CONNECTICUT COMMITTEE FOR EQUITY IN RETIREMENT
____________________________________________________________________________
Update: To be distributed October 4, 2010
Feel free to forward to ARP colleagues
WORKSHEET FOR COMPARING ARP AND SERS RETIREMENT INCOMES
Connecticut Committee for Equity in Retirement
The window of opportunity to transfer to SERS will end December 31, 2010.
Before you start, you will need a hand calculator and the Cavenaugh Macdonald actuarial tables. They
can be accessed from the CCER website (Google CT ARP Crisis) as well as the CSU—AAUP and 4C’s
and UHC websites.
Below are the worksheet steps with a running example in the brackets.
Information needed
1. Current salary _____________
[$60,000]
2. Age ________
[64]
3. Years of state service ___________
[22]
4. ARP 401(a) balance (do not include 403(b) or other accounts)
a. in TIAA-CREF:_______________
[$142,300]
b. in ING: __________________
[$35,350]
5. Total ARP balance (add a and b)______________
[$142,300 + $35,350 =
$177,650]
To calculate the different retirement incomes
6. Cost for total credit in SERS—go to Cavanaugh Macdonald tables
a. Tier II (factors) table (cross reference age
and years of service) __________
[3.3461]
b. Multiply a X current salary_______________
[3.3461 X $60,000 =
$200,766]
c. Subtract $54,800 from current salary _________
[$60,000 - $54,800 =
$5,200]
d. Tier II (salary above the breakpoint)—cross reference
age and years of service______
[1.2579]
e. Multiply c X d ______________
[$5,200 X 1.2579 =
$6,542]
f. Add b + e = Full Buy-in cost_______________
7. Divide 5 by 6 = fraction of full credit in SERS _________
[$200,766 + $6,542 =
$207,308]
[$177,650 /$207,308 =
.857]
8. Full credit SERS retirement income
a. Multiply years of service (3 above) by .016 _________
b. Multiply a by current salary (1 above) = full credit
pension ___________
[22 X .016 = .352]
[.352 X $60,000 =
$21,120]
9. Partial credit SERS retirement income based on size of
ARP account
a. Multiply 7 above by 8b above ____________
[.857 X $21,120 =
$18,100]
10. Retirement income by staying in ARP
a. Males: multiply ARP total (5 above) by .055 __________
b. Females: multiply ARP total (5 above) by .049__________
[$177,650 X .055 =
$9,771]
[$177,650 X .049 =
$8,705]
Additional information:
Employee contributions—
ARP—5% of salary
SERS—0% of salary for Tier 2, 2% of salary for Tier 2a (hired on or after July 1,
1997)
Questions and Answers
1. How accurate is this worksheet?
It is an approximation of costs and benefits. It is still unclear whether the original Cavanaugh
Macdonald actuarial study will be used. The benefit multiplier for SERS varies above and below the
.016 average used above according to individual salaries.
2. Why are the SERS and ARP retirement incomes so dramatically different?
There are a number of reasons. Individuals who die early in SERS receive less than they contributed
with the remainder staying in the fund to benefit longer lived retirees. That allows pension amounts to
be higher. The SERS pensions are non-profit. ARP commercial annuities suffer from drainages of
commissions, interest, and profits. They also suffer from the effects of what is called adverse
selection—those who tend to buy commercial annuities buy them because they believe they will live a
long time, and they do live longer than average which drives up the cost.
3. Why do women receive lower ARP annuity amounts than men?
Annuity costs are largely based on longevity estimates. The insurance companies who sell annuities set
their rates by how long purchasers are likely to live and how much they are likely to receive in total
payments. Since women live longer on average than men, more payments must be made to
women. Insurance companies compensate for the larger number of payments by making each one
less. For SERS there is no difference between pension payments to men and women because, by law, it
and other defined benefit plans must use blended longevity estimates. ARP commercial annuities are
not required to use gender blended estimates.
4. I have less in my ARP account than is necessary to receive full credit. Will I be allowed to use 403(b)
and other funds to make up the difference?
Probably, pending Internal Revenue Service approval.
5. I have less in my ARP account than is necessary to receive full credit. Will I be allowed to transfer to
SERS anyway and just receive partial credit?
Yes.
6. Could I keep some money in ARP and take a few years credit in SERS?
No. All funds in ARP up to the amount necessary to receive full credit must be transferred.
7. What happens if I have more money in ARP than I need to get full credit in SERS?
In that very unlikely event, the excess funds would remain yours.
8. Your example is for someone 62 years old with 22 years service. I have fewer than ten and am in my
late 30s. Would I get the same advantages by transferring?
We believe that you would probably get more since the proportionate cost to buy in would be less and
going forward you would be fully in SERS.
9. Are there any advantages to staying in ARP?
If you are concerned about leaving your remaining retirement accumulations after you die to relatives,
you should probably stay in ARP. Remember, though, that you will not be able to annuitize in that case
and the income that you can draw out for living expenses will be comparatively low.
10. I don’t have tenure or job security. What about me?
If you leave your job with at least five years service, you will receive some amount of pension from
Connecticut when you retire as long as you meet the minimum age requirements. It is possible that if
you did have to leave voluntarally or involuntarily you would have been marginally better off financially
by staying in ARP. Another way to look at this, though, is that if you end up staying, you will be much
better off by being in SERS. There is a bit of a gamble here between potentially losing a little money
and gaining a much greater amount.
11. What about the market? Isn’t it possible that the market could take off and we who are younger
would be much better off in ARP?
Yes, that is a possibility. But going on the experience of those of us who have been in ARP and similar
plans for over thirty years, it is not likely.
12. Would it be a good idea to consult a financial advisor?
If you do, you must bear in mind that the great majority of financial advisors have a financial interest in
people remaining in ARP and other 401(k) like plans so that they will need their investment advice and
will be potential customers for their investment products.
13. Okay. Then who should I go to for advice?
Yourself. You owe it to your financial future to figure this out.
______________________________________________________________________________
The Connecticut Committee for Equity in Retirement advocates a reform that would allow members of
the Alternate Retirement Program to change to the State Employees Retirement System. ARP members
contribute over twice as much as those in SERS yet will receive less than half the benefits. Website (or
Google: Connecticut ARP Crisis)
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To subscribe to the CCER Social Security distribution list (of interest primarily to ARP members who
began before 1990 and do not have Social Security coverage): send an e-mail to
Siporinr@mail.ccsu.edu