The Transit Supervisors Organization, a union representing employees of the Manhattan and Bronx Surface Transit Operating Authority (MABSTOA), asked whether pensions paid to MABSTOA employees are taxable under New York's personal income tax - especially after the MABSTOA pension plan was revamped to more closely resemble the New York City Transit Authority's pension fund.

Plain-English summary

The Transit Supervisors Organization, a union representing employees of the Manhattan and Bronx Surface Transit Operating Authority (MABSTOA), asked the Department whether pensions paid to MABSTOA employees are taxable under New York's Article 22 personal income tax.

The Department had already answered a version of this question in 1986, in an Advisory Opinion issued to the Transport Workers Union of Greater New York (TSB-A-86(18)I, December 9, 1986). That earlier opinion held that the MABSTOA pension plan was not a "New York State or municipal retirement system" within the meaning of the Personal Income Tax Regulations (then § 116.3(c), now § 112.3(c)), so MABSTOA pensions did not qualify for the broad exemption under Tax Law § 612(c)(3), which exempts pensions of officers and employees of New York State, its subdivisions, and its agencies. However, that 1986 opinion also found that MABSTOA pensions did qualify for a separate, narrower exemption under Tax Law § 612(c)(3-a): up to $20,000 of periodic pension or annuity payments is excludable from New York taxable income for a retiree who has reached age 59 1/2, to the extent the payments are includible in federal gross income and are attributable to personal services performed before retirement.

By 1992, the MABSTOA pension plan had been revamped, modeled on the pension fund for New York City Transit Authority employees. Under the new structure, MABSTOA employees on Tier III and Tier IV made a 3% contribution into the MABSTOA fund - similar to how Transit Authority employees contribute to the New York City Employee Retirement System (NYCERS). But there was a critical difference: Transit Authority employees' contributions go into NYCERS itself, while MABSTOA employees' contributions go into the separate MABSTOA fund, which is not governed, funded, or administered through NYCERS at all. Instead, the MABSTOA fund is run by its own board, made up of two representatives from the union and two from management.

The Department concluded that this revamp did not change the outcome. Because the MABSTOA fund still operates outside NYCERS and is still run by its own independent labor-management board rather than by a state or municipal retirement system, the revamped plan still is not a "New York State or municipal retirement system" under the regulations, and MABSTOA pensions therefore remain outside the § 612(c)(3) exemption. But the revamped plan continues to qualify for the § 612(c)(3-a) exemption, so retirees age 59 1/2 or older can still exclude up to $20,000 of their periodic MABSTOA pension payments from New York taxable income.

What this means for you

MABSTOA retirees and current employees

Your MABSTOA pension is not exempt from New York personal income tax as a "state or municipal retirement system" pension, even after the plan's 1990s-era revamp that added Tier III/IV employee contributions modeled on the NYC Transit Authority's system. The MABSTOA fund's independence from NYCERS - it is funded and run by MABSTOA's own union-management board, not through the city's retirement system - is what keeps it out of the § 612(c)(3) exemption. That said, if you are age 59 1/2 or older, you can still exclude up to $20,000 of your periodic MABSTOA pension payments each year under the separate § 612(c)(3-a) pension exemption available to most private and out-of-state government retirees.

Unions and payroll administrators handling MABSTOA or similar authority pensions

When a transit authority or similar public-benefit entity restructures its pension fund to resemble a city or state retirement system, don't assume the new structure automatically qualifies for the full state/municipal pension exemption. The Department looks at who actually governs, funds, and administers the fund. If the fund remains a stand-alone entity - run by its own board rather than folded into NYCERS or another recognized state or municipal retirement system - it will still be treated as outside § 612(c)(3), regardless of how closely its contribution structure mirrors a municipal system. Make sure retirees know they can still claim the § 612(c)(3-a) $20,000 age-59 1/2 exemption instead.

Common questions

Q: Why isn't a MABSTOA pension treated the same as a New York City or state government pension?
A: The exemption under Tax Law § 612(c)(3) only applies to pensions from a "New York State or municipal retirement system," a term defined by regulation (former § 116.3(c), now § 112.3(c)). The Department has twice concluded - first in 1986 and again in this 1992 opinion - that the MABSTOA pension fund doesn't meet that definition, because it is not governed, funded, or administered through the New York City Employee Retirement System (NYCERS) or any other recognized state or municipal system. Instead, it is run independently by a board of union and management representatives.

Q: MABSTOA revamped its pension plan to look more like the Transit Authority's plan. Why didn't that change the answer?
A: The revamp added a 3% Tier III/IV employee contribution similar to what Transit Authority employees pay into NYCERS. But the key distinction the Department focused on wasn't the contribution structure - it was where the money goes and who runs the fund. Transit Authority employees' contributions go into NYCERS itself. MABSTOA employees' contributions go into the separate MABSTOA fund, which remains outside NYCERS and is run by its own independent board. Because that structural independence didn't change, the legal conclusion from 1986 still applied in 1992.

Q: If MABSTOA pensions aren't exempt as municipal retirement income, are they taxed like any other pension?
A: Largely yes, but with one significant exception: under Tax Law § 612(c)(3-a), a retiree age 59 1/2 or older can exclude up to $20,000 per year of periodic pension or annuity payments attributable to personal services performed before retirement, whether the pension arose from an employer-employee relationship or from deductible retirement plan contributions. This exemption is available to most retirees receiving qualifying pension income, not just MABSTOA employees, and it applied to MABSTOA pensions both before and after the plan's revamp.

Q: Does this opinion apply to all MABSTOA employees, or only those on Tier III/IV?
A: The opinion addresses the MABSTOA pension plan generally, noting that Tier III and Tier IV employees are the ones who make the new 3% contribution under the revamped structure. The conclusion that the plan is not a "New York State or municipal retirement system" - and that pensions from it qualify instead for the § 612(c)(3-a) exemption - applies to the MABSTOA fund as a whole, not just to a particular tier of employees.

Citations and references

• Tax Law § 612(c)(3) - exempts pensions of officers and employees of New York State, its subdivisions and agencies; held not to cover MABSTOA pensions
• Tax Law § 612(c)(3-a) - exempts up to $20,000 of periodic pension/annuity income for individuals age 59 1/2 or older attributable to personal services performed before retirement; held to still cover MABSTOA pensions after the revamp
• Personal Income Tax Regulations former § 116.3(c) (now § 112.3(c)) - defines "New York State or municipal retirement system," the standard the MABSTOA fund failed to meet
• Transport Workers Union of Greater New York, Adv Op St Tax Comm, December 9, 1986, TSB-A-86(18)I - the earlier opinion reaching the same conclusion about the pre-revamp MABSTOA pension plan

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a92_8i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-92 (8) I
Income Tax
September 29, 1992

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I911125C

On November 25, 1991, a Petition for Advisory Opinion was received from
Transit Supervisors Organization, 10 West Fordham Road, Bronx, New York 10468.
The issue raised by Petitioner, Transit Supervisors Organization, is
whether the pensions paid to employees of the Manhattan and Bronx Surface Transit
Operating Authority (hereinafter "MABSTOA") is taxable for purposes of the
personal income tax imposed under Article 22 of the Tax Law.
This issue was addressed in an Advisory Opinion issued to Transport Workers
Union of Greater New York (Adv Op St Tax Comm, December 9, 1986, TSB-A-86(18)I).
Therein, the Tax Commission opined that the MABSTOA pension plan is not a "New
York State or municipal retirement system" within the meaning of former section
116.3(c) (now section 112.3(c)) of the Personal Income Tax Regulations and
therefore, is not exempt from the personal income tax pursuant to section
612(c)(3) the Tax Law which exempts "[p]ensions of officers and employees of this
state, its subdivisions and agencies ... "
However, the opinion noted that the pensions paid by MABSTOA would qualify
for the exemption provided by section 612(c)(3-a) of the Tax Law which exempts:
[p]ensions and annuities received by an individual who has
attained the age of fifty-nine and one half, not otherwise excluded
pursuant to paragraph three of this subsection, to the extent
includible in gross income for federal income tax purposes, but not
in excess of twenty thousand dollars, which are periodic payments
attributable to personal services performed by such individual prior
to his retirement from employment,
which arise
(i)
from an
employer-employee relationship or (ii)
from contributions to a
retirement plan which are deductible for federal income tax
purposes.
Since the Advisory Opinion was issued, the MABSTOA pension plan has been
revamped using the pension fund for employees of the New York City Transit
Authority as a model.
Employees on Tier III an Tier IV make contributions
including a three percent payable deduction into the MABSTOA fund. This
contribution is similar to that made by Transit Authority employees into the New
York City Employee Retirement System except these employees pay into the MABSTOA
fund.
The MABSTOA fund however, unlike the Transit Authority fund, is
notgoverned, funded or administered through the New York City Employee Retirement
System. Instead, the MABSTOA fund is run by a Board consisting of two
representatives from the Union and from management.

-2­

TSB-A-92 (8) I
Income Tax
September 29, 1992

Accordingly, the revamped MABSTOA pension plan is not a "New York State or
municipal retirement system" within the meaning of former section 116.3(c) (now
section 112.3(c)) of the Personal Income Tax Regulations and therefore, is not
exempt from the personal income tax pursuant to section 612(c)(3) of the Tax Law
which exempts "[p]ensions of officers and employees of this state, its
subdivisions and agencies ..." Transport Workers Union of Greater New York, Adv
Op St Tx Comm, December 9, 1986, TSB-A-86(18)I.
However, the revamped MABSTOA pension plan still qualifies for the
exemption provided by section 612(c)(3-a) of the Tax Law.

DATED: September 29, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.