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
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.
Part 1
Pension Reform III
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
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.
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
Part 2
Benefits,
creditable service
and resources
for MTRS members
Retirement Benefits
1)“Regular”
• Any age, with 20 years of creditable
service, OR
• Age 55 with 10 years of creditable service
…and…
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)
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
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, 2nd Floor
–
Cambridge, MA 02142-1254
Forms MTRS Provide
•
•
•
•
Option Selection Form
Group Health Insurance
Federal Tax Withholding
Direct Deposit
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.
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
New Age Factor for those hired after 4/2/12
2.50
2.35
2.20
2.05
1.90
1.75
1.60
1.45
67 or older
62 or older
57 or older
66
65
64
63
62
61
60
61
60
59
58
57
56
55
56
55
54
53
52
51
50
With at least 30 years of service at time of
retirement
2.50
2.375
2.250
2.125
2.0
1.875
1.750
1.625
67 or older
62 or older
57 or older
66
65
64
63
62
61
60
61
60
59
58
57
56
55
56
55
54
53
52
51
50
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.
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.
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
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
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
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
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
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 A
$48,000
Dies with you
Option B
Option C
$47,520
Any remaining
to beneficiary
$43,680
$29,119
to survivor
($4,320 difference)
For illustrative purposes only
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
Pension Max
• Must be insurable
• Different types of insurance:
–
–
–
–
Term
Universal Life
Variable Life
Whole Life
$50,000 Pension
5 Yrs 10 Yrs 15 Yrs 20 Yrs
Actual
Pension
25 Yrs
$51, 900
$53,900
$55,850
$57,800
$59,750
$56,275
$65,236
$75,624
$87,666
$101,626
$60,775
$77,563
$98,990
$126,336
$161,238
w/ COLA
Income
needed
w/ 3%
inflation
Income
needed
w/ 5%
inflation
For illustrative purposes only.
COLA
Cost of Living Adjustment
• Issued annually if voted on by
Legislature
• If retired on June 30, 2011, eligible
July of 2012
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
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:
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