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Senate Bill (SB)1040 and Michigan Public School Employees Retirement System (MPSERS)

Senate Bill (SB)1040 and Michigan Public School Employees Retirement System (MPSERS). Novi MEA (Sept.13, 2012). Damon A. Wilson, CEBS dwilson@mea.org. Eastern Region Regional Manager, MEA Financial Services Registered Principal, Paradigm Equities, Inc. 1-800-946-1960 (Novi)

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Senate Bill (SB)1040 and Michigan Public School Employees Retirement System (MPSERS)

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  1. Senate Bill (SB)1040and Michigan Public School Employees Retirement System (MPSERS) Novi MEA (Sept.13, 2012)

  2. Damon A. Wilson, CEBSdwilson@mea.org Eastern Region Regional Manager, MEA Financial Services Registered Principal, Paradigm Equities, Inc. 1-800-946-1960 (Novi) 1-800-292-1950 (East Lansing)

  3. MEA Financial Services RepresentativesSteve Semenuk 248 626-8960 SSemenuk@mea.og Schedule Your Appointments! Registered Representative, Paradigm Equities, Inc. 1-800-292-1950 (East Lansing)

  4. Overview SB 1040 Review Your Homework The Basics of MPSERS

  5. SB 1040 (H-3) Highlights and Summary • Eliminates retire health care for employees hired after September 4, 2012 and replaces it with an employer match of up to 2% of compensation into a DC Plan plus a lump sum employer contribution at retirement • $1000 if terminating prior to age 60 • $2000 if terminating after age 60 • Must have 10 years of service

  6. SB 1040 (H-3) Highlights and Summary Continue 3% employee contribution retiree health insurance Current litigation pending Use the contributions to pre-fund the future retiree health benefits Allows an opt out of retiree health benefit with an employer match of 2% of compensation into a DC Plan instead.

  7. SB 1040 (H-3) Highlights and Summary Caps employer contribution rate at 24.46% of payroll Requires a third party study by November 15 to include moving to a Defined Contribution Plan for new hires

  8. SB 1040 (H-3) Highlights and Summary Current Retirees and those who retire January 1, 2013 or later will pay 20% of MPSERS health premium Retirees who are 65 or older, who are Medicare eligible and have retired by January 1, 2013 will continue to pay 10% of the MPSERS health, dental and vision premium

  9. Senate SB 1040 (H-3) Pension Election Increase contribution rates unless employee opts out Employees will be asked to make an election between September 4 and October 26th, 2012 Early signs indicate miAccount will be the method for making an election

  10. Do you remember when members were given the CHOICE to switch from Basic to MIP? Two step process if you do not switch to MIP: 1. No reduction in salary 2. Invest the difference to add/increase retirement income.

  11. Senate SB 1040 (H-3) Pension Election Option 1: Make a higher contribution to retirement system in order to maintain current multiplier at 1.5% • Basic: Increase from 0% to 4% (flat for everyone) • MIP: Increase to 7% (flat for everyone) • MIP members currently pay different amounts depending on hire date • MIP range is currently from 3% to 6.4%

  12. Senate SB 1040 (H-3) Pension Election Option 2: Choice to make the higher contributions until attainment date (30 Years), and then revert (choice) to original contribution amount but drop to 1.25% on future years of service credit earned after 30

  13. Senate SB 1040 (H-3) Pension Election Option 3: Pay current contribution amounts, but receive a lower multiplier (1.25%) on future service credit earned Service credit earned thus far retains the 1.5% multiplier

  14. Senate SB 1040 (H-3) Pension Election Option 4: Freeze existing service credit earned at the 1.5% multiplier and convert to a DC Plan with an employer contribution of 4% of compensation DC Plan is the “Tier 2” Plan sponsored by the State. Employee contributions are made to a 457 Plan and normal IRS rules apply.

  15. What Can I Do? • Learn about your pension • The pension formula: FAC x multiplier x years of service • Survivor options • MIP or BASIC: How much am I paying now? • Pension Eligibility: When can I, or will, I retire? • If considering retirement • Understand potential impact of service credit purchase on insurance subsidy • Utilize miAccount for pension projections

  16. Simple SB 1040 (H-3) Analysis: Homework Option 1 • How much more will I contribute if I keep the 1.5% multiplier? • When do I expect to retire? • What is my pension estimate on my expected retirement date? • Calculate estimated FAC x 1.5 x YOS • Use miAccount for assistance • Do the increased contribution amounts justify the increase in my pension?

  17. Simple SB 1040 (H-3) Analysis: Homework Option 1 and 3 • If I “stop” my pension at the multiplier of 1.5%, what will my pension be on my expected retirement date with my current YOS? • How many more years before I plan on retiring? • What will my pension be based on the 1.25% multiplier? • FAC x 1.25% x Future YOS

  18. Simple SB 1040 (H-3) Analysis: Homework Option 3 • Combine 1.5% pension amount for current YOS plus 1.25% pension amount for Future YOS = estimated final pension • Determine how much you saved by not paying to keep 1.5% • NOTE SAME ANSWER AS IN OPTION 1

  19. Simple SB 1040 (H-3) Analysis: Homework Option 4 Determine pension projection on current years of service Project value of 4% of compensation contributed to a DC Plan over remaining years of service (estimate return) Compare with Option 1 and 3

  20. SB 1040 • When does this take effect • FIRST pay ending after December 1, 2012 • THE BILL CALLS THIS – • “Transition Date”

  21. Examples • Hired June 1, 1992 • Current Age = 45 • MIP member – YES • MIP Graded Max 4.3% • Final Average Compensation (FAC) – $60,000 • Years of service (YOS) = 20 years (now) • Pension Calculation ( FAC x YOS x multiplier (.015 or .0125) • Regular Retirement at age 55 with 30 YOS • Contribution Percentage 2.7% (4.3 + 2.7 = 7.0%) • 30 years total– Pension at 1.5(Option 1) = $27,000 (FAC $60,000 x .015 x 30 years) • 30 years total– Pension (Option 3) $25,500 (FAC $60,000 x .015 x 20 years = $18,000) +(FAC $60,000 x .0125 x 10 years =$7,500) • Pension $1,500 year for life difference– Option 3 • It cost you $1,620 dollars annually (ten years $16,200) if you want Option 1 • 10 to 11 years to get your money back

  22. Example Continued • Option 4 Pension would be Frozen at 20 years = $18,000 at age 60 • $7,000 year difference for life vs option 1 • $1,300 year difference for life vs option 3 • Defined Contribution amount at 4 percent would be $2,400 annually (ten years) • No longer a MIP member • Saved $2,580 annually (4.3% of salary)

  23. Which Option To Chose • Tell me the best option?????? • Tell me when you are going to DIE? • I will tell you your best option • These are mortality odds • Look at the last decade of Investment Returns • What is your personality for RISK • Are you single • Can you afford the increased contributions • Will you invest on your own.

  24. Establish your MiAccount. Select an anticipated retirement date. How many Years of Service (YOS) will you have at retirement? What type of retirement are you eligible for– Regular, Reduced, Deferred. What is your Final Average Compensation (FAC) (one amount). What is your annual pension if all years of service are calculated at 1.5%? (FAC x YOS x .015) What is your annual pension if some of years of service are calculated at 1.25%? (FAC x YOS x .0125) and some are calculated at 1.5% What the difference in annual pension? What is the annual salary amount to maintain the 1.5% factor? Your HomeworkAssignment Due – Sept.4, 2012 to Oct. 26, 2012

  25. If necessary, get help! Make an informed decision. Submit your pension choice (via MiAccount) between Sept. 4, 2012 and October 26, 2012 Your HomeworkAssignment Due – Sept.4, 2012 to Oct. 26, 2012

  26. Summary Educate yourself about your pension Take advantage of ORS and miAccount ORS has 4.7 million dollars to implement SB 1040 – Look for tools on the website Start your homework now

  27. Your Retirement Plan Summary • Goal: 75 percent of income prior to retirement • Steve Semenuk 248 626-8960 SSemenuk@mea.og

  28. ORS Office of Retirement Services MPSERS Michigan Public School Employees Retirement System

  29. Definitions ORS: Office of Retirement Services MPSERS: Michigan Public School Employee Retirement System FAC: Final Average Compensation YOS: Years of Service Credit Earned Multiplier: Percentage factor in calculating your pension i.e. FAC x 1.5% x YOS Premium Subsidy: What the State will pay towards your retiree health care premium

  30. Preparation Read information published by MPSERS: www.michigan.gov/ors Enroll in miAccount Watch tutorials on MPSERS Website Attend a seminar

  31. For Those Applying for Retirement According to ORS…. • Retirement application forms have been removed from the website • Retirement paper applications will not be accepted after March 31, 2012 unless already in progress • Use miAccount only after March 31, 2012

  32. Customer Information Center Connect directly to a retirement representative to answer questions and handle most retirement related issues. The Toll Free Number is 1-800-381-5111 www.michigan.gov/orsschools

  33. miAccount miAccount. On this secure site you can view and print your personal account information, make changes, and correspond securely with ORS. miAccount is available to you seven days a week from 5 a.m. to 12 a.m. Go to www.michigan.gov/orsschools to register

  34. Understand Who You Are Basic MIP Pension Plus: Hired After July 1, 2010

  35. Understand How Much You Pay Basic: Currently 0% MIP MIP Graded MIP Plus Pension Plus

  36. Pension Eligibility Requirements for MIP and Basic

  37. Eligibility depends upon 3 factors… Your years of service Your age and Whether you are a member of the: Basic Retirement Plan or Member Investment Plan (MIP)

  38. Basic PlanNon-Contributory • Final Average Compensation (FAC) • Highest 60 consecutive months • Pension does not increase * Insurance Coverage **Penalty Provision ***Previously terminated public school employment (Less than 21 years of service no insurance, more than 21 years, eligible for insurance)

  39. Member Investment Plan (MIP) Contributory • What you’re paying for: 1. Retire earlier 2. Final Average Compensation (FAC) – Highest 36 consecutive months 3. Three (3%) increase each year * Insurance Benefits **Penalty Provision ***Previously terminated or quit public school employment (Less than 21 years of service no insurance, more than 21 years of service eligible for insurance

  40. Regular Retirement • 10 Years of Service MIP or Basic Plan—at age 60 • 30 Years of Service MIP ——— age 46 Basic —— age 55

  41. Regular Retirement • MIP Members Only • Age 60 with 5 years of service credit • Must have at least .1 year of credited service in each of five previous school years. • If hired after July 1, 2008, health insurance premium subsidy not available with less than 10 years of credit • Must work within the month of your 60th Birthday

  42. Early Reduced Retirement 15 Years———at age 55* Retire and begin receiving benefits earlier. Your benefit payment will be permanentlyreduced by 1/2% for each month your age is less than 60. *with .1 year of credited service in each of five previous school years.

  43. Early Reduced Retirement Example: Age — 57 years, 6 months Months to age 60 — 30 months Reduction per month — 1/2% 30 MONTHS X 1/2 % (.005) = Permanent 15% Reduction

  44. Deferred Retirement • 10 Years of Service • Has not yet reached age 60 • A deferred member should contact the • Retirement System before terminating • Employment and determine impact on insurance benefits

  45. Retiree Health Subsidy Subsidy defined as what the State will pay towards your total Insurance Premium If your subsidy amount is less than a fellow retiree, this does not affect your coverage

  46. SUBSIDY AMOUNTS Current Subsidy amounts as of Jan 1, 2012 Just note – Employee portion is going to double

  47. Retiree Health SubsidyHired Before July 1, 2008 Active member at time of retirement Retire under 30 YOS Basic or MIP; 10 YOS basic or MIP; Early Reduced with 15 YOS; MIP 5 YOS and age 60 Full Subsidy Applies (90%) However…..

  48. Retiree Health SubsidyHired Before July 1, 2008 • Initiate a service credit purchase AFTER July 1, 2008 that allows you to retire earlier than if you had not bought the service credit • If purchase allowed the member to retire early, he/she would pay full insurance premium until he/she would have been otherwise eligible • This is called a “Delayed Subsidy”

  49. Example: Delayed Subsidy Service Credit Purchase MIP 46 w/ 30: • Purchased 3 years after July 1, 2008 • Retire with 30 years of service (27 earned) • Age 52 • Wait 3 years for subsidy • Would not have been eligible until 55 without the purchased 3 years

  50. Purchase Health Insurance If a delayed subsidy applies, you can still enroll in the health, dental, and vision insurances; you will have to pay the full premium until the subsidy begins. The subsidy will begin when the number of years equal to your purchased time used to qualify has passed, or at age 60, whichever occurs first.

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