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IPERS Overview & Benefit Options. Presented by Ronda Onken Senior Retirement Benefits Officer Summer 2012. The largest public retirement system in Iowa Members include employees of: public schools, cities, counties, state government, state universities, State Board of Regents

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ipers overview 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?
what is ipers1
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

What is IPERS?
how does it work
How does it work?

Lifetime Retirement Benefits,

Disability Benefits,

Death Benefits and

Refunds are

paid out.

Contributions from

Active Members

and Employersare paid in.

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’s My Part?
what is vesting
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

Vesting
monthly benefit
Six monthly payment options

Alwayslifetimeto member

Different death benefit provisions

IMPORTANT!

Option choice cannot be changed once benefits are paid.

Monthly Benefit
benefit formula
Monthly benefits are calculated using:

Years of Service

Age

Highest Three Years of Salary (Average)

Benefit Formula
benefit formula years of service
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

Maximizing Years of Service
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”

Service Purchase Options
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

Benefit Formula - Age
early retirement reduction
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
Computed Year Example

HIGH 3 CALENDAR YEAR WAGES

CURRENT YEAR SALARY (2012)

1st $11,000

2nd $13,000

3rd$ 8,875

4th$ 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).

2011 $42,000

2010 $38,000

2009 $35,500

High 3 Average = $38,500

÷ 4 = $8,875

The final high three average used will result in the highest monthly pension payment payable to the member.

important facts to remember
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.

Retirement Estimates
option summary
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
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

Taxes
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

Bona Fide Retirement
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

When to Contact IPERS
changes to ipers

Changes to IPERS

Presented by Ronda Onken

Senior Retirement Benefits Officer

summary of changes
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
Contribution Rate Change

7/2011

Contribution rate 13.45%

7/2012

Contribution rate

14.45%

Split 60/40

Employee 5.78%

Employer 8.67%

Possible change

+/–1.0% annually

Split 60/40

Employee 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.

vesting rule change
Vesting Rule Change

Now through 6/30/2012

Vesting after 4 years

On July 1, 2012

Vesting after 7 years

vesting changes
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
High 5 Average Change

Now through 6/30/2012

High 3 year average

On July 1, 2012

High 5 year average

high 5 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
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
Example 2: High 5

Member retiring December 2014 with decrease in pay.

High 5 at Retirement

$45,000

47,000

47,000

40,000

43,000

$222,000 ÷ 5

$44,400

Snapshot of High 3

06/30/12

$45,000

47,000

47,000

$139,000 ÷ 3

$ 46,333

spiking control still applies
Spiking control still applies

$ 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

6th highest

High 5

= $62,000

early retirement age reduction
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
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
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
Example: Early retirement

Retire age 61 with 26.5 years of service

June 30, 2012

Total years 26.5

Annual multiplier

Adjustment factor

Adjusted to

How long

Reduction

24

2%

3%

62/20

1 yr

3%

2.5

2%

6%

65

4 yr

24%

example early retirement1
Example: Early retirement

24 yrs

2.5 yrs

Reduce 6%/year for 4 yrs

Earned starting 7/1/12:

2.5 x 2% = 5% multiplier

$54,000 x 5% = $2,700

Early retirement reduction:

$2,700 x 24% = $648

$2,700 - $648 = $2,052

Reduce 3%/year for 1 year

Earned before 7/1/12:

24 x 2% = 48% multiplier

$54,000 x 48% = $25,920

Early retirement reduction:

$25,920 x 3% = $777.60

$25,920 – $777.60 = $25,142.40

Annual benefit = $27,194.40

example work 6 more months
Example: Work 6 more months

Retire age 61 with 27 years of service

June 30, 2012

3

2%

Total years 27

Annual multiplier

Adjustment factor

Adjusted to

How long

Reduction

24

2%

0%

Rule of 88

0 yr

0%

0%

Rule of 88

0 yr

0%

example work 6 more months1
Example: work 6 more months

24 yrs

3 yrs

Rule of 88

Earned starting 7/1/12:

3 x 2% = 6% multiplier

$54,000 x 6% = $3,240

Early retirement reduction:

$2,700 x 0% = $0

$3,240

Rule of 88

Earned before 7/1/12:

24 x 2% = 48% multiplier

$54,000 x 48% = $25,920

Early retirement reduction:

$25,920 x 0% = $0

$25,920

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 monthfor lifetime for working an additional 6 months

Value of working the 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: info@ipers.org

Retirement calculators

Handbook

Newsletters

Other important information

Contact us:
thank you

Thank You!

Presented by Ronda Onken

Senior Retirement Benefits Officer

E-mail: ronda.onken@ipers.org Phone: (515) 281-0063