Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid...

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Retirement 101 Retirement 101

Transcript of Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid...

Page 1: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retirement 101Retirement 101

Page 2: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retirement BasicsRetirement Basics

• Defined Benefit PlanDefined Benefit Plan

• Employee/Employer Paid Employee/Employer Paid ContributionsContributions

• Account earns interest compounded Account earns interest compounded annuallyannually

• Benefit based on formula, i.e., age, Benefit based on formula, i.e., age, years of service and AFC (average years of service and AFC (average final compensation)final compensation)

Page 3: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retirement EligibilityRetirement Eligibility

• 65 with 5 years service credit (full)65 with 5 years service credit (full)

• 50 with 30 years service credit (full)50 with 30 years service credit (full)

• 55 with 5 years service credit (reduced)55 with 5 years service credit (reduced)

• 50 with 10 years service credit (reduced)50 with 10 years service credit (reduced)

• VRS designed to provide 50% of your VRS designed to provide 50% of your pre-retirement income for full retirementpre-retirement income for full retirement

Page 4: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retirement Payout ChoicesRetirement Payout Choices

• Basic BenefitBasic Benefit

• Survivor OptionSurvivor Option

• Advanced Pension OptionAdvanced Pension Option

• PLOP (Partial Lump-Sum Option PLOP (Partial Lump-Sum Option Payment)Payment)

available with basic benefit or available with basic benefit or survivor optionsurvivor option

Page 5: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

BASIC BENEFITBASIC BENEFIT

• Benefit determined by years of service, Benefit determined by years of service, age, and AFC (average final compensation, age, and AFC (average final compensation, based on average of highest 36 based on average of highest 36 consecutive months of salary)consecutive months of salary)

• Lifetime benefit (if you decease before all Lifetime benefit (if you decease before all contributions in member account have contributions in member account have been paid, remaining funds paid in lump been paid, remaining funds paid in lump sum to beneficiary)sum to beneficiary)

• Selection of this option cannot be changed Selection of this option cannot be changed after retirement dateafter retirement date

Page 6: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

SURVIVOR OPTIONSURVIVOR OPTION

• Retiree monthly benefit lower than basic in Retiree monthly benefit lower than basic in order to provide a monthly benefit to survivororder to provide a monthly benefit to survivor

• Survivor may be spouse or any other Survivor may be spouse or any other individual designated (IRS regulations limit the individual designated (IRS regulations limit the percent you may leave to a non-spouse percent you may leave to a non-spouse survivor)survivor)

• The younger the survivor the more the retiree The younger the survivor the more the retiree benefit will be cutbenefit will be cut

• You may choose whole percentages 10 to 100 You may choose whole percentages 10 to 100 percentpercent

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SURVIVOR OPTION-CONT’DSURVIVOR OPTION-CONT’D

• Retiree benefit amount based on this Retiree benefit amount based on this percentage, retiree age and age of your percentage, retiree age and age of your survivor at the time of retirementsurvivor at the time of retirement

• Upon retiree death, the percentage Upon retiree death, the percentage amount is paid to your survivor for lifeamount is paid to your survivor for life

• If survivor pre-deceases retiree, can If survivor pre-deceases retiree, can revert back to the basic benefit revert back to the basic benefit

Page 8: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

ADVANCED PENSION ADVANCED PENSION OPTIONOPTION

• Allows to temporarily increase retirement Allows to temporarily increase retirement benefit from the time of retirement to an age benefit from the time of retirement to an age you selectyou select

• At least age 62, but no later than your At least age 62, but no later than your unreduced retirement age under Social unreduced retirement age under Social SecuritySecurity

• Intent to provide a level income throughout Intent to provide a level income throughout your retirementyour retirement

• Coordinated with Social Security benefit, it Coordinated with Social Security benefit, it does not affect your Social Security benefitdoes not affect your Social Security benefit

Page 9: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

ADVANCED PENSION OPTION ADVANCED PENSION OPTION CALCULATIONCALCULATION

• Basic benefit amount calculated based on AFC, age Basic benefit amount calculated based on AFC, age and years of serviceand years of service

• Then, VRS adds a percentage of your estimated Then, VRS adds a percentage of your estimated Social Security benefit amount and pays you the Social Security benefit amount and pays you the increased amount until you reach the age you increased amount until you reach the age you chose your increased benefit to endchose your increased benefit to end

• VRS must be provided an estimate from the Social VRS must be provided an estimate from the Social Security Administration of the benefit you will Security Administration of the benefit you will receive at the age you want the temporary VRS receive at the age you want the temporary VRS increase to endincrease to end

• Social Security estimate should assume you would Social Security estimate should assume you would have no future earnings after the effective date of have no future earnings after the effective date of retirement from VRS and should be based on your retirement from VRS and should be based on your Social Security earnings recordSocial Security earnings record

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ADVANCE PENSION OPTION ADVANCE PENSION OPTION

• When the increased amount stops, the VRS When the increased amount stops, the VRS benefit is the increased amount less the amount benefit is the increased amount less the amount shown on the Social Security estimateshown on the Social Security estimate

• Reduced benefit will be no less than 50% of what Reduced benefit will be no less than 50% of what your Basic Benefit would have beenyour Basic Benefit would have been

• Monthly VRS benefit and social security benefit Monthly VRS benefit and social security benefit together should equal what you were receiving together should equal what you were receiving from VRS with the increased amountfrom VRS with the increased amount

• Cost-of-living increase are based on basic benefit Cost-of-living increase are based on basic benefit amountamount

• No survivor benefit under this optionNo survivor benefit under this option

Page 11: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

PARTIAL LUMP-SUM OPTION PARTIAL LUMP-SUM OPTION PAYMENT (PLOP)PAYMENT (PLOP)

• Allows for a lump-sum distribution of up to Allows for a lump-sum distribution of up to three times your annual benefit amountthree times your annual benefit amount

• To be eligible you must work past the date To be eligible you must work past the date you become eligible for full-retirementyou become eligible for full-retirement

• The payment may be one, two, or three The payment may be one, two, or three times your annual retirement benefit times your annual retirement benefit depending on the number of years worked depending on the number of years worked past eligibility for full retirementpast eligibility for full retirement

• There will be a corresponding reduction in There will be a corresponding reduction in your monthly benefit based on the number your monthly benefit based on the number of years PLOP you receiveof years PLOP you receive

Page 12: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

PLOP Tax ImplicationsPLOP Tax Implications

• Lump-sum payment is subject to taxes at Lump-sum payment is subject to taxes at the time you receive the paymentthe time you receive the payment

• 20% Federal and 4% state tax20% Federal and 4% state tax• If not yet age 55 you may also be required If not yet age 55 you may also be required

to pay additional 10% tax penaltyto pay additional 10% tax penalty• Can avoid taxes and penalties by electing Can avoid taxes and penalties by electing

to have lump-sum payment transferred to have lump-sum payment transferred directly to an IRA or other tax-qualified directly to an IRA or other tax-qualified retirement planretirement plan

• If considering PLOP should seek advice If considering PLOP should seek advice from a financial advisorfrom a financial advisor

Page 13: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

MyVRS

• New online service available on VRS New online service available on VRS website varetire.orgwebsite varetire.org

• Access live VRS dataAccess live VRS data

• See how many years of service you See how many years of service you have along with contribution amount have along with contribution amount + interest+ interest

• Calculate VRS monthly benefit using Calculate VRS monthly benefit using live datalive data

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Applying for RetirementApplying for Retirement

• Important to apply for retirement benefits Important to apply for retirement benefits 90 days prior to retirement date in order 90 days prior to retirement date in order to receive first monthly benefit on timeto receive first monthly benefit on time

• Retirement dates are always the first of Retirement dates are always the first of any monthany month

• First monthly benefit is due first of the First monthly benefit is due first of the month following retirement month, i.e., month following retirement month, i.e., retire July 1, last work day is June 24 and retire July 1, last work day is June 24 and first retirement check would be due on first retirement check would be due on August 1 for the month of JulyAugust 1 for the month of July

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Applying for Retirement - What Applying for Retirement - What Do I Need to DoDo I Need to Do

• Make appointment in HR to complete paperwork 90-Make appointment in HR to complete paperwork 90-120 days prior to retirement date120 days prior to retirement date

• If married, spouse will need to sign retirement If married, spouse will need to sign retirement application.application.

• Bring birth certificate, deposit slip to bank account Bring birth certificate, deposit slip to bank account for direct deposit and spouse birth certificate if for direct deposit and spouse birth certificate if choosing a survivor optionchoosing a survivor option

• Social Security estimate if choosing Advanced Social Security estimate if choosing Advanced Pension OptionPension Option

Page 16: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Applying for Retirement – What Applying for Retirement – What Do I Need to Do - Cont’dDo I Need to Do - Cont’d

• Forms to be completed in HR will be the retirement Forms to be completed in HR will be the retirement application, direct deposit form, *tax forms, and health application, direct deposit form, *tax forms, and health insurance forminsurance form

• Double-check beneficiary informationDouble-check beneficiary information

• Retirement benefits are subject to federal and state income Retirement benefits are subject to federal and state income taxes. Each January you will receive an IRS Form 1099 from taxes. Each January you will receive an IRS Form 1099 from VRS to use when filing your income taxVRS to use when filing your income tax

• Safe Harbor Act – Long term employees that used to pay Safe Harbor Act – Long term employees that used to pay their own VRS contribution (before 1980) will have some their own VRS contribution (before 1980) will have some contributions in their VRS member account that were made contributions in their VRS member account that were made on an after-tax basis. This money will not be taxed when it on an after-tax basis. This money will not be taxed when it is paid as part of the monthly benefitis paid as part of the monthly benefit

Page 17: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

VSDP –VS- Non-VSDP and VSDP –VS- Non-VSDP and RetirementRetirement

• Enrolled in VSDP first time around – sick leave Enrolled in VSDP first time around – sick leave already converted to service credits with VRS already converted to service credits with VRS

• Enrolled in VSDP 2Enrolled in VSDP 2ndnd time around – sick leave time around – sick leave converted to disability credits – may convert to converted to disability credits – may convert to VRS service at the time of retirement VRS service at the time of retirement

• 173 disability credits = 1 month VRS service173 disability credits = 1 month VRS service

• Non-VSDP can use sick leave payment to Non-VSDP can use sick leave payment to purchase service at time of retirementpurchase service at time of retirement

Page 18: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

VSDP –VS- Non-VSDP and VSDP –VS- Non-VSDP and Retirement – Cont’dRetirement – Cont’d

• Example: $5000 sick leave payment minus taxes Example: $5000 sick leave payment minus taxes - $3400 net check (approx)- $3400 net check (approx)

• This service costs 15%This service costs 15%

• Salary of $35,000 x 15%=$5250 for 1 year of Salary of $35,000 x 15%=$5250 for 1 year of serviceservice

• $5250 divided by 12 months=$437.50 for 1 $5250 divided by 12 months=$437.50 for 1 monthmonth

• $3400 divided by $437.50 = 7.77 months$3400 divided by $437.50 = 7.77 months

• 7 months x $437.50 = $3062.507 months x $437.50 = $3062.50

Page 19: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Implications of VSDP Claim Implications of VSDP Claim Prior to RetirementPrior to Retirement

• Age 60 or older are protected under the Old Age 60 or older are protected under the Old Age Protection ActAge Protection Act

• Act guarantees five years of long-term Act guarantees five years of long-term disability coverage as long as you are clinically disability coverage as long as you are clinically disableddisabled

• Benefits continue through the VSDP long-term Benefits continue through the VSDP long-term disability program, earning 60% incomedisability program, earning 60% income

• After five years of long-term disability, After five years of long-term disability, transition takes place from long-term to transition takes place from long-term to service retirementservice retirement

Page 20: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retiree Health InsuranceRetiree Health Insurance

• Retirees maintain health insurance coverage through the Retirees maintain health insurance coverage through the VRS retiree groupVRS retiree group

• Retirees are offered the retiree group health insurance Retirees are offered the retiree group health insurance coverage at the time of retirement. If you opt out of the coverage at the time of retirement. If you opt out of the retiree group you will retiree group you will NOTNOT have another opportunity to have another opportunity to enroll in the retiree groupenroll in the retiree group

• The only time the above statement would not hold true The only time the above statement would not hold true is if the retiree’s spouse is a State employee and the is if the retiree’s spouse is a State employee and the retiree continues membership under the spouse’s active retiree continues membership under the spouse’s active state coveragestate coverage

• Retirees pay entire cost of the health insurance premiumRetirees pay entire cost of the health insurance premium• VRS deducts the health insurance premium from VRS deducts the health insurance premium from

monthly benefit – if monthly benefit is not sufficient to monthly benefit – if monthly benefit is not sufficient to cover the insurance deduction, you will be billed directly cover the insurance deduction, you will be billed directly by Anthemby Anthem

Page 21: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retiree Health InsuranceRetiree Health Insurance

• If Not Medicare eligible (65 or older) at the time If Not Medicare eligible (65 or older) at the time of retirement same coverage you had while of retirement same coverage you had while working; family members may be coveredworking; family members may be covered

• If Medicare eligible at the time of retirement, If Medicare eligible at the time of retirement, Medicare become primary insurer and state offers Medicare become primary insurer and state offers a Medicare supplement through retiree group; a Medicare supplement through retiree group; family members may be coveredfamily members may be covered

• Spouse may maintain health insurance coverage Spouse may maintain health insurance coverage upon retiree’s death – if receiving a survivor upon retiree’s death – if receiving a survivor benefit, premium will be deducted – If no survivor benefit, premium will be deducted – If no survivor benefit, survivor will be billed for health insurance benefit, survivor will be billed for health insurance premiumpremium

Page 22: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Health Insurance CreditHealth Insurance Credit

• Assists with the cost of the health Assists with the cost of the health insurance premiuminsurance premium

• Non-taxable benefitNon-taxable benefit• Eligible if you have at least 15 or more Eligible if you have at least 15 or more

years of state serviceyears of state service• State employees receive $4 for each year State employees receive $4 for each year

of state service, i.e., minimum credit $60 of state service, i.e., minimum credit $60 up to whatever up to whatever

• Health Insurance credit terminates at the Health Insurance credit terminates at the death of the retireedeath of the retiree

Page 23: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Retired – Now What?Retired – Now What?

• Retirees are eligible for cost of living adjustments (COLA) Retirees are eligible for cost of living adjustments (COLA) each yeareach year

• You must be retired 1 full calendar year before you receive You must be retired 1 full calendar year before you receive your first COLA, i.e, if you retire Sept 1, 2006 you would your first COLA, i.e, if you retire Sept 1, 2006 you would receive your first COLA July 1, 2008. This would be reflected receive your first COLA July 1, 2008. This would be reflected in your August 2008 benefitin your August 2008 benefit

• Life Insurance benefits for natural death are maintained Life Insurance benefits for natural death are maintained after retirement at no cost to you, accidental benefits ceaseafter retirement at no cost to you, accidental benefits cease

• The life insurance begins to reduce 25% each year until it is The life insurance begins to reduce 25% each year until it is valued at the final 25% of the amount of coverage at the valued at the final 25% of the amount of coverage at the time of retirement. Each reduction is taken in January. It will time of retirement. Each reduction is taken in January. It will take between 3 – 4 years before it reduces all the way down take between 3 – 4 years before it reduces all the way down since you have to be retired 1 full calendar year before the since you have to be retired 1 full calendar year before the first reduction is takenfirst reduction is taken

• If you had optional life while working you may continue If you had optional life while working you may continue coverage after retirement by applying to convert to an coverage after retirement by applying to convert to an individual policy within 31 days of retirementindividual policy within 31 days of retirement

Page 24: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

VRS and Working after VRS and Working after RetirementRetirement

• VRS requires a 30-day break in service if VRS requires a 30-day break in service if returning to work for a VRS covered employer on returning to work for a VRS covered employer on a part-time basisa part-time basis

• If you returned to work for a VRS covered If you returned to work for a VRS covered employer on a full-time basis, your monthly employer on a full-time basis, your monthly benefit would cease and when you ‘retired again’ benefit would cease and when you ‘retired again’ your retirement benefit would be recalculated your retirement benefit would be recalculated based on the additional years of service you based on the additional years of service you gainedgained

• You may work for a non-VRS covered employer on You may work for a non-VRS covered employer on full-time basis without it affecting your VRS full-time basis without it affecting your VRS retirement benefitsretirement benefits

Page 25: Retirement 101. Retirement Basics Defined Benefit Plan Defined Benefit Plan Employee/Employer Paid Contributions Employee/Employer Paid Contributions.

Questions?Questions?