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.