IPERS Overview & Benefit Options

1. IPERS Overview & Benefit Options Presented by Ronda Onken Senior Retirement Benefits Officer Summer 2012

2. The largest public retirement system in Iowa Members include employees of: public schools, cities, counties, state government, state universities, State Board of Regents Approximately 330,000 members 2,200 employers 100,000 retirees $1.3 billion in benefit payments paid annually What is IPERS?

3. 401A (defined benefit plan) under IRS codes: Lifetime benefits are paid based on a formula not on the amount of contributions. Formula factors Age Years of service The average of your highest three years of salary What is IPERS?

4. How does it work? Lifetime Retirement Benefits, Disability Benefits, Death Benefits and Refunds are paid out. Contributions from Active Members and Employersare paid in. The IPERS Trust Fund The IPERS Trust Fund must be used for the exclusive benefit of members and their beneficiaries.

5. Contributions + interest Contributions based on gross wages Current Regular class contribution rate: 5.78% from you, the member 8.67% from your employer Interest is credited quarterly What’s My Part?

6. What is “vesting”? Vesting status is obtained after: • 16 quarters (4 years) of reported wages, or • When wages are reported in the same calendar year age 55 or older is attained

7. Entitles the member to: Monthly retirement or disability benefit A portion of employer’s investment if refund is taken and Is required for a service purchase Vesting

8. Six monthly payment options Alwayslifetimeto member Different death benefit provisions IMPORTANT! Option choice cannot be changed once benefits are paid. Monthly Benefit

9. Monthly benefits are calculated using: Years of Service Age Highest Three Years of Salary (Average) Benefit Formula

10. Benefit Formula – Years of Service • Each year worked earns 2% of the 60% payable for the first 30 years. • 1% for a maximum total of 65% payable for each additional year after 30. • Early retirement reduction if before normal retirement.

11. Free credit Leaves of absence Granted prior to July 1998 Requires verification from employer Active military duty Entered military as an IPERS covered employee and returned to IPERS employment within one year of discharge Submission of DD214 form required Maximizing Years of Service

12. Refunded IPERS service IPERS employment not previously covered Other public system(s) (if not eligible to draw pension from the other system) Active duty military time not eligible for free credit Nonqualified Service - 5 year limit Time not qualified (private employment) Public employment (eligible to draw pension from other system) “Air time” Service Purchase Options

13. What is considered “normal retirement”? Age 65 Age 62 with 20 or more years of service Rule of 88 (years of service + age) Receiving social security disability or railroad disability Must be vested if applying for disability benefits under the age of 55 Benefit Formula - Age

14. Early Retirement Reduction • Less than 20 years of service • 3% per year for each year under age 65 • 20 or more years of service • 3% per year for each year under age 62 • At least 27 years of service and not reaching the Rule of 88 • 3% per year for each year under 88.

15. Computed Year Example HIGH 3 CALENDAR YEAR WAGES CURRENT YEAR SALARY (2012) 1st $11,000 2nd $13,000 3rd$ 8,875 4th$ 8,875 Computed year salary $41,750 Computed year High 3 Average = $40,583.33 *The computed year salary cannot be more than 103% of the highest calendar year wage (2011). **The computed year average cannot be more than 121% of the 4th highest salary year not being used in the calculation (2009). 2011 $42,000 2010 $38,000 2009 $35,500 High 3 Average = $38,500 ÷ 4 = $8,875 The final high three average used will result in the highest monthly pension payment payable to the member.

16. Important Facts to Remember! • Working any time in a month makes you ineligible for benefits that month. • You can get a paycheck in the same month you start IPERS payments.

17. Request estimates from IPERS before deciding on a retirement date. Working a little longer could increase benefits significantly. May be eligible to retire earlier. Retirement Estimates

18. Option Summary Always lifetime to member! OPTION 1 Guaranteed death benefit in $1,000 increments OPTION 2 Death benefit only if balance of investment remains OPTION 3 No death benefit OPTION 4 Dual life annuity OPTION 5 Guaranteed 10 year monthly benefit payments OPTION 6 Dual life annuity with pop-up feature for member

19. Getting Monthly Benefits Started • Must terminate employment unless age 70 • Must be age 55 or older • Unless vested and eligible for IPERS disability benefits • Must make application

20. Benefit payments are subject to federal and state income tax You can request that the tax can be withheld from monthly benefit payment 1099R mailed each January For detailed tax information, contact the IRS for publication 575 or consult a tax advisor Taxes

21. No employment with an IPERS-covered employer for one calendar month No IPERS covered employment for an additional three months for a total of four calendar months Months are counted by number of pension payments qualified for and received Bona Fide Retirement

22. 3-5 years from possible retirement for estimates 5-6 months from retirement to obtain application packet At termination, if before age 55 for additional options If a disability occurs When to Contact IPERS

23. Changes to IPERS Presented by Ronda Onken Senior Retirement Benefits Officer

24. Summary of Changes 7/2012 • Change in Vesting Rules • Change to High 5 Average • Change in Early Retirement Reduction Percentage • Contribution rates increase 1% • New reduction rules apply only to service earned 7/1/12 and later

25. Contribution Rate Change 7/2011 Contribution rate 13.45% 7/2012 Contribution rate 14.45% Split 60/40 Employee 5.78% Employer 8.67% Possible change +/–1.0% annually Split 60/40 Employee 5.38% Employer 8.07% Possible change +/–1.0% annually A salary of $45,000 per year will see $180 per year increase of contributions in 2012.

26. Vesting Rule Change Now through 6/30/2012 Vesting after 4 years On July 1, 2012 Vesting after 7 years

27. Vesting Changes Vested on 6/30/12; remain vested • At least 4 years of service OR • Year age 55 or older and contributing Not vested on 6/30/12; vest at 7 years • At least 7 years of service OR • Month age 65 or older and contributing

28. High 5 Average Change Now through 6/30/2012 High 3 year average On July 1, 2012 High 5 year average

29. High 5 Average Compare and use higher of: Snapshot of High 3 on 06/30/12 High 5 at retirement

30. Example 1:High 5 Member retiring December 2014 with pay raise each year. Snapshot of High 3 06/30/12 $45,000 47,000 47,000 $139,000 ÷ 3 $ 46,333 High 5 at Retirement $45,000 47,000 47,000 49,000 50,000 $238,000 ÷ 5 $ 47,600

31. Example 2: High 5 Member retiring December 2014 with decrease in pay. High 5 at Retirement $45,000 47,000 47,000 40,000 43,000 $222,000 ÷ 5 $44,400 Snapshot of High 3 06/30/12 $45,000 47,000 47,000 $139,000 ÷ 3 $ 46,333

32. Spiking control still applies $ 37,000 38,000 40,000 41,000 45,000 47,000 47,000 52,000 71,000 93,000 $310,000 ÷ 5 $45,000 x 134% = $60,300 6th highest High 5 = $62,000

33. Early retirement age reduction Current Reduce 3% a year for portion of service through 06/30/12 From nearest normal retirement eligibility (Rule of 88; rule of 62/20; age 65) Beginning July 1, 2012 Reduce 6% a year thereafter From age 65

34. Benefit multiplier –No change 2% a year for 30 years 1% a year in years 31–35 Maximum 65% Benefit Formula: Average Salary X Multiplier

35. Normal retirement age (No early retirement reduction) – No Change Age 65 Regardless of service Rule of 62/20 At least age 62 with 20 or more years of service Rule of 88 Age + Years of service = 88 or greater

36. Example: Early retirement Retire age 61 with 26.5 years of service June 30, 2012 Total years 26.5 Annual multiplier Adjustment factor Adjusted to How long Reduction 24 2% 3% 62/20 1 yr 3% 2.5 2% 6% 65 4 yr 24%

37. Example: Early retirement 24 yrs 2.5 yrs Reduce 6%/year for 4 yrs Earned starting 7/1/12: 2.5 x 2% = 5% multiplier $54,000 x 5% = $2,700 Early retirement reduction: $2,700 x 24% = $648 $2,700 - $648 = $2,052 Reduce 3%/year for 1 year Earned before 7/1/12: 24 x 2% = 48% multiplier $54,000 x 48% = $25,920 Early retirement reduction: $25,920 x 3% = $777.60 $25,920 – $777.60 = $25,142.40 Annual benefit = $27,194.40

38. Example: Work 6 more months Retire age 61 with 27 years of service June 30, 2012 3 2% Total years 27 Annual multiplier Adjustment factor Adjusted to How long Reduction 24 2% 0% Rule of 88 0 yr 0% 0% Rule of 88 0 yr 0%

39. Example: work 6 more months 24 yrs 3 yrs Rule of 88 Earned starting 7/1/12: 3 x 2% = 6% multiplier $54,000 x 6% = $3,240 Early retirement reduction: $2,700 x 0% = $0 $3,240 Rule of 88 Earned before 7/1/12: 24 x 2% = 48% multiplier $54,000 x 48% = $25,920 Early retirement reduction: $25,920 x 0% = $0 $25,920 Annual benefit = $29,160.00

40. Annual Pension with Reduction $27,194.40 Annual Pension with Rule of 88 $29,160.00 Increase of $163.80 per monthfor lifetime for working an additional 6 months Value of working the additional 6 months

41. The purpose of this presentation is to give you a brief overview of IPERS and upcoming law changes. For detailed information on your account: Call toll free 1-800-622-3849 or locally at 515-281-0020 Phones are answered by Retirement Benefit Officers from 7:30 am to 5:00 pm Monday through Friday, excluding holidays. Website: www.ipers.org E-mail requests: info@ipers.org Retirement calculators Handbook Newsletters Other important information Contact us:

42. Thank You! Presented by Ronda Onken Senior Retirement Benefits Officer E-mail: ronda.onken@ipers.org Phone: (515) 281-0063