Transcript IPERS Overview and Benefit Options

IPERS Overview
& Benefit Options
Presented by Ronda Onken
Senior Retirement Benefits Officer
Summer 2012
What is IPERS?
• The largest public retirement system in Iowa
– Members include employees of:
• public schools, cities, counties, state government, state
universities, State Board of Regents
• Approximately 330,000 members
• 2,200 employers
• 100,000 retirees
• $1.3 billion in benefit payments paid
annually
What is IPERS?
• 401A (defined benefit plan) under IRS
codes:
– Lifetime benefits are paid based on a
formula not on the amount of contributions.
– Formula factors
• Age
• Years of service
• The average of your highest three years of salary
How does it work?
Contributions from
Active Members
and Employers are
paid in.
The IPERS Trust Fund
Lifetime Retirement
Benefits,
Disability Benefits,
Death Benefits and
Refunds are
paid out.
The IPERS Trust Fund must be used for the
exclusive benefit of members and their beneficiaries.
What’s My Part?
• Contributions + interest
– Contributions based on gross wages
– Current Regular class contribution rate:
•5.78% from you, the member
•8.67% from your employer
– Interest is credited quarterly
What is “vesting”?
Vesting status is obtained after:
• 16 quarters (4 years) of
reported wages,
or
• When wages are reported in
the same calendar year age 55
or older is attained
Vesting
• Entitles the member to:
•Monthly retirement or
disability benefit
•A portion of employer’s investment
if refund is taken
and
• Is required for a service purchase
Monthly Benefit
• Six monthly payment options
– Always lifetime to member
– Different death benefit provisions
IMPORTANT!
• Option choice cannot be changed
once benefits are paid.
Benefit Formula
• Monthly benefits are calculated using:
– Years of Service
– Age
– Highest Three Years of Salary (Average)
Benefit Formula – Years of Service
•Each year worked earns 2% of the 60% payable for the first 30 years.
•1% for a maximum total of 65% payable for each additional year after 30.
•Early retirement reduction if before normal retirement.
Maximizing Years of Service
• Free credit
– Leaves of absence
• Granted prior to July 1998
• Requires verification from employer
– Active military duty
• Entered military as an IPERS covered employee
and returned to IPERS employment within one
year of discharge
• Submission of DD214 form required
Service Purchase Options
• Refunded IPERS service
• IPERS employment not previously covered
• Other public system(s) (if not eligible to draw
pension from the other system)
• Active duty military time not eligible for free
credit
• Nonqualified Service - 5 year limit
– Time not qualified (private employment)
– Public employment (eligible to draw pension from
other system)
– “Air time”
Benefit Formula - Age
What is considered “normal retirement”?
• Age 65
• Age 62 with 20 or more years of service
• Rule of 88 (years of service + age)
• Receiving social security disability or
railroad disability
– Must be vested if applying for disability
benefits under the age of 55
Early Retirement Reduction
• Less than 20 years of service
 3% per year for each year under age 65
• 20 or more years of service
 3% per year for each year under age 62
• At least 27 years of service and not
reaching the Rule of 88
 3% per year for each year under 88.
Computed Year Example
HIGH 3 CALENDAR YEAR WAGES
2011 $42,000
2010 $38,000
2009 $35,500
÷4=
High 3 Average =$8,875
$38,500
The final high three
average used will result
in the highest monthly
pension payment
payable to the member.
CURRENT YEAR SALARY (2012)
1st
2nd
3rd
4th
$11,000
$13,000
$ 8,875
$ 8,875
• Computed year salary $41,750
• Computed year High 3
Average = $40,583.33
*The computed year salary cannot be
more than 103% of the highest
calendar year wage (2011).
**The computed year average cannot be
more than 121% of the 4th highest
salary year not being used in the
calculation (2009).
Important Facts to Remember!
• Working any time in a month makes you
ineligible for benefits that month.
• You can get a paycheck in the same month
you start IPERS payments.
Retirement Estimates
• Request estimates from IPERS before
deciding on a retirement date.
• Working a little longer could increase
benefits significantly.
• May be eligible to retire earlier.
Option Summary
Always lifetime to member!
OPTION 1
Guaranteed death benefit in $1,000 increments
OPTION 2
Death benefit only if balance of investment remains
OPTION 3
No death benefit
OPTION 4
Dual life annuity
OPTION 5
Guaranteed 10 year monthly benefit payments
OPTION 6
Dual life annuity with pop-up feature for member
Getting Monthly Benefits Started
• Must terminate employment unless age 70
• Must be age 55 or older
– Unless vested and eligible for IPERS disability
benefits
• Must make application
Taxes
• Benefit payments are subject to federal
and state income tax
– You can request that the tax can be withheld
from monthly benefit payment
• 1099R mailed each January
• For detailed tax information, contact the
IRS for publication 575 or consult a tax
advisor
Bona Fide Retirement
• No employment with an IPERS-covered
employer for one calendar month
• No IPERS covered employment for an
additional three months for a total of four
calendar months
• Months are counted by number of pension
payments qualified for and received
When to Contact IPERS
• 3-5 years from possible retirement for
estimates
• 5-6 months from retirement to obtain
application packet
• At termination, if before age 55 for
additional options
• If a disability occurs
Changes to IPERS
Presented by Ronda Onken
Senior Retirement Benefits Officer
Summary of Changes
7/2012
• Change in Vesting Rules
• Change to High 5 Average
• Change in Early Retirement Reduction
Percentage
• Contribution rates increase 1%
• New reduction rules apply only to service
earned 7/1/12 and later
Contribution Rate Change
7/2011
7/2012
Contribution rate
13.45%
Contribution rate
14.45%
Split 60/40
Employee 5.38%
Employer 8.07%
Split 60/40
Employee 5.78%
Employer 8.67%
Possible change
+/–1.0% annually
Possible change
+/–1.0% annually
A salary of $45,000 per year will see $180 per year increase of contributions in 2012.
Vesting Rule Change
Now through
6/30/2012
On July 1, 2012
Vesting after 4
years
Vesting after
7 years
Vesting Changes
Vested on 6/30/12; remain vested
•At least 4 years of service OR
•Year age 55 or older and contributing
Not vested on 6/30/12; vest at 7 years
•At least 7 years of service OR
•Month age 65 or older and contributing
High 5 Average Change
Now through
6/30/2012
On July 1, 2012
High 3 year
average
High 5 year
average
High 5 Average
Compare and use higher of:
Snapshot of
High 3 on 06/30/12
High 5
at retirement
Example 1: High 5
Member retiring December 2014 with pay raise each year.
Snapshot of High 3
06/30/12
$45,000
47,000
47,000
$139,000 ÷ 3
$ 46,333
High 5 at Retirement
$45,000
47,000
47,000
49,000
50,000
$238,000 ÷ 5
$ 47,600
Example 2: High 5
Member retiring December 2014 with decrease in pay.
Snapshot of High 3
06/30/12
$45,000
47,000
47,000
$139,000 ÷ 3
$ 46,333
High 5 at Retirement
$45,000
47,000
47,000
40,000
43,000
$222,000 ÷ 5
$44,400
Spiking control still applies
$ 37,000
38,000
40,000
41,000
6th highest
45,000
47,000
47,000
High 5
52,000
71,000
93,000
$310,000 ÷ 5 = $62,000
$45,000
x
134%
= $60,300
Early retirement age reduction
Current
Reduce 3% a year for portion of service
through 06/30/12
From nearest normal retirement eligibility
(Rule of 88; rule of 62/20; age 65)
Beginning July 1, 2012
Reduce 6% a year thereafter
From age 65
Benefit multiplier –
No change
2% a year for 30 years
1% a year in years 31–35
Maximum 65%
Benefit Formula: Average Salary X Multiplier
Normal retirement age
(No early retirement reduction) – No Change
Age 65
Regardless of service
Rule of 62/20
At least age 62 with
20 or more years of service
Rule of 88
Age + Years of service
= 88 or greater
Example: Early retirement
Retire age 61 with
26.5 years of service
Total years 26.5
Annual multiplier
Adjustment factor
Adjusted to
How long
Reduction
June 30, 2012
24
2%
3%
62/20
1 yr
3%
2.5
2%
6%
65
4 yr
24%
Example: Early retirement
24 yrs
2.5 yrs
Reduce 3%/year for 1 year
Reduce 6%/year for 4 yrs
Earned before 7/1/12:
24 x 2% = 48% multiplier
$54,000 x 48% = $25,920
Earned starting 7/1/12:
2.5 x 2% = 5% multiplier
$54,000 x 5% = $2,700
Early retirement reduction:
$25,920 x 3% = $777.60
Early retirement reduction:
$2,700 x 24% = $648
$25,920 – $777.60 = $25,142.40 $2,700 - $648 = $2,052
Annual benefit = $27,194.40
Example: Work 6 more months
Retire age 61 with
27 years of service
June 30, 2012
Total years 27
Annual multiplier
Adjustment factor
Adjusted to
How long
Reduction
24
2%
0%
3
2%
0%
0 yr
0%
0 yr
0%
Rule of 88
Rule of 88
Example: work 6 more months
24 yrs
3 yrs
Rule of 88
Rule of 88
Earned before 7/1/12:
24 x 2% = 48% multiplier
$54,000 x 48% = $25,920
Earned starting 7/1/12:
3 x 2% = 6% multiplier
$54,000 x 6% = $3,240
Early retirement reduction:
$25,920 x 0% = $0
Early retirement reduction:
$2,700 x 0% = $0
$25,920
$3,240
Annual benefit = $29,160.00
Value of working the
additional 6 months
Annual Pension with Reduction $27,194.40
Annual Pension with Rule of 88 $29,160.00
Increase of $163.80 per month
for lifetime for working an
additional 6 months
Contact us:
The purpose of this presentation is to give you a brief overview of
IPERS and upcoming law changes.
For detailed information on your account:
• Call toll free 1-800-622-3849 or locally at 515-281-0020 Phones
are answered by Retirement Benefit Officers from 7:30 am to
5:00 pm Monday through Friday, excluding holidays.
• Website: www.ipers.org
• E-mail requests: [email protected]
• Retirement calculators
• Handbook
• Newsletters
• Other important information
Thank You!
Presented by Ronda Onken
Senior Retirement Benefits Officer
E-mail: [email protected]
Phone: (515) 281-0063