Download Part-time Faculty Retirement Options

Part-time Faculty
Retirement Options
By
Deborah Dahl Shanks
CCA Winter Conference
What are the available options?
 STRS: State Teacher’s Retirement System
Defined Benefit
Cash Balance [negotiable]
 Social Security [not in all districts]
 Other possible plans [negotiable]
[Apple, PARS, Banner, Insurance Co]
 IRAs, 403(b), 457(b), Tax-sheltered Annuity
What is right for me?
 Considerations:
Age
Other jobs
Spouse
Plans in teaching in the next 5, 10, 15 years
 Know the plans and the impact they have on
each other.
 Decide what you expect out of retirement
 Consider when you want to retire.
State Teachers Retirement System
 Cash Balance, a hybrid defined benefit plan,
available to PT faculty only (negotiable)
 Defined Benefit, a full defined plan which is
available to ALL teachers regardless of status
as FT or PT.
 Both can affect Social Security benefits, both
primary and survivor, through WEP and GPO
due to district contributions in the benefit.
STRS Cash Balance Plan
 STRS Cash Balance
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- employee contributes 4% (negotiable)
- employer contributes 4%
- Immediate vesting
- No Service Credit required
Cash Out [Lump Sum (pay taxes)]
over 55 – immediate
under 55 – one year wait
Annuity: monthly will be basis for SS off-set
Lump Sum: SS projects a 10 year annuity off-set
Convertible to STRS DB service credit
Defining Cash Balance
 Cash Balance is not a Defined Contribution
plan. A DC plan has a defined amount of
money in it that can be exhausted.
 Cash Balance is a Hybrid plan in which a
“defined” pension is set based upon the
STRS DBS calculator, and the monthly
pension amount is guaranteed for life (you
cannot outlive the benefit)
Why CB plan?
 The Cash Balance plan is for PT CCC faculty who
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would not ordinarily “vest” in the STRS Defined
Benefit plan.
You contribute less (about ½ of DB plan), so more
money in your pocket now; but less payout later.
Good for PT faculty only teaching one class
or starting late in career after private sector
career.
Not good for PT faculty teaching 60% or more
Not good if you will need a substantial monthly
pay out or want to convert unused accrued sick
leave.
Retiring with Cash Balance
 At retirement or leaving teaching, STRS will
request a pension preference
 Choices include:
Roll into a private annuity or IRA account
Cash out lump sum [paying all the tax]
Roll into a STRS annuity
 Typical life annuity: $50,000 at age 63 pays
out approx. $500 a month for life.
 One year break in service required to return
to teaching upon taking a monthly CB
pension
IN or OUT of Cash Balance
 Check your once a year a statement from STRS
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showing your contributions, the district
contributions and interest.
You may be in both CB and DB if your are
receiving two statements. What to do?
You may choose to stay in CB and then cash out
your DB money once no longer employed.
You may choose to move to DB and roll your CB
money into that plan to retrieve service credit.
You may choose to opt out of CB and move to
Social Security [if offered] at the end of a
semester [when “unemployed”]. Basic cash out
rules apply or roll into other tax-exempt plan.
Can I be forced out of CB?
 NO! Not as long as you are PT and your
basis of employment is “temporary”.
 AB3076 protects your right to stay in CB.
 Signed into law in 2004
 Effective as of July 1, 2005
 So if you need or want to change plans,
AB3076 allows you to choose the plan that
best suits your needs based on what is
offered in your district.
Conversion from CB to DB
 You should consider converting if:
1.
2.
3.
4.
5.
You plan on being a career teacher
You teach 40% or more each semester
If you work in more than one district
If you want a larger life-time STRS pension
And if will be able to vest 5 years by the
time you want to retire.
When & why should I convert?
 You may request to be put into the STRS
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1.
2.
3.
Defined Benefit Plan at any time.
Once a DB member you can request a
consolidation of your CB account into DB.
WHY?
CB money converts into service credit
The more service credit – the higher pension
Service credit needed for vesting
STRS Defined Benefit Plan
 Required for all FT K-14 teachers and an option
for all PT/hourly teachers [basis of employment]
 STRS Defined Benefit
- 8% employee contribution
(2% to DBS [supplement to 2010])
- 8.25% employer contribution
.25% sick leave conversion
- VEST: 5 years FTE service credit
 Monthly Retirement based upon formula:
Service Credit X age factor X final compensation
STRS DB Benefits
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Survivor Benefits and Beneficiaries
Disability Benefits
Inflation Protection
CB to DB conversion, re-deposits, permissive
purchase of time, air time, sick leave conversion
403(b) savings program
CalSTRS Home Loan Program
Long Term-Care Program through CalPERS
STRS DB Supplement account for annual work
load exceeding 100%
Defining Defined Benefit
 STRS Defined Benefit planned is so called
because it is based upon a defined formula.
 The three components are:
 Service Credit (history of work load)
 Age Factor (a factor in the formula)
 Earnable (typically the average earnable of
your last three years of service --- but
technically your 3 highest consecutive
earnable years)
What is my Service Credit?
 Service Credit is reported to STRS by your
district payroll department
 It is based upon monthly earnings divided by
earnable (typically your hourly rate X 525 or a
number appropriate for your classification and
defined in your locally bargained contract)
 Service Credit covers ALL creditable service
in all semesters/quarters, including intersessions and summer session up to a
maximum of 100% or 1 year SC
Is my Service Credit correct?
 Check your yearly STRS statement
 Compute your actual yearly earnings
 If not accurate, then CALL Faculty
Association
 Should be slightly higher if includes office
hours and substituting.
Accumulating Service Credit
 Classroom instruction [FTE] % load
 Unused Sick Leave Hours [given at
retirement]
 Substituting
 Office Hours [FTE X rate = SC]
 Permissive Buy Back of Time
Buy service based on creditable time not
previously contributed to STRS
 Air Time: Non-teaching time (expensive)
 Golden Handshake [negotiable by district]
Permissive Buy Back
 Good for retrieving previous years of creditable
service.
 Anything creditable from in/out of California
[public service]: teaching, counseling, substituting
and administrating, Sabbatical Leave, Active Military,
UC/CSU service, Maternity/family care/medical, and
School for Blind/Deaf.
 Earnable X % [age category] is cost of one year
Service Credit. Same formula is used for the CB
to DB conversion.
 You can pay out of pocket, from another pre-tax
retirement account (IRA) or on time.
Permissive Service Credit Costs
 Cost to buy permissive service credit is based
upon a flexible scale based upon age.
 This scale is used for general permissive and
Cash Balance buying of service credit.
 AGE
 20-29
 30-39
 40-49
 50-59
 60 +
YRS
1.0
1.0
1.0
1.0
1.0
RATE
18.6%
18.8%
19.5%
23.9%
27.7%
SALARY
$50,000
COST
$ 9,300
$ 9,400
$ 9,750
$11,950 **
$13,850 **
Permissive Buy Back: CB to DB
 Formula: “earnable” X permissive % rate = cost
of 1 year of service credit [see permissive chart]
 “annual earnable” = FTE X hourly pay rate
 Two options to use CB money to buy back DB
service credit: [have 35 days from time of letter]
1. money in account buys direct SC as much
as will cover [aprox. ½ of actual]
2. total “permissive” SC converted to cost using
CB money + secondary source or may pay in
installments.
Sick Leave Hour Conversion
 Unused Sick Leave converted at time of
retirement (only available for DB members)
 Current law converts sick leave hours at 6
hours = 1 SC day [Ed Code 22717]
 Example: 525 hours converts by dividing
525 by 6 hours = 85 days
An academic year = 176/85 days = .5 SC
Age Factor and retirement
 Age Factor = age at time of retirement as
listed in the STRS handbook
 Examples of factors:
age 55 = 1.4
age 60 = 2.0
age 63 = 2.4 [maximum]
 Earliest retirement age = 55
 You may retire and return to work with a
break in service, but will be classified as a
working retiree while receiving a pension
Retirement Date
 You may choose to stop working if vested
and delay collecting retirement until older to
gain age factor in monthly computation
 If under the age of 60, there is a 180 day (6
month) break in service requirement to return
to teaching. (This will probably be extended
to all retirees)
 If you return to teaching part-time you will not
contribute to STRS as long as you are
receiving a pension. You will be subject to
an earnings limitations as defined by STRS
Computing my retirement
 Service credit X age factor X final compensation/12
 Check your Service Credit record. Know
what you have now, what you expect to gain
until projected retirement age plus sick leave
hours converted into annual SC
 Check STRS book for projected age factor
 Calculate approximate Final earnable
compensation (based on projected 3 years
averaged) [div. by 12]
 Use the STRS calculator on website
Final Compensation Earnable
 Final Computation = average of 3 final
years “earnable” salary or 3 highest
earnable consecutive years.
 Final computation earnable = actual gross
payment divided by % load teaching.
 Example: $25,000 3 year average gross
divided by .60 [% load] = $41,666 earnable
Retirement with DB Supplement
 Your supplemental account [DBS]
accumulates money from anything over
100% for the year.
 The DBS account also accumulated 2% of
your 8% basic contribution (2000 -2010)
 If that account is more than $3500 then it can
be annuitized and paid out as an added
benefit or cashed out in full.
 Example $15,000 would add $150 per month
for life added to your final STRS benefit.
AB 1586
 Law to fix impairment to PT retirees whose
service record pre-dates 1996 law change.
 Purpose is to compute years of service before
1996 and years of service after 1996 and give
the PTer the best retirement based upon their
service record.
 Calculate pre-1996 on 1050 standard
 Calculate post-1996 on FTE service div. half
 Double the Final compensation to 1050
standard.
Social Security & Teachers
 Social Security
- Federal Defined Benefit Plan
- Employee contribution
- District contribution
- 40 quarters; earning & age
- Not all districts offer Social Security
- yearly statement gives history & standing
estimated benefits, earnings record
 Affected if receive STRS benefits & have less
than 30 years substantial SS contributions
Windfall Elimination Provision
 Teachers and other Public Employees
 Effective January 1, 1986
 WEP reduces first $711 from 90% to 40%
if less than 20 years of substantial earnings
21 years factored at 45%
25 years factored at 70%
30 or more years of substantial earnings
at full factor of 90% [NO OFF-SET]
Calculating WEP
 Calculating WEP, which affects mostly federal,
state and local government employees [including
teachers], is one of the most complex of the
Social Security entitlement provisions.
 There is now a hand-dandy chart that shows how
your benefits can be affected by WEP on the
Social Security website. And you don’t even have
to touch a calculator.
 http://www.socialsecurity.gov/retire2/wep-chart.htm
Government Pension Off-set
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Affects Spousal Benefits of FT private
sector employees whose spouses are in
the public sector.
Age 65 spouse receives 50% of PIA
“Primary Insurance Amount”
Age 64 – 45.8% of PIA
Age 63 – 41.7% of PIA
Age 62 – 37.5% of PIA
Social Security and PT Faculty
 Check SS Statement of Earnings
 See covered earnings year-by-year credits
[40 quarters needed]
Benefits listed will not reflect WEP or GPO
 Find out if you are contributing or have
contributed years of “substantial earnings”
 30 years of substantial earnings will not be off-set
by WEP or GPO; between 20 and 30 years a
sliding scale of off-set percentages.
 SS Disability: need 27 credits, with 20 earned in
the last 10 years
What are the “other” plans?
 Other Plans:
Apple, Banner, PARS
 How do they work?
- Employee contribution
(some with district contributions, usually less
than STRS DB or Social Security)
- Similar to an IRA or DC plan
- No SS Off-set ONLY if no district contribution.
- If no longer contributing to a plan, you
may roll into an IRA, 403(b), CB or use for DB
purchase. Typically you must wait 12 to 24 months
before allowed to do so by the plan.
What does this all mean for you?
 Knowledge is Power: Be Informed
 Know your Options: Ask Questions
 Consider where you are now & the future
 Stop and figure out all implications and
What is best for YOU
 Join organizations your Faculty Association,
whose lobbyists advocate for your rights in
Sacramento, and
 Attend STRS & CCA retirement workshops
Contacts
 STRS website www.calstrs.com
has information, forms and statements
 STRS Ombudsman: Tom Barrett
[email protected]
 STRS toll-free phone: 800-228-5453
 You can call STRS to request a CB to DB
consolidation form or membership review.