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Planning for Retirement

Planning for Retirement. Presented by: Ramona DeWitte August, 2013. Financial Planning. What is PEPRA & How does it affect me? Can I afford to retire now? What does “2% at 57” or another benefit formula mean? How is my Retirement Benefit calculated?

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Planning for Retirement

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  1. Planning for Retirement Presented by: Ramona DeWitte August, 2013
  2. Financial Planning What is PEPRA & How does it affect me? Can I afford to retire now? What does “2% at 57” or another benefit formula mean? How is my Retirement Benefit calculated? How do I start the Retirement Process? 2
  3. What is PEPRA & How does it Affect me? What is PEPRA? PEPRA is the California Public Employees’ Pension Reform Act, which includes AB (Assembly Bill) 340 and AB 197. PEPRA was signed into law by Governor Jerry Brown on September 12, 2012 and took effect on January 1, 2013. Who are PEPRA Plan members? Employees hired on or after January 1, 2013, who do not establish reciprocity. Does PEPRA affect retirement benefit formulas for current employees? No. Pension benefit formulas will remain the same. Does PEPRA change the minimum retirement requirements? No. Existing minimum retirement ages and service credit will remain the same. Does PEPRA change the definition of Final Average Salary? No. The definition of Final Average Salary (FAS) will remain the same. Does PEPRA change the types of pay that can be sued to calculate pension benefits? affect retirement benefit formulas for current employees? PEPRA essentially confirms existing SBCERS’ practices as to what is included and excluded from “compensation earnable”. The legislation, however, directs SBCERS to exclude those pay items determined to be for the purpose of enhancing a benefit, such as one-time ad hoc payments. 3
  4. Eligibility for Pre-PEPRA Retirement Benefitsfor members hired before January 1, 2013 Basic Eligibility Age 50 and 5 Years of Service Worked and 10 Years of Elapsed Time since date of hire OR 30 years of service as a General Member OR 20 years of service as a Safety Member OR Age 70 Regardless of service worked 4
  5. Retirement Plans & Formulas PRE-PEPRA PLANS – hired on or before December 31, 2012 General Plan APCD2% @ Age 55§31676.15 General Plan 2 2% @ Age 55*§31486.4 General Plan 5 2% @ Age 57§33676.12 General Plan 7 1.67% @ Age 57 ½§31676.1 Safety Plan 4 3% @ Age 55§31664.2 Safety Plan 6 3% @ Age 50§31667.1 *Integrated with Social Security PEPRA PLANS – hired on or after January 1, 2013 General Plan 8 2% @ Age 62 §7522.20 Safety Plan 8 2.7 @ Age 57§7522.25(d) 5
  6. PRE-PEPRA Service Retirement Calculation PRE-PEPRA Retirement Benefit Formulas use a “Percentage” method of Final Average Salary (FAS) to determine the monthly allowance. The formula is calculated as of a specific retirement age i.e. 2% @ Age 57 with Age 57 being equal to an “Age Factor” of 1.0000. Anyone younger than 57 has a factor of less than 1.0000 while Anyone older than 57 has a factor greater than 1.0000 not to exceed 1.3093. The formulas were created to incrementally reward government workers for longevity in the workplace. Retirement Benefit Formula Components Final Average Salary (FAS) Formula Percentage (2%, 3%, 1.67%) Service Years Age at Retirement Adjusted up or down by an actuarial percentage factor when compared to the retirement age of your base formula. 6
  7. What does “2% at 57” Mean? How the Unmodified Retirement Allowance Formula works General Member Benefit Formula is “2% @ Age 57” FAS X Formula Percentage X Service Years X Age Factor = Monthly Benefit 7
  8. Final Average Salary“Highest Annual Salary” “Pensionable Compensation” defines which pay codes are allowable by law to be used in calculating your retirement benefit. Final Average Salary (FAS) is limited by the PEPRA regulations with minimal changes for Pre-PEPRA employees. FAS is composed of many items such as hourly rate of pay, vacation pay, holiday pay, sick leave pay, unit cash allowance, bi-lingual pay, etc. Overtime is not included in your FAS. General Members General Plans 5A, 5B, and APCD Plans 1 & 2 = 1 Year FAS General Plans 2, 5C, 7 and Part-Time members = 3 Year FAS Safety Members Safety Plans 4A, 4B, and 6A = 1 Year FAS Safety Plans 4C and 6B = 3 Year FAS 8
  9. What Can I Do to Insure I Receive the Maximum Allowable Benefit? AGE Retire at or later than Retirement Age in your benefit formula SERVICE Purchase any eligible missing work time (buybacks) Buybacks Extra Help Medical Leave of Absence Redeposits Unused Sick Leave of up to 2087 hours converts to a maximum of 1 year of additional retirement service credit. 9
  10. Things to Consider Community Property If there is/was a Domestic Relations Order (DRO) during your employment, then there is Community Property interest in your retirement asset. IT MUST BE ADDRESSED PRIOR TO RETIREMENT. Reciprocity Retirement Option Choices Annual COLA Health Insurance Retirees have the same group health benefits as active members. Retirees receive a monthly insurance allowance of $15 per-year-of-service to off-set out-of-pocket insurance cost. Retirees not participating in health insurance receive a $4 per-year-of –service in a Health Reimbursement Account. Monthly Check Taxes 10
  11. What Happens When I Die? When you Retire, you have several Pay Options that determine what, if any, benefit will be paid to your surviving beneficiary. The most common continuance benefit elected is the Unmodified Option which pays 60% of the retiree’s monthly allowance to the surviving spouse/registered domestic partner. Modified Pay Options provide alternative Continuance benefits in exchange for a reduction in the monthly benefit. Modified Options include 100% Continuance, 50% Continuance and Multiple Beneficiaries. The payment option made at the time of Retirement is irrevocable so careful consideration with your spouse/family should be taken. The contributory plans also pay a $5,000 Death Benefit. When you die prior to retirement any survivor benefit that may be available is dependent on factors such as whether the member was vested or nonvested at the time of death. 11
  12. How Do I Retire? Call your Benefit Specialist! Begin with a Pre-Retirement Counseling appointment Consider all retirement income sources and gather multiple benefit estimates (SBCERS, Social Security, Deferred Comp) Do the math - determine best benefit Prepare a budget based on new retirement income Consider the change from bi-weekly to monthly payments Do the time – determine best time to retire Collect required documents Birth Certificates for you and spouse, Marriage Certificate, Social Security cards for you and spouse, Medicare cards if applicable. Coordinate with employing department to finalize all pay events and records Consider impact of transition of Health Insurance coverage 12
  13. Retirement A Time to Relax A Time to Reflect A Time to Enjoy the Fruits of your Labor SBCERS…Helping you get there 13
  14. Questions? 14
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