A PVT LTT JET LEVEL AT FL220 IS ALERTED TO B727 TFC IN A CLB BELOW THEM BY TCASII. THE B727 ACFT THEN CONTINUED CLB RESULTING IN LOSS OF SEPARATION.

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WHILE DSNDING FROM FL240 TO FL220 I OBSERVED AN ACFT CLBING AND OVERTAKING US FROM THE REAR ON TCASII. WHILE LEVELING AT FL220 WE RECEIVED AN AURAL 'TFC' AND THE DISPLAY TURNED YELLOW. I GLANCED OUT THE L WINDOW AND SAW THE B727 JUST IN FRONT OF THE L WING LEADING EDGE. I SAW 1000 FT ON THE TCASII AND COMMENTED HE WAS 1000 FT BELOW. SECONDS LATER WE RECEIVED THE CLB COMMAND AND AS I LOOKED L AGAIN; THE B727 APPEARED TO BE MAKING A SLIGHT L TURN TO AVOID US AND CONTINUED TO CLB; LEVEL AT OUR ALT AND CROSS OUR BOW ON APPROX A 10-15 DEG DIVERGENCE. COPLT OBSERVED 300 FT ON THE TCASII. COMS WERE CONGESTED; WE THINK WE HEARD ACR Y SAY HE HAD VISUAL CONTACT. MOMENTS LATER; ACR Y ASK IF HE SHOULD STAY AT FL220; HE WAS THEN CLRED TO FL210. HOW THE PROB AROSE: ATC BUSY AS USUAL; ASSIGNED A WRONG ALT DISCOVERED BY TCASII. NEW YORK APCH WAS SLOW TAKING HDOFS; 360 DEGS IN PROGRESS; FREQ CONGESTION; LOTS OF ACFT IN A SMALL AREA. MY ERROR WAS NOT VISUALLY MONITORING THE B727. I ASSUMED HE WOULD LEVEL OFF. IF TCASII WAS WORKING PROPERLY; HE MUST HAVE OBSERVED US IN ADEQUATE TIME TO MANEUVER HIS ACFT FURTHER AWAY FROM MINE. I WOULD HAVE. I WILL NOW MONITOR ALL ACFT TILL WELL CLR. ACTUALLY; I DON'T KNOW WHY HE CONTINUED CLBING AND LEVELED AT OUR ALT. I THINK I WOULD HAVE STOPPED AT FL215.