Presents
Alternate Retirement Plan
Gottfried & Somberg Wealth Management, LLC
340 Hebron Ave
Glastonbury, CT 06033
(860) 430-9104
Securities and advisory services offered through
Commonwealth Financial Network, Member
FINRA/SIPC, a Registered Investment Adviser.

Understanding ARP plan
◦ Risks and Rewards
◦ Impact on retiree health benefits

Understanding SERS Plan
◦ Calculating monthly pension & lump sum
Hybrid vs. SAG Award
 Other Financial Planning Concerns

◦ Best time to retire

Transferring ARP to the Hybrid Plan
◦ Cost and Process

Two Studies of the Pros and Cons

Defined Contribution Plan
◦ Contributions
 Employee
 State
5% salary
8% salary
◦ Investments
 ING
 TIAA / CREF
◦ Investment risk borne by employee

Risks & Returns
◦ Investment
 Full access to Income and Principal
 Over 30 Investment Options available within Plan
 Thousands of investment options available after
retirement
◦ Annuitization
 Lose access to Principal
 Receive Guaranteed Income for Life

Impact on Post-Retirement Health Benefits
◦ Must have 10 years service
◦ For spousal/partner health benefit continuation, must
annuitize at least $10,000 with 50% co-participant.

ARP Value: $500,000 @ 59 ½ and Retired
◦ Keep $10,000 at ING and annuitize with 50%
survivorship option (for partner health benefits)
◦ Roll over $490,000 to Bank/Advisor/self-directed IRA.
◦ Use dividends and principal to provide retirement
income.
◦ Investment Risk is Borne by Employee!
This example is for illustrative purposes only and is
not intended as investment advice.

Defined Benefit Plan
◦ Monthly pension at retirement
◦ Based on average salary and years of service
◦ Investment risk borne by state

Hybrid:
◦ 5% Salary Contribution
 3% Plan
 2% to supplement
retirement @ ARP (if
hired before 1997)

SAG:
◦ 0% Contribution <OR>
◦ 2% salary contribution
for employee (>1997)

Calculating Monthly Pension
◦ Average 3 highest salaries
◦ Breakpoint for 2013: $65,300
◦ Salary above breakpoint receives higher pensionable benefit
◦ Salary above $250,000 (2012) is not pensionable

Age At Retirement:
If transferring from ARP to the Hybrid Plan:
◦ Age 60 with 25 years: Normal
◦ Age 62 with 10 years: Normal
◦ Age 55 with 10 years: Early
 Use same calculation but subtract a 6% per year penalty

Sample Normal Retirement Calculation
◦ Jonathan




Age 65
37 years service
$110,000 salary
Retirement Date: 7/1/2013
Pension = (1.33% x $110,000) x 35
+ (0.50% x $44,700*) x 35
+ (1.625% x $110,000) x 2
*($44,700 = $110,000 - $65,300)
= $51,205 + $7,822 + $3,575
= $62,602/year
= $5,217/month

Sample Early Retirement Calculation
◦ Dr. Husky
 Age 60
 21 years service
 Salary $110,000
 Retirement date: 7/1/2013

Sample Early Retirement Calculation
Pension
= (1.33% x $110,000) x 21
+ (0.50 x $44,700) x 21
x 0.88 *
*(100% - 12% = 88%)
= $35,416 x 0.88
= $31,166/year
= $2,597/month

Features:
◦ Years of Service worth more than Salary
◦ Pension + COLA for Life
◦ Investment Risk Borne by State!

Survivor Options:
◦ Plan D:
No Survivor Benefit
◦ Plan A & B:
50% or 100% to Survivor
◦ Plan C:
Period Certain for 10 or 20 years

Calculating Lump Sum Option
-Value of current ARP
+ 3 or 5% per year (3% if hired >7/97)
+ 5% CT Contribution per year for 5 yrs
@ 4% interest rate per year
Ex: - Salary $110,000
- ARP Value: $200,000
- Will work 5 years
= Lump Sum Benefit
Lump Sum Benefit
= $295,338*
*To receive post-retirement health benefits must annuitize
part through ARP

SAG Award: No lump sum option available, only monthly pension.
This example is for illustrative purposes only and is
not intended as investment advice.

If you Die Before You Retire:
 Married (at least 1 year)
Spouse receives 50% pension for life
or
Lump Sum
 Unmarried:
Lump Sum
Risk = Chance of Losing
Employee vs. Employer
Investment, Inflation, Interest Rate
 Who Bears the Risk?

Windfall Elimination Provision (WEP)
Claiming Social Security Benefits based on your own work history

Key Date – Exempt if you qualify for your CT pension prior to
January 1, 1986 or have 30 or more years of substantial Social
Security earnings
This means:
Reduction is phased in between 20 to 30 years of substantial SS
earnings. 90% factor is reduced to 45% of the first bracket of SS
earnings With 20 or fewer years, the factor is reduced to 40% of the
first bracket of SS earnings.
Social Security Benefits



Government Pension Offset GPO
Claiming Social Security Benefits based on your spouse’s work history
Key Date – Exempt if you qualify for your CT pension prior to
December 1, 1982
This means:
Two-third of CT Benefit applied to SS benefit
SS Spousal Benefit $600
CT Pension = $2,400 x 2/3 = $1,600
SS Benefit $600 minus 2/3 CT Benefit $1,600 = $0
******Medicare eligibility is not affected*********
Risk = Chance of Losing
Employee vs. Employer

Other Risks: Disability, Life, Long Term Care
Good blog about ARP/Hybrid/SAG James Russell at ECSU
[email protected]

Process:
1. Value current accounts (ARP, 403b, 457, IRA)
2. Find cost using HYPE calculator
3. Compare value to Cost
1.
If value is less than Cost, then use HYPER calculator
4. Calculate SERS for Present Value of pension @
retirement
5. Compare Present Value to Cost

Valuing Current Accounts
◦ ING & CREF Accounts fully valued
◦ TIAA Accounts Discounted
Ex: $140,000 ING
$40,000 CREF
$100,000 TIAA
$280,000
$140,000
$40,000
$10,000 + [$90,000 X (100 % - 15.2%)]
$266,320

Cost to Purchase Service
◦ Info required: D.O.B, years & months of service, highest
salary
◦ Use HYPE Calculator:
 www.osc.ct.gov/rbsd/arptransfer/hype.aspx
*If value of current accounts is higher than cost to purchase all service, why not
move all accounts to stable value or money market to minimize investment
risk?

If current value is less than cost,
◦ Use HYPER calculator next to confirm service that
can be purchased.
 www.osc.ct.gov/rbsd/arptransfer/hyper.aspx

Copy of Cost Estimate and forms from CT:
◦ http://www.osc.ct.gov/rbsd/arptransfer/forms.htm




For ING & CREF funds use CO-994
For TIAA funds, use CO-995
Bring to Payroll/HR for signature
Agency will Send to:
Retirement Services Division
Misc. Retirement Service Unit
55 Elm Street
Hartford, CT 06106
Please retain copies!!!

Example One:
◦ Jonathan Husky
 Age 60
 20 years of service
 Salary: $ 40,000
 ARP Value: $ 175,000
 Retire in 5 years

1.) Calculate Hype & Hyper Values
- $175,000 can purchase 17.9 years credit

2.) Calculate ARP Value in 5 years 10% ROR
-$342,000

3.)Calculate SERS Pension: 22.9 years
- $16,200/ year : PV is $314,000

4.) Compare $342,000 to $314,000
-CHOOSE ARP-This example is for illustrative purposes only and is
not intended as investment advice.

Example Two:
◦ Jane Dempsey
 Age 50
 10 years service
 Salary: $120,000
 ARP Value: $110, 000
 Retire in 15 years

1.) Calculate Hype & Hyper Values
- $110,000 can purchase 8.9 years credit

2.) Calculate ARP Value in 15 years
- $665,000
3.) Calculate SERS pension: $58,200/ year
-PV is $1,270,000


4.) Compare $665,000 to $1,270,000
-CHOOSE HYBRID
This example is for illustrative purposes only and
is not intended as investment advice.
*Tier II & IIA pension factors may change after 2022

Figure out your pension & ARP options.

Assess your cost to convert.

Analyze your ARP investment options.

Figure out which option provides you with
more income.

Provide you forms to convert.

Figure out your cash flow after retirement.

How you can maintain your standard of living
after retirement.

What plan you should take?

What survivor benefit you should choose?

What happens if you or your spouse passes
pre-maturely?

How to allocate your investments for
retirement?
Thank you for coming!
Please be sure to hand in your
feedback cards before you
leave.