Retirement 101

Retirement Basics Defined Benefit Plan Employee/Employer Paid Contributions Account earns interest compounded annually Benefit based on formula, i.e., age, years of service and AFC (average final compensation)

Retirement Eligibility 65 with 5 years service credit (full) 50 with 30 years service credit (full) 55 with 5 years service credit (reduced) 50 with 10 years service credit (reduced) VRS designed to provide 50% of your pre-retirement income for full retirement

Retirement Payout Choices Basic Benefit Survivor Option Advanced Pension Option PLOP (Partial Lump-Sum Option Payment) available with basic benefit or survivor option

BASIC BENEFIT Benefit determined by years of service, age, and AFC (average final compensation, based on average of highest 36 consecutive months of salary) Lifetime benefit (if you decease before all contributions in member account have been paid, remaining funds paid in lump sum to beneficiary) Selection of this option cannot be changed after retirement date

SURVIVOR OPTION Retiree monthly benefit lower than basic in order to provide a monthly benefit to survivor Survivor may be spouse or any other individual designated (IRS regulations limit the percent you may leave to a non-spouse survivor) The younger the survivor the more the retiree benefit will be cut You may choose whole percentages 10 to 100 percent

SURVIVOR OPTION-CONT’D Retiree benefit amount based on this percentage, retiree age and age of your survivor at the time of retirement Upon retiree death, the percentage amount is paid to your survivor for life If survivor pre-deceases retiree, can revert back to the basic benefit

ADVANCED PENSION OPTION Allows to temporarily increase retirement benefit from the time of retirement to an age you select At least age 62, but no later than your unreduced retirement age under Social Security Intent to provide a level income throughout your retirement Coordinated with Social Security benefit, it does not affect your Social Security benefit

ADVANCED PENSION OPTION CALCULATION Basic benefit amount calculated based on AFC, age and years of service Then, VRS adds a percentage of your estimated Social Security benefit amount and pays you the increased amount until you reach the age you chose your increased benefit to end VRS must be provided an estimate from the Social Security Administration of the benefit you will receive at the age you want the temporary VRS increase to end Social Security estimate should assume you would have no future earnings after the effective date of retirement from VRS and should be based on your Social Security earnings record

ADVANCE PENSION OPTION When the increased amount stops, the VRS benefit is the increased amount less the amount shown on the Social Security estimate Reduced benefit will be no less than 50% of what your Basic Benefit would have been Monthly VRS benefit and social security benefit together should equal what you were receiving from VRS with the increased amount Cost-of-living increase are based on basic benefit amount No survivor benefit under this option

PARTIAL LUMP-SUM OPTION PAYMENT (PLOP) Allows for a lump-sum distribution of up to three times your annual benefit amount To be eligible you must work past the date you become eligible for full-retirement The payment may be one, two, or three times your annual retirement benefit depending on the number of years worked past eligibility for full retirement There will be a corresponding reduction in your monthly benefit based on the number of years PLOP you receive

PLOP Tax Implications Lump-sum payment is subject to taxes at the time you receive the payment 20% Federal and 4% state tax If not yet age 55 you may also be required to pay additional 10% tax penalty Can avoid taxes and penalties by electing to have lump-sum payment transferred directly to an IRA or other tax-qualified retirement plan If considering PLOP should seek advice from a financial advisor

MyVRS New online service available on VRS website varetire.org Access live VRS data See how many years of service you have along with contribution amount + interest Calculate VRS monthly benefit using live data

Applying for Retirement Important to apply for retirement benefits 90 days prior to retirement date in order to receive first monthly benefit on time Retirement dates are always the first of any month First monthly benefit is due first of the month following retirement month, i.e., retire July 1, last work day is June 24 and first retirement check would be due on August 1 for the month of July

Applying for Retirement - What Do I Need to Do Make appointment in HR to complete paperwork 90-120 days prior to retirement date If married, spouse will need to sign retirement application. Bring birth certificate, deposit slip to bank account for direct deposit and spouse birth certificate if choosing a survivor option Social Security estimate if choosing Advanced Pension Option

Applying for Retirement – What Do I Need to Do - Cont’d Forms to be completed in HR will be the retirement application, direct deposit form, *tax forms, and health insurance form Double-check beneficiary information Retirement benefits are subject to federal and state income taxes. Each January you will receive an IRS Form 1099 from VRS to use when filing your income tax Safe Harbor Act – Long term employees that used to pay their own VRS contribution (before 1980) will have some contributions in their VRS member account that were made on an after-tax basis. This money will not be taxed when it is paid as part of the monthly benefit

VSDP –VS- Non-VSDP and Retirement Enrolled in VSDP first time around – sick leave already converted to service credits with VRS Enrolled in VSDP 2nd time around – sick leave converted to disability credits – may convert to VRS service at the time of retirement 173 disability credits = 1 month VRS service Non-VSDP can use sick leave payment to purchase service at time of retirement

VSDP –VS- Non-VSDP and Retirement – Cont’d Example: $5000 sick leave payment minus taxes - $3400 net check (approx) This service costs 15% Salary of $35,000 x 15%=$5250 for 1 year of service $5250 divided by 12 months=$437.50 for 1 month $3400 divided by $437.50 = 7.77 months 7 months x $437.50 = $3062.50

Implications of VSDP Claim Prior to Retirement Age 60 or older are protected under the Old Age Protection Act Act guarantees five years of long-term disability coverage as long as you are clinically disabled Benefits continue through the VSDP long-term disability program, earning 60% income After five years of long-term disability, transition takes place from long-term to service retirement

Retiree Health Insurance Retirees maintain health insurance coverage through the VRS retiree group Retirees are offered the retiree group health insurance coverage at the time of retirement. If you opt out of the retiree group you will NOT have another opportunity to enroll in the retiree group The only time the above statement would not hold true is if the retiree’s spouse is a State employee and the retiree continues membership under the spouse’s active state coverage Retirees pay entire cost of the health insurance premium VRS deducts the health insurance premium from monthly benefit – if monthly benefit is not sufficient to cover the insurance deduction, you will be billed directly by Anthem

Retiree Health Insurance If Not Medicare eligible (65 or older) at the time of retirement same coverage you had while working; family members may be covered If Medicare eligible at the time of retirement, Medicare become primary insurer and state offers a Medicare supplement through retiree group; family members may be covered Spouse may maintain health insurance coverage upon retiree’s death – if receiving a survivor benefit, premium will be deducted – If no survivor benefit, survivor will be billed for health insurance premium

Health Insurance Credit Assists with the cost of the health insurance premium Non-taxable benefit Eligible if you have at least 15 or more years of state service State employees receive $4 for each year of state service, i.e., minimum credit $60 up to whatever Health Insurance credit terminates at the death of the retiree

Retired – Now What? Retirees are eligible for cost of living adjustments (COLA) each year You must be retired 1 full calendar year before you receive your first COLA, i.e, if you retire Sept 1, 2006 you would receive your first COLA July 1, 2008. This would be reflected in your August 2008 benefit Life Insurance benefits for natural death are maintained after retirement at no cost to you, accidental benefits cease The life insurance begins to reduce 25% each year until it is valued at the final 25% of the amount of coverage at the time of retirement. Each reduction is taken in January. It will take between 3 – 4 years before it reduces all the way down since you have to be retired 1 full calendar year before the first reduction is taken If you had optional life while working you may continue coverage after retirement by applying to convert to an individual policy within 31 days of retirement

VRS and Working after Retirement VRS requires a 30-day break in service if returning to work for a VRS covered employer on a part-time basis If you returned to work for a VRS covered employer on a full-time basis, your monthly benefit would cease and when you ‘retired again’ your retirement benefit would be recalculated based on the additional years of service you gained You may work for a non-VRS covered employer on full-time basis without it affecting your VRS retirement benefits

Questions?