Ready to Retire? An Overview of Your Benefits

Presented by Heather Semke Senior Retirement Benefits Officer August 30, 2017

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, & other

• Approximately 350,000 members • 2,000 employers • 111,000 retirees • $1.8 billion in benefit payments paid

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What Is IPERS?

• 401(a) (defined benefit plan) under IRS

codes: – Lifetime benefits are paid based on a

formula, not on the amount of contributions. – Benefit does not adjust for inflation. – Formula factors

• Age • Years of service • Highest average salary

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DB vs. DC: What’s the Difference?

Guaranteed Benefit

YES. Monthly benefit is guaranteed for life.

NO. Benefit fluctuates with market performance.

Investment Risk

Pooled investments. IPERS takes on all the risk.

YOU take on all the risk.

Withdrawals & Loans

NOT AVAILABLE

TYPICALLY AVAILABLE

Vesting 100% in your contributions. 100% in your contributions.

Portability YES YES

Death Benefits YES YES

Disability Benefits

YES. IPERS provides disability benefits depending on certain qualifications.

NO. Defined contribution plans do not usually provide disability benefits.

Fees & Expenses INCLUDED TYPICALLY HIGH

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401(k), 403(b), etc. (Defined Contribution Plan)

IPERS (Defined Benefit Plan)

How Does It Work?

Contributions from active members and 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.

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What’s My Part?

• Contributions + interest – Contributions based on gross wages – Current Regular class contribution rate:

•5.95% from you, the member •8.93% from your employer

IPERS can adjust the total contribution rate by no more than 1.0 percentage point

up or down, following a yearly actuarial valuation.

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What’s My Part?

• Contributions + interest – Protection class contribution rate:

• 6.56% from you, the member • 9.84% from your employer

– Sheriffs/Deputies contribution rate: • 9.63% from you, the member • 9.63% from your employer

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What Is “Vesting”?

Vested status is obtained after: • 28 quarters (7 years) of reported

wages, or • When wages are reported in the

same calendar year age 65 or older is attained

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Vesting

• Entitles the member to:

•Monthly retirement or disability benefit

•A portion of employer’s investment

if refund is taken (years of service/30)

•Purchase service at retirement

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Benefit Formula

• Monthly benefits are calculated using: – Years of Service – Age – Highest Average Salary

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Benefit Formula: Years of Service

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•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.

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 (No Early-Retirement Reduction)

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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)

Reduce 6% a year thereafter • From age 65

As of July 1, 2012

Early Retirement Age Reduction

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Benefit Formula – Years of Service

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•Your multiplier increases with every year you work in IPERS-covered employment.

•Maximum total of 72% payable for each additional year after 30.

•Benefits are not reduced for early retirement if you have always been a Special service member.

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

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Service Purchase Options

• Nonqualified service (air time) • Refunded IPERS service • IPERS employment not previously covered • Other public system(s) (if not eligible to

draw pension from the other system) • Active duty/LOA time not eligible for free

credit • IPERS buy-up credit conversion • Buy-back with cost credit 16

5-year limit

Effective 01/01/16: Purchasing will now take place only during the retirement process. • Increased accuracy of cost • Reduced risk of under- or overpaying

A service purchase cost estimate can be provided now to help plan whether you may want to purchase IPERS service at retirement.

Service Purchases

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How Much Will It Cost?

• Submit an Application for Service Purchase (available at www.ipers.org).

• Your estimated cost will be calculated. – You will receive the cost per quarter and the entire

purchase cost. – Official cost quotes are generated only after your

Application for Retirement Benefits is on file, at which time you will have six months to purchase.

Remember, completing the Application for Service Purchase does not obligate you to purchase service.

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Saving Up for a Purchase

Save money in a separate retirement account that can eventually be rolled over to IPERS for your service purchase without incurring tax penalties. IPERS accepts rollover money from certain types of retirement plans such as: • 401(a) and other qualified plans • IRA accounts & annuities • 403(b) tax-sheltered annuities • Governmental 457(b) plans

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Retirement Estimates

• Request benefit estimates from IPERS before deciding on a retirement date.

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.

• Working a little longer could increase benefits significantly.

• May be eligible to retire earlier!

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Sample Estimate

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Monthly Benefit

• Six monthly payment options – Always lifetime to member – Different death benefit provisions

IMPORTANT! • Option choice cannot be changed

once benefits are paid.

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Option Summary

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

Always lifetime to member!

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Pre-Retirement Death Benefits

• Designated sole beneficiary of vested member can elect lump-sum payment or lifetime monthly benefit (provided monthly benefit is $50 or more). If member not vested at death, beneficiary only eligible for lump-sum payment.

• If designated beneficiary is more than one individual or entity, death benefit can only be paid in lump sum payment. Federal law now allows multiple beneficiaries to roll over lump-sum payments.

• If no beneficiary has been designated, lump-sum payment made to the estate.

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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.

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Getting Monthly Benefits Started

• Must terminate employment unless age 70 • Must be age 55 or older

– Unless vested and eligible for IPERS disability benefits, first month of entitlement is month following the month you terminate employment

• Must submit completed application • Benefits paid the last business day of month

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Taxes

• Benefit payments are subject to federal and state income tax – Taxes 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

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Returning to Work

To qualify for a Bona Fide Retirement, you must: • End all service with an IPERS-covered employer,

including non-covered employment. • Not return to employment with an IPERS-

covered employer before you have filed your IPERS benefit application.

• Penalty for violation

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Bona Fide Retirement

• No employment with an IPERS covered employer until you’ve received FIRST IPERS benefit payment. – Cannot have any agreement oral or written to return to

Any IPERS employer. – Can’t even volunteer

• No IPERS covered employment until you’ve received 4 IPERS benefit payments.

Reemployment Guidelines

Applies to IPERS-covered employment only • $30,000 earnings limit under age 65

(benefits reduced 50 cents for each dollar earned over the limit)

• No earnings limit after age 65 • Benefits recomputed upon termination

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Reemployment

• Must have a bona fide retirement. • It’s your responsibility to contact IPERS if

you are returning to an IPERS-covered position. – It’s possible that returning to an IPERS-

covered position will affect your benefit. • Know the Social Security earning limits

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Online Access 24/7

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IPERS Website

When to Contact IPERS

• 4–6 months from retirement to obtain application packet

• At termination, if before age 55 for additional options

• If a disability occurs

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The purpose of this presentation is to give you a brief overview of IPERS. For detailed information on your IPERS 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.

• E-mail requests: info@ipers.org

• Website: www.ipers.org

• Retirement calculators

• Handbook

• Newsletters

Contact us:

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Thank You!

Presented by Heather Semke Senior Retirement Benefits Officer