1. Effects of The New Pension Reform on your MTRS Benefits Recent Changes in Pension Law Member Benefits & Creditable Service Pension Options Presented by: Peggy Dougherty Financial Advisor, Lincoln Investment Planning, Inc. Marie Ardito Retired Educator, Mass Retirees United April 12, 2012 Reading Public Schools Peggy Dougherty offers advisory services and securities through Lincoln Investment Planning, Inc., Registered Investment Advisor, Broker Dealer, Member FINRA/SIPC. 51 Sawyer Road, Waltham, MA 02453 (71)647-3050. Supervising office: 218 Glenside Avenue, Wyncote, PA 19095 (800)242-1421 Marie Ardito is associated with Lincoln Investment as a speaker and not as a financial representative. 04/12

2. Disclaimer While the information presented is believed to be accurate and reliable as of seminar date, it is recommended that each individual confirm it's applicability to his/her own retirement variables and with a retirement consultant from his/her respective retirement board. Also, all legal matters should be discussed with an attorney and financial matters with a financial planner. The information presented is general in nature. The presenter assumes no obligations for failure to verify information at the time participant is retiring.

3. Part 1 Pension Reform III

4. Recent changes in pension law: “Pension Reform III” “ Pension Reform and Benefit Modernization,” Chapter 176 of the Acts of 2011, signed Nov. 18, 2011 A complex and wide-reaching new law Requires substantial changes to our internal computer applications, and informational and educational materials MTRS now working to develop the necessary policies and procedures to implement these changes as quickly and smoothly as possible Watch for updates to employers and members in coming months

5. Pension Reform III Provisions affecting current active members Interest rate increase: Increases the interest charged on purchasing creditable service if the member does not make the payment within the first year of membership or within one year from 4/2/2012. Interest is currently 8.25%. If you leave the retirement system by withdrawing your money, you will have to follow the new regulations. –If there is any chance you will return to the retirement system, it is in your best interest to leave your money with MA Teachers Retirement.

6. Pension Reform III Provisions affecting new members (those who enroll in a Massachusetts public retirement system, or re-enroll after taking a refund, on or after April 2, 2012) Overall retirement benefits reduced Minimum retirement age is now 60 Age factors reduced Lengthens the salary average period used in the retirement benefit calculation formula to 5 years Reduces the contribution rate by 3% (e.g., from 11% to 8%) once a member has 30 years of creditable service Begins the additional 2% Retirement Plus add-on after the 23rd year of creditable service instead of the 24th year of creditable service

7. Part 2 Benefits, creditable service and resources for MTRS members

8. Retirement Benefits 1)“Regular” Any age, with 20 years of creditable service, OR Age 55 with 10 years of creditable service …and…

9. Retirement Benefits 2) RetirementPlus Any age, with 30 years of creditable service, at least 20 years of which must be “teaching” service with the MTRS or Boston Retirement System Enhanced benefit: Additional 2% add on after 24th year of creditable service (upon reaching 30 years)

10. Creditable service Regular service MA substitute or temporary teaching Out-of-state public school teaching Department of Defense overseas dependent school teaching Nonpublic school teaching MA state or municipal employment Military service Peace Corps service Vocational education Substitute, temporary, part time teaching or tutoring Maternity prior to January 1975

11. Creditable Service All Creditable Service must be purchased prior to effective date of retirement. Part of a year counts. All forms may be downloaded from the MTRS website (www.mass.gov/mtrs) or can be obtained by calling them at 1-617-679-6877 or 1-413-784-1711 MA Teachers' Retirement System –1 Charles Park, 2 nd Floor –Cambridge, MA 02142-1254

12. Forms MTRS Provide Option Selection Form Group Health Insurance Federal Tax Withholding Direct Deposit

13. Age Factor PART OF A YEAR DOES NOT COUNT HERE. Age as of last birthday. If you retire on your birthday, you are able to use that age factor. USE 1 BEFORE A DECIMAL POINT IF IN 50’S -- 2 IN FRONT OF DECIMAL POINT IF IN 60’s. Whatever the number is after the decimal point is the second number of your age.

14. Age Factors 1.0 = 50 1.1 = 51 1.2 = 52 1.3 = 53 1.4 = 54 1.5 = 55 1.6 = 56 1.7 = 57 1.8 = 58 1.9 = 59 2.0 = 60 2.1 = 61 2.2 = 62 2.3 = 63 2.4 = 64 2.5 = 65 65 is the largest age factor a person may use

15. New Age Factor for those hired after 4/2/12 With at least 30 years of service at time of retirement 2.50 67 or older62 or older57 or older 2.35666156 2.20656055 2.05645954 1.90635853 1.75625752 1.60615651 1.45605550 2.50 67 or older62 or older57 or older 2.375666156 2.250656055 2.125645954 2.0635853 1.875625752 1.750615651 1.625605550

16. Final Average Salary(FAS) Regular salary + longevity + any money you get for a contractual stipend position equals your salary. Sick leave buy back and “deals” cannot be included. Your FAS is made up of the average of your 3 highest consecutive years salaries.

17. Retirement Plus You add 2% for each year above 25 years but cannot count until 30 Y/S 30 Y= 12% 31 Y= 14% 32 Y= 16% 33 Y= 18% 34 Y= 20% 35 Y= 22% Two percent applied only to the whole number of your creditable service, not part of the year.

18. Formula for Option A Person 56 years old 34.3 years of service Final Average Salary (FAS) = $56,787 Age Factor X Yrs of Service = % of Salary 1.6 X 34.3 = 54.88% (add 20% R+ factor = 74.88%) FAS X % of Salary = Annual Pension $56,787 X 74.88% = $42,522 For illustrative purposes only

19. Options There are 3 options: A, B, C Must submit Option Selection Form with your Application to Retire Form Irrevocable decision once effective date of retirement occurs

20. Understanding the Three Pension Options: A, B, C Option A- –Highest payout available –For your lifetime only –Payout ends when you die –No beneficiary benefits

21. Option B 1-2% less than option A income for member Anyone can be your beneficiary When you die, balance of your fund goes to beneficiary Account depletes itself in 10-11 years

22. Option C Lowest possible payout – approx. 9-11% less than Option A amount Provides survivor benefit equal to 2/3 of Option C Beneficiary must be parent, spouse, sibling, child, ex-spouse who has not remarried or a same sex marriage partner Pop-up provision available

23. Case Study Your age: 60 Your Age Factor: 2.0 Final Average Salary: $60,000 Years of Service: 35 Retirement Plus Percentage: 22% Beneficiary’s age: 59 Option AOption BOption C $48,000$47,520$43,680 Dies with youAny remaining $29,119 to beneficiaryto survivor ($4,320 difference) For illustrative purposes only

24. Which Option Should You Choose : Factors to consider: –Your Age –Your beneficiary’s age –Health of you and your Beneficiary –Is ability to change your beneficiary important? –Cost differential between Options A and C

25. Pension Max Must be insurable Different types of insurance: –Term –Universal Life –Variable Life –Whole Life

26. $50,000 Pension 5 Yrs10 Yrs15 Yrs20 Yrs25 Yrs Actual Pension $51, 900$53,900$55,850$57,800$59,750 w/ COLA Income needed $56,275$65,236$75,624$87,666$101,626 w/ 3% inflation Income needed $60,775$77,563$98,990$126,336$161,238 w/ 5% inflation For illustrative purposes only.

27. COLA Cost of Living Adjustment Issued annually if voted on by Legislature If retired on June 30, 2011, eligible July of 2012

28. COLA Based On: 1971-------$6,000 1981-------$7,000 1985-------$8,000 1986-------$9,000 1997-------$12,000 2012-------$13,000 MRU working to increase this base to $16,000

29. Social Security Need 40 units for eligibility Receive Earning and Benefits Statement 2 months before your birthday No matter what Social Security may tell you prior to your actually filing you will be penalized by the WEP/GPO unless:

30. WEP Windfall Elimination Provision Will receive greatly reduced percentage of what you are entitled to in Social Security unless: –Eligible to retire prior to January of 1986 –Have 30 years of substantial earnings But you are eligible for Medicare MUST HELP TO FIGHT For THE REPEAL OF THE WEP/GPO