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IPERS Overview & Benefit OptionsPresented by Ronda OnkenSenior Retirement Benefits OfficerSummer 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 fromActive Membersand Employers are paid in.
Lifetime Retirement
Benefits, Disability Benefits,
Death Benefits and
Refunds are paid out.
The IPERS Trust Fund
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 - AgeWhat 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 ExampleHIGH 3 CALENDAR YEAR WAGES
2011 $42,0002010 $38,0002009 $35,500High 3 Average =
$38,500
CURRENT YEAR SALARY (2012)
1st $11,0002nd $13,0003rd $ 8,8754th $ 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).
The final high three average used will result in the highest monthly pension payment payable to the member.
÷ 4 = $8,875
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
OPTION 1 Guaranteed death benefit in $1,000 increments
OPTION 2 Death benefit only if balance of investment remains
OPTION 3No 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
Always lifetime to 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 OnkenSenior 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
7/2012
Contribution rate14.45% Split 60/40Employee 5.78%Employer 8.67%Possible change +/–1.0% annually
7/2011Contribution rate 13.45%
Contribution Rate Change
Split 60/40Employee 5.38%Employer 8.07%Possible change +/–1.0% annually
A salary of $45,000 per year will see $180 per year increase of contributions in 2012.
Now through 6/30/2012
Vesting after 4 years
On July 1, 2012
Vesting after 7 years
Vesting Rule Change
Vested on 6/30/12; remain vested
Not vested on 6/30/12; vest at 7 years
• At least 4 years of service OR• Year age 55 or older and contributing
• At least 7 years of service OR• Month age 65 or older and contributing
Vesting Changes
High 5 Average Change
Now through 6/30/2012High 3 year average
On July 1, 2012High 5 year average
Compare and use higher of:
Snapshot of High 3 on 06/30/12 High 5 at retirement
High 5 Average
Member retiring December 2014 with pay raise each year.Snapshot of High 306/30/12$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 1: High 5
High 5 at Retirement $45,000 47,000 47,000 40,000 43,000$222,000 ÷ 5$44,400
Snapshot of High 306/30/12$45,000 47,000 47,000$139,000 ÷ 3$ 46,333
Member retiring December 2014 with decrease in pay.
Example 2: High 5
$ 37,000 38,000 40,000 41,000 45,000 47,000 47,000 52,000 71,000 93,000$310,000 ÷ 5
$45,000 x 134% = $60,300
= $62,000
High 5
6th highest
Spiking control still applies
Reduce 3% a year for portion of service through 06/30/12From nearest normal retirement eligibility(Rule of 88; rule of 62/20; age 65)
Reduce 6% a year thereafterFrom age 65
Beginning July 1, 2012
Current
Early retirement age reduction
Benefit Formula: Average Salary X Multiplier
2% a year for 30 years1% a year in years 31–35Maximum 65%
Benefit multiplier – No change
(No early retirement reduction) – No Change
Rule of 88
Rule of 62/20
Age 65
At least age 62 with 20 or more years of service
Age + Years of service = 88 or greater
Regardless of service
Normal retirement age
Retire age 61 with 26.5 years of service
Total years 26.5 Annual multiplierAdjustment factor Adjusted toHow long Reduction
242%3%
62/201 yr3%
June 30, 2012
2.52%6%65
4 yr24%
Example: Early retirement
Reduce 3%/year for 1 year Earned before 7/1/12:24 x 2% = 48% multiplier$54,000 x 48% = $25,920Early retirement reduction:$25,920 x 3% = $777.60$25,920 – $777.60 = $25,142.40
24 yrs 2.5 yrsReduce 6%/year for 4 yrs Earned starting 7/1/12:2.5 x 2% = 5% multiplier$54,000 x 5% = $2,700Early retirement reduction:$2,700 x 24% = $648 $2,700 - $648 = $2,052 Annual benefit =
$27,194.40
Example: Early retirement
Retire age 61 with 27 years of service
242%0%Rule of 880 yr0%
32%0%Rule of 880 yr0%
June 30, 2012
Total years 27 Annual multiplierAdjustment factor Adjusted toHow long Reduction
Example: Work 6 more months
Rule of 88 Earned before 7/1/12:24 x 2% = 48% multiplier$54,000 x 48% = $25,920Early retirement reduction:$25,920 x 0% = $0
$25,920
24 yrs 3 yrsRule of 88 Earned starting 7/1/12:3 x 2% = 6% multiplier$54,000 x 6% = $3,240Early retirement reduction:$2,700 x 0% = $0
$3,240
Annual benefit = $29,160.00
Example: work 6 more months
Value of working the additional 6 months
Annual Pension with Reduction $27,194.40Annual Pension with Rule of 88 $29,160.00
Increase of $163.80 per month for lifetime for working an additional 6 months
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: info@ipers.org• Retirement calculators• Handbook• Newsletters• Other important information
Contact us:
Thank You!
Presented by Ronda OnkenSenior Retirement Benefits OfficerE-mail: ronda.onken@ipers.org Phone: (515) 281-0063