IPERS Overview & Benefit OptionsPresented by Ronda OnkenSenior Retirement Benefits OfficerSummer 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? • 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

How does it work?

Contributions fromActive Membersand 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.

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 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

Monthly Benefit• Six monthly payment options

– Always lifetime to member– Different death benefit provisions

IMPORTANT!• Option choice cannot be changed

once benefits are paid.

Benefit Formula• Monthly benefits are calculated using:

– Years of Service– Age– Highest Three Years of Salary (Average)

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

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”

Benefit Formula - AgeWhat 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

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 ExampleHIGH 3 CALENDAR YEAR WAGES

2011 $42,0002010 $38,0002009 $35,500High 3 Average =

$38,500

CURRENT YEAR SALARY (2012)

1st $11,0002nd $13,0003rd $ 8,8754th $ 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).

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

÷ 4 = $8,875

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.

Option Summary

OPTION 1 Guaranteed death benefit in $1,000 increments

OPTION 2 Death benefit only if balance of investment remains

OPTION 3No 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!

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

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

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

Changes to IPERS

Presented by Ronda OnkenSenior Retirement Benefits Officer

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

7/2012

Contribution rate14.45% Split 60/40Employee 5.78%Employer 8.67%Possible change +/–1.0% annually

7/2011Contribution rate 13.45%

Contribution Rate Change

Split 60/40Employee 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.

Now through 6/30/2012

Vesting after 4 years

On July 1, 2012

Vesting after 7 years

Vesting Rule Change

Vested on 6/30/12; remain vested

Not vested on 6/30/12; vest at 7 years

• At least 4 years of service OR• Year age 55 or older and contributing

• At least 7 years of service OR• Month age 65 or older and contributing

Vesting Changes

High 5 Average Change

Now through 6/30/2012High 3 year average

On July 1, 2012High 5 year average

Compare and use higher of:

Snapshot of High 3 on 06/30/12 High 5 at retirement

High 5 Average

Member retiring December 2014 with pay raise each year.Snapshot of High 306/30/12$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 1: High 5

High 5 at Retirement $45,000 47,000 47,000 40,000 43,000$222,000 ÷ 5$44,400

Snapshot of High 306/30/12$45,000 47,000 47,000$139,000 ÷ 3$ 46,333

Member retiring December 2014 with decrease in pay.

Example 2: High 5

$ 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

= $62,000

High 5

6th highest

Spiking control still applies

Reduce 3% a year for portion of service through 06/30/12From nearest normal retirement eligibility(Rule of 88; rule of 62/20; age 65)

Reduce 6% a year thereafterFrom age 65

Beginning July 1, 2012

Current

Early retirement age reduction

Benefit Formula: Average Salary X Multiplier

2% a year for 30 years1% a year in years 31–35Maximum 65%

Benefit multiplier – No change

(No early retirement reduction) – No Change

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

Retire age 61 with 26.5 years of service

Total years 26.5 Annual multiplierAdjustment factor Adjusted toHow long Reduction

242%3%

62/201 yr3%

June 30, 2012

2.52%6%65

4 yr24%

Example: Early retirement

Reduce 3%/year for 1 year Earned before 7/1/12:24 x 2% = 48% multiplier$54,000 x 48% = $25,920Early retirement reduction:$25,920 x 3% = $777.60$25,920 – $777.60 = $25,142.40

24 yrs 2.5 yrsReduce 6%/year for 4 yrs Earned starting 7/1/12:2.5 x 2% = 5% multiplier$54,000 x 5% = $2,700Early retirement reduction:$2,700 x 24% = $648 $2,700 - $648 = $2,052 Annual benefit =

$27,194.40

Example: Early retirement

Retire age 61 with 27 years of service

242%0%Rule of 880 yr0%

32%0%Rule of 880 yr0%

June 30, 2012

Total years 27 Annual multiplierAdjustment factor Adjusted toHow long Reduction

Example: Work 6 more months

Rule of 88 Earned before 7/1/12:24 x 2% = 48% multiplier$54,000 x 48% = $25,920Early retirement reduction:$25,920 x 0% = $0

$25,920

24 yrs 3 yrsRule of 88 Earned starting 7/1/12:3 x 2% = 6% multiplier$54,000 x 6% = $3,240Early retirement reduction:$2,700 x 0% = $0

$3,240

Annual benefit = $29,160.00

Example: work 6 more months

Value of working the additional 6 months

Annual Pension with Reduction $27,194.40Annual Pension with Rule of 88 $29,160.00

Increase of $163.80 per month for lifetime for working an additional 6 months

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!

Presented by Ronda OnkenSenior Retirement Benefits OfficerE-mail: ronda.onken@ipers.org Phone: (515) 281-0063