retirement is January 16th; you will receive your first pension check on April 1st.

Are provisions made for increased living costs as a result of inflation after I am retired?
Possibly, it depends on the funding status of the Fund.

Withholdings Questions

Are retirement benefits subject to federal, State of Michigan or local income tax?

Defined Benefit (Pension) Plan. Your tax obligation will depend on the federal, state and local income tax laws that are in effect in the state in which you reside. You should consult your tax advisor with respect to your individual tax matters. Under Michigan’s current tax laws, federal and state income tax will be a factor when you receive benefits from the Defined Benefit (Pension) Plan. Pension benefits are currently exempt from City of Detroit Income Taxes.

W4-P Withholding Forms are included in the retirement application documents. Applicants that neglect to supply W4-P Forms instructing the Board of Trustees of their withholding preferences will automatically revert to current the Federal tax law withholding limits.

Defined Contribution (Annuity) Plan. If you elect a full or partial lump sum refund, you will be subject to tax on interest earnings and you may be subject to pay additional taxes depending upon certain circumstances.

Direct Deposit Questions

How do I enroll in Direct Deposit or change my Direct Deposit information with RSCD?
If you would like to have your pension check deposited directly into your bank account or to change your information, complete a Direct Deposit Form in-person or print the form from the website www.rscd.org and return it via mail with a copy of a voided check from the account you intend to deposit future benefits. RSCD contact info

You may also make changes online with our third party payroll provider Paylocity.  Go to www.access.paylocity.com to sign up

***Please note the Retirement System will not accept direct deposit information via e-mail or phone***

My account has been compromised. Can you stop or change my direct deposit immediately?
If your account has been closed or compromised, you may request a Direct Deposit Cancellation.  However, you must contact the Retirement System and complete the Direct Deposit Enrollment Form before the 10th of the month to make a change to the current month’s payroll disbursement. 
RSCD contact info

Do I need to notify the Retirement System if I close my bank account?
Yes, immediately, to ensure you receive your pension payments in a timely manner.

How can I get a replacement 1099R?
Replacement 1099Rs can be requested via phone or in person.  Refer to the contact information.
RSCD contact info

Health Care Benefits Questions

What is the RHC Trust?
The RHC Trust was established under the Plan for the Adjustment of Debts of the City of Detroit to provide health benefits to eligible former City of Detroit employees. The RHC Trust is established as a tax-exempt Voluntary Employees Beneficiary Association (VEBA) under Section 501(c)(9) of the Internal Revenue Code, as amended. Pursuant to Section 501(c)(9) of the Internal Revenue Code and Section 2.1 of the RHC Trust Agreement, the RHC Trust is limited to providing health and welfare type benefits to eligible retirees and their beneficiaries.

Which retirees are eligible for the RHC Trust?
Former City of Detroit employees who retired with a City pension on or before December 31, 2014 and who were either:

(a)   enrolled with City retiree health benefits as of February 28, 2014 or as a spouse on a City health benefit

(b)   transitioned from active City benefits to retiree City benefits on or after November 1, 2013. Surviving spouses and surviving children currently receiving or would be eligible to receive a duty-death or survivor pension with respect to a retiree who would have qualified as an eligible retiree in the RHC Trust.

When I begin my service retirement, what happens to the fringe benefits that I currently receive?
For information regarding your health care/fringe benefits, contact Benesys at 844-563-8911 or via website at: www.ourbenefitoffice.com/mydetroitretireebenefits

Miscellaneous Questions

Is my retirement allowance safe?
Under the provisions of the State of Michigan's Constitution, the City of Detroit has a contractual obligation to fund pensions and retirement allowances for each employee's entire service period. The City Charter and a City Council ordinance mandate proper funding of the General Retirement System.  The Trustees, as fiduciaries, work to protect and increase the assets of the system.

How do I change my address?
Changes to your address can be made by completing the Retiree Contact InformationForm or by sending a signed correspondence with your name, pension number, old address and new address via U.S. mail. The form is located on the RSCD website {link to form}.  Complete and return the form via fax or mail.  Refer to the contact information. {Link to the RSCD contact info}

Current retirees may also make address changes online with our third party payroll provider Paylocity.  Go to www.access.paylocity.com to sign up. 

How do I submit an Income Verification Request?
Contact the Retirement System and request the Income Verification Form.  The form will be sent to the address on file.  Once completed, return the form to our office via fax or mail.  Refer to the contact information.
RSCD contact info

I have not received my pension check.  What do I do?
If you do not receive your pension check by the 10th of the month of the check’s original issue date, contact the Retirement System via phone or in-person between 8:00 am – 4:00 pm M-F and follow these steps:

  1. Request a Stop Payment on the check. 

  2. A Member Services Representative will generate a Stop Payment Request for you to sign in person or the form can be sent via mail to the address on file.

  3. After receiving confirmation from the system’s financial institution to reissue your check, a Member Service Representative will generate a new check and send it via the preferred method indicated on the endorsed Stop Payment Request.

Which department should I talk to when inquiring about the amount of the check, the reissuance of a check, or where the check was sent?
Due to privacy concerns, we cannot discuss details about a check over the phone.    

To verify where the check was sent, contact the Retirement System’s Payroll Division via phone.  For a check reissue, contact the Retirement System.

Why do I have to wait until the 10th of the month for a replacement check?
The 10-day waiting period allows time for delays in Postal Service deliveries.

Why did my deduction increase?
Increases in deductions can be due to increases in medical benefit rates or tax rate increases.  Please contact the Retirement System’s Payroll Division for additional information.

Why did my pension rate change?
Retirees are notified via mail whenever rate changes occur, however, you can contact the Payroll Division for additional information.

When will I receive my paycheck if the payday is on a holiday?
Pension payments should be received on the last business day prior to the holiday.

Where can I get a letter stating that my pension is a lifetime benefit?
Contact the Payroll Division to submit your request and the letter can be sent directly to you via mail, email or fax.

Glossary

Accumulated Contributions – the sum of all amounts deducted from the compensation of a member and credited to the member’s individual account in the Annuity Savings Fund, together with regular interest thereon.

Annuity – the portion of the retirement allowance which is paid for by a member’s accumulated contributions.

Component I (Hybrid Plan) - the portion of the Retirement System described in the Combined Plan and which consists of:

(a)    the 2014 Defined Benefit Plan, which is a qualified plan and trust pursuant to applicable sections of the Internal Revenue Code; and

(b)    the 2014 Defined Contribution Plan, which is a qualified plan and trust pursuant to applicable sections of the Internal Revenue Code.

Component II (Legacy Plan) – the portion of the Retirement System described in the Combined Plan and which consists of:

(1)   the Frozen 1973 Defined Benefit Plan, which is a qualified plan and trust pursuant to applicable sections of the Internal Revenue Code; and

(2)   the Frozen 1973 Defined Contribution Plan, which is a qualified plan and trust pursuant to applicable sections of the Internal Revenue Code.

Credited Service – service credited to a member to the extent provided in Article 4 of Component I of the Combined Plan Document and, solely for purposes of Section 2.1(7), service credit to a member prior to July 1, 2014, pursuant to Component II of the Combined Plan.

Investment Committee – the committee established pursuant to Section 1.19 (POA) which shall have the powers and duties described herein.

Pension – for purposes of Component II, the portion of a retirement allowance which is paid for by contributions made by the employers into the appropriate funds and any contributions made to such by another entity.

Plan of Adjustment (POA) – the Plan for the Adjustment of Debts of the City of Detroit, which has been approved by the United States Bankruptcy Court in In re City of Detroit, Michigan, Case No. 13-5386.

Retirement Allowance – an annual amount payable in monthly installments by the Retirement System, whither payable for a temporary period or throughout the future life of a retiree or beneficiary.

Loans

Who is eligible for a Plan loan?
Subject to the rules and procedures established by the Board, loans will initially be made only to non-union Members of the Retirement System. Union employees will be eligible when their respective bargaining unit has accepted the Loan Program. Former Members, Spouses of Members, and beneficiaries are not eligible to receive any loans from the Retirement System.

Subject to rules and procedures established by the Board, a Member who has been in the Combined Plan for twelve months or more is eligible to apply for a loan from the Frozen Defined Contribution Account. No Member shall have more than two outstanding loans from the Retirement System at any time. A Member who has previously defaulted on a loan shall not be eligible for a loan from the Retirement System.
How does taking out a loan impact my Plan investments?

Your loan is funded directly from your Frozen Defined Contribution Account. The withdrawal will be deducted from funds in your account.

When you repay your loan, your loan payment is in after-tax dollars and is applied by the loan administrator to the loan interest and finally to the loan principal, thereby reducing the balance owed on the loan.

The money borrowed is not considered part of the Plan assets until repaid, and is ineligible for any special dividends or interest paid to the Plan.

Can I borrow from my Hybrid Annuity Plan?
The Hybrid Annuity Loan Program is not available at this time.
What is the minimum amount of a loan?
The minimum loan amount available from the Frozen Defined Contribution Account is $1,000.
What is the maximum loan amount I can borrow?
The maximum loan amount a participant may obtain is one-half (50%) of the account value in the Frozen Defined Contribution Account or $10,000, whichever is less, inclusive of all outstanding loans from the Plan.
May I have more than one loan at a time?

Yes. The plan allows for up to two loans open at a time. If you originally borrowed less than the maximum allowed, and now want to borrow up to the full amount, you may do so in a second loan. You may borrow until the total of the two loans is up to the maximum allowed. There is a 30-day waiting period from the date that one of the loans has been paid off before a participant may apply for another loan. You are only allowed to borrow in a second loan if you are current on the first.

The combined balance of your loans may not exceed your loan maximum which is the lower of one-half (50%) of the account value in the Frozen Defined Contribution Plan or $10,000 minus the highest balance owed on a loan in the last year.

What if I borrowed the maximum allowed in my first loan?
Once that original loan is paid down, you may borrow back up to the maximum if you so desire.
Do I have to put up collateral and qualify for a loan in the same way I would at a bank?
No, the remaining balance in your Frozen Defined Contribution Account will secure your loan, as long as it equals or exceeds the amount borrowed.
How are loans treated for tax purposes?
Funds borrowed from the Plan under these conditions are not treated as distributions, provided they are repaid in accordance with the terms of the Plan and the signed promissory note. Therefore, no taxes are withheld or due when a loan is received.

Under federal tax law, no deduction is permitted for interest paid on loans from the plan, regardless of the purpose of the loan.
Are there other tax issues I should be aware of?
The participant is strongly advised to address any questions regarding the tax consequences of loans or loan limits to a qualified, independent tax advisor before submitting an application for a loan.
How is the interest rate determined for Plan loans?

The interest rates for plan loans will be based on the rates chosen by the General Retirement System. Loans will also incur a 1% administrative fee applied in addition to the prime rate as interest to cover the internal costs. The loan rates are fixed for the life of the loans.

Loans initiated at different times may bear different interest rates, where, in the opinion of the Board, the difference in rates is supported by a change in market interest rates or a change in the current assumed rate of return to the pension trust. The rate will not change more frequently than annually.

Bear in mind that the interest paid in by you, except for the 1% administrative fee, gets posted back to your account as interest with each payment. It is essentially a self-directed investment.

What is the current calculated interest rate?
The current loan interest rate is 5.25%, which includes the 1% administrative fee.
What are the loan initiation and processing fees?
A loan origination fee in the amount of $75.00 shall be deducted from each approved loan. A $2.50 per payment processing fee will be added to each loan repayment amount to cover the third party administrator (TPA) fees. Also, a $.30 fee is also added by the City’s Payroll Audit department to handle each loan deduction. The TPA for the loan program is First Independence Bank.
What are the terms of the loan?

That depends on the type of loan. There are two types:

  1. General Purpose Loan - A repayment period of one to five (1 - 5) years. A General Purpose Loan can be used for any purpose. Proof of the reason for the Loan is not required.
  2. Residential Loan - A repayment period of one to fifteen (1 - 15) years. A Residential Loan can be used only for the purchase or construction of a primary residence. Proof of purchase or a construction agreement is required.
Can I take a residential loan to refinance or pay off an existing mortgage?

No. Residential loans are only for home purchase or new construction.

The Participant Member can obtain a residential loan for constructing a new residence or purchasing an existing residence, but not for refinancing or repaying an existing mortgage, paying for renovations, buying out another person’s share in their current residence, or for the purchase of land.

What are the loan repayment rules?
Please see “Section 4: Loan Provision Agreement” on your annuity loan application for a complete list of loan provisions.
What happens to my loan and payments if I take a leave of absence?

A participant who takes a leave of absence from the City without pay for a period of greater than one month, but not exceeding one year may request that their loan repayments be suspended during the leave through the submission of an “Employee Status Change Form”. This form is provided by the city payroll office. Any delinquent payments owed prior to the date of the participant’s approved leave, must be paid by the participant, or failure will result in a delinquency and possibly a default of their loan in accordance with IRS provisions. Interest will continue to accrue during the suspension period. The participant must complete another “Employee Status Change Form” when returning to work and resume the payroll deductions. Participants who take a leave of absence without pay for a period of one year or greater must continue to make their loan payments in accordance with the original loan repayment schedule and submit the certified check or money order directly to the Bank. Failure to submit an “Employee Status Change Form” may result in a loan default.

A participant who takes a leave of absence from the City because of military service and does not receive a distribution of his or her account, such period of absence shall not be taken into account as part of the loan period even if the length of military service is greater than the original term of the loan. Upon completion of military service, the loan shall be recalculated and repaid over the original term of the loan. Also, during the absence for military service, the rate of interest shall not be greater than 6% compounded annually. The participant must complete and submit an “Employee Status Change Form” both prior to commencement of military leave and upon return.

What happens if I fail to make a required loan payment?

A participant will first be notified with a “Past Due Notice Letter” from First Independence Bank that the required loan payment was not made by the due date. This first occurs when two or more payments are missed. If the Plan Administrator does not receive the payment by the last day of the calendar quarter in which it was due, the participant’s loan is delinquent and the Plan Administrator will send the participant a “Delinquent Status Letter”. The “Delinquent Status Letter” is the second notice to the participant of the delinquency and the ability to cure the delinquency on or before default date. The default date is defined as the last day of the calendar quarter following the calendar quarter for which the missed payment occurred.

To cure the delinquency, the participant must submit the amount due, via bank check or money order, directly, to the Plan Administrator in accordance with the cure period as set forth in the “Delinquent Status Letter”.

A participant’s default of one outstanding loan does not constitute a default of a second. A participant may continue to make loan payments on a second loan either via payroll deductions or with a certified check or money order made payable to the First Independence Bank indicating the Frozen Defined Contribution Plan at a Bank branch.

Please note, it is the responsibility of the member to ensure that their contact information remains current at all times. Exceptions will not be granted for members who do receive their Past Due Notice or Delinquency Notice due to an outdated member address.  

What are the consequences of a loan default?

If the Plan Administrator has not received the delinquent loan payment(s) by the date set forth in the “Delinquent Status Letter” (see definition in the answer to the question above), the loan is defaulted and the participant shall receive a “Notice of Default”. The “Notice of Default” is a confirmation to the participant that the Plan Administrator did not receive the past due loan payment(s) to cure the delinquency by the specified date and, therefore, the following have taken place:

  • The entire outstanding balance of the loan, including accrued, but unpaid, interest up to the date of default will be a deemed distribution and is includible in gross income, subject to mandatory federal withholding requirements and reported on Form 1099-R. You may also owe a penalty to the IRS for premature withdrawal if you are under age 59 ½ in addition to the taxes owed.

  • The participant will be precluded from applying for future loans from his or her Frozen Defined Contribution Plan account, even if the defaulted loan is fully paid off.
How do I estimate a loan repayment amount?

Loan payments will be made through regular payroll deductions, at a minimum bi-weekly. The payroll deduction cannot be less than $20.00 for any two-week period. If the required loan repayment amount exceeds 25% of your net pay, your loan proceeds will be reduced to an amount that will ensure your payroll deduction is below that threshold. You may increase your payroll deduction to pay-off the loan early. If you choose, you may elect to fully payoff your loan at any time with a certified check or money order made payable to the First Independence Bank indicating the Frozen Defined Contribution Plan. You should contact the Bank prior to submitting any full prepayment to confirm the current amount due.

Participants are urged to contact First Independence Bank for loan payment information.

It's my money, why do I have to pay it back?

Short Answer: The IRS rules require you to repay the loan.

Explanation: These monies are to be used for retirement and no taxes have been paid on the earnings. The Government wants to ensure that the funds YOU have set aside for retirement are there when you retire. It is the same reason that they charge a premature distribution fee for taking refunds out of the Frozen Defined Contribution Plan before you have reached retirement age.

Why can't I offset the loan with the annuity (Frozen Defined Contribution Plan) monies I have?
Participants are never eligible to directly “offset” their loans (payoff by using the remaining balance in the Frozen Defined Contribution Plan). The IRS would consider the offset a violation of the plan unless a member is eligible for an annuity refund.
How does my loan affect my ability to get an annuity refund?

The Frozen Defined Contribution Plan does not allow in- service distributions except for the one time withdrawal after a member has reached 25 years of service.

However, participants that have an outstanding Plan loan balance will still be eligible for the twenty-five year one time in-service withdrawal providing they meet all of the following criteria:

(a)          The participant is currently employed as a city of Detroit employee.

(b)          The participant is current with their outstanding plan loan, and

(c)           The remaining balance in the participants account after the issuance of their 25-year benefit is not less than the outstanding loan balance at the time the benefit is paid.

What happens if I get disabled, there is a layoff, or I need to quit?

When a Plan participant experiences a severance from City service, the participant will be sent an “Employment Separation Letter” where they will be given a choice of having the loan treated as a “deemed distribution” which would result in a taxable distribution to the participant on a Form 1099-R for the outstanding loan amount.

Alternately, the participant can pay all outstanding loans in full in which case no taxable event for the loan would occur.

Disability retirement status shall be treated like a separation from service.

What is the sequence of events in the loan process?
  1. A completed Frozen Defined Contribution Plan loan application is received by the Plan Administrator;
  2. The Plan Administrator verifies the participant’s eligibility for a loan and the amount of the loan;
  3. If verified, the Plan’s record keeper issues a report to the Board which reviews the loan request and authorizes disbursement.
  4. Subsequently loan proceeds are issued by the Bank to the participant (funds are disbursed at closing from the Bank to the participant usually within a week after the participants loan has been approved by the Board);
  5. Repayments will be deducted from your paycheck on a bi-weekly basis, beginning shortly after you receive the loan proceeds.
Wait...have you considered everything?

Before deciding to take a loan from your Frozen Defined Contribution Plan account, make sure you understand how taking a loan can affect your retirement savings. Taking a loan from your Frozen Defined Contribution Plan account can greatly impact your future account balance. Therefore, you should consider other ways to cover your unexpected expenses.  It is recommended you consult a qualified, independent tax advisor and/or certified financial planner/advisor prior to deciding to take a loan from your Frozen Defined Contribution Plan account.