Why you should save your 'pay raise'

MANY COUNCIL 2 members will find their paychecks are a little larger in July than they were in June. The reason is the state’s revision of the amount deducted for pension contributions.

But advisers suggest you avoid the temptation — if you can — to go out and spend the additional money.

Instead you should increase your contributions to your deferred compensation retirement plan by that amount. Not only will you be boosting your retirement savings, you will gain tax benefits by doing so.

“In that way, you will keep the amount of money that is going toward your retirement,” says Council 2 Deputy Director Pat Thompson. “Since your state plan is going down, why don’t you take that money and put it into your deferred compensation plan?

“You will still have the same amount to live on as you had before, but your retirement plan will receive an extra boost.
“Don’t make the same mistake that the state is making by reducing the amounts being deducted for your pension plan. Keep it for your golden years.”

The state at first wanted to change the funding method for pensions that would have harmed the stability of the pension systems.

But, although that failed, the budget that was passed artificially lowered rates, a move that will lead to increased future costs.

“Money that should be going to lower the unfunded liability of Plan I will be spent on balancing the state’s current budget,” Thompson explains. “Whereas this means lower rates for everyone now, it will mean higher rates in the future.

Hopefully, our employers will use this money to help offset cuts that affect our membership such as layoffs, furloughs, and so on. But we strongly suggest you save the difference.”

Click here to view a chart that outlines the new pension deductions.