MOSERS Benefit Payment Options and BackDROP

Transcription

1 MOSERS Benefit Payment Options and BackDROP Gary Hollis Objectives Review MSEP and MSEP2000 retirement benefit payment options Explain and demonstrate BackDROP and how it works MSEP and MSEP2000 Retirement Benefit Payment Options

2 Different Options in Different Plans MSEP& MSEP2000 Anyone hired after 07/01/2000 is only in the MSEP2000 Anyone hired before 07/01/2000 will have their choice of the two plans at their date of retirement What is a Benefit Payment Option? It determines whether or not a benefit will be paid to anyone after your death Regardless of the option elected, the retiree will receive a benefit payment for the rest of their life Cannot be changed after the first benefit payment has been made (includes divorce)* *Except under two specific circumstances Life Income Annuity Option Your retirement benefit will not be reduced, you will receive 100% of your base benefit No survivor benefits will be paid to anyone upon your death Your firstpayment will be the last working day of the month in which you retire, and your lastpayment will be the last working day of the month of your death

3 Joint & 50% Survivor Option MSEP Unreduced for retiree s lifetime At retiree s death, spouse receives 50% of benefit the retiree was receiving at the time of their death MSEP2000 Reduced benefit for retiree's lifetime At retiree s death spouse receives 50% of base benefit the retiree was receiving at the time of their death (excluding temporary benefit) Joint & 100% Survivor Option MSEP Reduced for retiree s lifetime At retiree s death, spouse receives 100% of benefit the retiree was receiving at the time of their death MSEP2000 Reduced for retiree s lifetime At retiree s death spouse receives 100% of base benefit the retiree was receiving at the time of their death (excluding temporary benefit) How are reductions determined? Reductions are determined from actuarial tables based on the member s date of birth in relation to the spouse s date of birth Example: If your spouse is 10 years younger than you, and you were to die, MOSERS will probably (actuarially speaking) be paying a benefit to that spouse much longer than if your spouse was the same age or older than you; therefore, a greater reduction will be taken

4 When can an option be changed? If member is single at retirement and Elects Life Income Annuity at retirement Then member marries* If member is married at retirement and Elects a Joint & Survivor Option at retirement Then spouse dies Then member remarries* *Member has one year from the date of marriage to elect a survivor option for new spouse When can an option change? Continued If member is married at retirement and Elects a Joint * Survivor Option at retirement Then member s spouse dies first* Then member s benefit will revert (pop up) to the Life Income Annuity amount *Member must supply MOSERS with a copy of spouse s death certificate Life Income with Guaranteed Payment Option Way to leave a benefit to a survivor other than a spouse for a specified period of time Retiree s benefit will be reduced for lifetime Guaranteed payments begin at member s date of retirement Upon member s death, beneficiary will receive remaining number of guaranteed payments, if any* *Excludes the temporary benefit

5 Life Income with Guaranteed Payment Option MSEP 60 Payments (3%)* 120 Payments (9%)* MSEP Payments (5%)* 180 Payments (10%)* *Applicable benefit reductions Note: Beneficiaries of guaranteed payments can be changed Summary of Benefit Payment Options MSEP Life Income Annuity UnreducedJoint & 50% Survivor Joint & 100% Survivor Life Income with 60 or 120 Guaranteed Payments MSEP2000 Life Income Annuity Joint & 50% Survivor Joint & 100% Survivor Life Income with 120 or 180 Guaranteed Payments BackDROP Option

6 What is BackDROP? BackDROP is a lump sum payment you can receive at retirement in addition to your monthly benefit Option must be selected during the retirement process If selected, your monthly benefit is reduced in order to receive a lump sum of money at the time of your retirement Who is eligible for BackDROP? Any member who works at least two years beyond Normal retirement eligibility Normal retirement eligibility: Rule of 80 both plans Age 60 with 15 years of service MSEP Age 62 with 5 years of service MSEP2000 Age 65 with 5 years of service MSEP What is the BackDROP period? Looking back in time from your actual retirement date, the BackDROP period is the time between the actual retirement date and the date you were first eligible to retire or five years, whichever comes first Once you are eligible and decide to retire, you can chose BackDROP in increments of one year up to a maximum of five years

7 BackDROP Period Assuming the member works 3 years and 8 months beyond the first normal retirement date and decides to retire, then the member s choices are: No BackDROP 1 year 2 years 3 years 3 years and 8 months (maximum) BackDROP Period 02/06 10/06 10/07 10/08 10/09 BackDROP Period Once you work five years past your first eligible date, then you drag your five-year BackDROP period with you until your actual retirement date. Assuming the member works six years beyond normal retirement eligibility, then the member s choices are: No BackDROP 1 year 2 years 3 years 4 years 5 years

8 BackDROP Period 10/ /09 How is the BackDROP calculated? Monthly benefit is calculated based on service and Final Average Pay (total of the highest 36 consecutive months of salary, divided by 36) as of the BackDROP date Lump sum payment equals 90% of the monthly benefit payments you would have received during the BackDROP period Continued. BackDROP Calculation Cost-of-Living Adjustments (COLAs) are applied to the lump sum payment and continuing monthly benefit The lump sum benefit are calculated on the Life Income Annuity option Survivor reductions, if chosen, are applied only to the monthly benefit

9 Example Monthly Payment Calculation without BackDROP Assuming the member retires 10/01/2009: At 60 years of age with 30 years of service With FAP of $2500 on 10/01/2009 Who chooses the MSEP with Life Income Annuity (no survivor benefits) Monthly benefit without BackDROP: $2500 X.016 X 30 =$1200 Example Monthly Payment Calculation with BackDROP Assuming member retires 10/01/2009: At age 55 with 25 years of service under Rule of 80 (first eligible to retire 10/01/2004) With FAP of $2000 (on 10/01/2004) Who chooses maximum BackDROP (five years) Monthly benefit with BackDROP (on 10/01/2004): $2000 X.016 X 25 =$800 Example Lump Sum BackDROP Calculation Lump sum accrued during BackDROP period: Monthly Annually 1st Year Benefits $ X 12 = $ 9, nd Year Benefits $ X 12 = $ 9, rd Year Benefits $ X 12 = $10, th Year Benefits $ X 12 = $10, th Year Benefits $ X 12 = $11, Total Lump Sum $51,996.72

10 Example Lump Sum BackDROP Calculation Continued.. The BackDROP lump sum of 90% of the total monthly benefits accrued during the BackDROP period ($51, X.90) $46, (lump sum) The continuing monthly benefit ($800 initial benefit with five years of 4% COLAs) $ (monthly) Comparing Retirement Benefits with and without BackDROP Without BackDROP Monthly benefit of $1200 With full five years of BackDROP Monthly benefit of $ Plus lump sum payment of $46, BackDROP Lump Sum Distribution Options Cash, less 20% for federal taxes Rollover to tax-qualified account Combination of cash and rollover

11 Cash Distribution Option One-time lump sum payment orthree annual installments Taxable income in the year received Mandatory 20% federal income tax withheld State income tax liability May be subject to 10% early withdrawal penalty* *See Special Tax Notice brochure Rollover Distribution Option Check mailed directly to financial institution Can be rolled to: Traditional IRA (408a)(408b) 457 plan (Deferred Comp) Other 401a or 401k Other 403a or 403b Not taxable until withdrawn Retiring members over the age of 70 and a half are required to take a minimum distribution in cash Combination Distribution Option Member decides amount to receivein cash directly (less the required 20% federal income tax withholding) Remaining balance rolled over to the designated financial institution

12 Questions, Comments, Etc. Missouri State Employees Retirement System 907 Wildwood Drive PO Box 209 Jefferson City, MO (800) (573) Fax: (573)