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Early Retirement Planning Guide for Teachers

Discover why taking early retirement can benefit you! Learn about Teachers' Fund for Retirement, pre-retirement seminars, investment performance, funding levels, and upcoming legislation. Make informed decisions for your future today.

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Early Retirement Planning Guide for Teachers

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  1. Only 22,630 Days Until Retirement You can never start too early… Pre-retirement Planning

  2. “My report is entitled ‘Why Mrs. Fina Should Take Her Early Retirement Package.”

  3. How the Benefits Affect YOU Teachers’ Fund for Retirement July 2009

  4. Teachers’ Fund for Retirement 1930 Burnt Boat Drive PO Box 7100 Bismarck ND 58507-7100 Telephone:701-328-9885 Toll free:800-952-2970 Fax:701-328-9897 E-mail:rio@nd.gov Website:www.nd.gov/rio

  5. TFFR Website www.nd.gov/rio

  6. 2009-2010 Outreach Services Benefits Counseling Program Individual 30 minute benefits counseling appointments available to all members to discuss TFFR benefits and other personal retirement concerns. To register, call the Administrative Office at 800-952-2970 or 701-328-9886.

  7. Pre-retirement Seminars Topics include: TFFR benefits, financial planning, estate planning, Social Security benefits and health insurance. Bismarck July 14, 2009 Grand Forks July 15, 2009 Conferences and Conventions Invest ND Seminar Bismarck July 22, 2009 Career & Tech Ed Convention Bismarck Aug. 10, 2009 NDRTA Convention Dickinson Aug. 25-26, 2009 NDEA Instructional Conference Grand Forks Oct. 21-22, 2009 NDCEL Convention Bismarck Oct. 22-23, 2009

  8. Governing Boards TFFR Board of Trustees Mike Gessner, President Represents Active Teachers Bob Toso Represents School Administrators Kim Franz Represents Active Teachers Lowell Latimer Represents Retired Members Clarence Corneil Represents Retired Members Kelly Schmidt State Treasurer Wayne Sanstead State Superintendent State Investment Board Jack Dalrymple, Lt. Governor, Chair Clarence Corneil, TFFR Board, Vice Chair Bob Toso, TFFR Board Kelly Schmidt, State Treasurer Cindy Ternes, Workforce Safety & Ins Gary Preszler, Board of Univ & School Lands Adam Hamm, State Insurance Dept Mike Gessner, TFFR Board Ron Leingang, PERS Board Mike Sandal, PERS Board Levi Erdmann, PERS Board

  9. TFFR Mission • The mission of TFFR, a trust fund, is to advocate for, develop, and administer a comprehensive retirement program for all fund members within the resources available.

  10. Type of Plan TFFR is a qualified defined benefit public pension plan covered under Section 401(a) of the Internal Revenue Code (IRC). In simpler terms, TFFR is a tax-exempt pension plan where benefits are defined by state law. North Dakota Century Code (NDCC) Chapter 15-39.1 contains the actual language governing the Fund, along with Title 82 of the North Dakota Administrative Code (NDAC). The TFFR plan is funded on an actuarial reserve basis. That is, money is invested for future retirement benefits while members are actively teaching. Benefit funding comes from three sources: • Employee contributions – 7.75% of salary • Employer contributions – 8.25% of salary (8.75% effective July 1, 2010) • Investment earnings

  11. Sources of TFFR RevenueFY 1990-2008

  12. TFFR Revenues and Distributions1990-2008

  13. Investments • TFFR Board determines asset allocation and investment guidelines. • Investment assumption is 8% per year. • Investment program is administered by State Investment Board.

  14. Cash Equivalents, Domestic Fixed 1% Real Estate, 9% Income, 12% Alternative Investments, 5% International Fixed Income, 5% International Equity, 18% Domestic Large Cap Equity, 28% High Yield Bonds, 7% Domestic Small Cap Emerging Markets Equity, 10% Equity, 5% TFFR Asset Allocation

  15. TFFR Investment Performance and Asset Allocation as of June 30, 2008 Fixed Income 35% Equity 65% Total 1 Year3 Years5 Years10 Years Fund -7.51% 8.42% 11.50% 6.36% Total Assets $1,846,113,411

  16. TFFR Investment Performance-Annual1989 - 2008

  17. TFFR Funded Ratio 1977 - 2008

  18. Will TFFR’s Funding Level Decline? • Public pensions plans are not immune to the current financial crisis. • Volatility in the financial markets makes it very difficult to estimate future returns. • Lower investment returns will have a dramatic impact on funding levels. • TFFR funding levels are expected to decline quickly and significantly.

  19. Projected TFFR Funding Levels (AVA)

  20. Conclusion • As a result of the recent market declines, and anticipated funding level declines, most public pension plans around the country are expected to experience higher required contributions. • Predicting the magnitude of increased costs is difficult and will depend on factors unique to the ND TFFR plan, as well as performance of investment markets over the next few years. • TFFR funding improvement legislation is needed in 2011. The Board is studying various options to deal with falling funding levels. It is likely that legislation will be proposed in 2011 to modify contributions and/or benefits to offset investment losses.

  21. TFFR Approved Legislation 2009 House Bill 1022 – NDRIO Budget HB 1022 includes an employer/school district contribution increase of 0.5% (8.25% increase to 8.75%) effective July 1, 2010. This increase is intended to offset the cost of the one-time TFFR retiree supplemental benefit payment outlined in SB 2277 and begin improving TFFR funding levels which have declined due to investment losses and economic conditions.

  22. TFFR Approved Legislation 2009(continued) House Bill 1080 – TFFR Administrative Changes HB 1080 includes technical and administrative changes to the TFFR program. The changes have no financial impact on the Fund. Most of the amendments are needed to incorporate federal tax law changes as they relate to qualified governmental plans. Other changes include clarification that non-contracted substitute teaching does not apply to the annual hour limit for re-employed retirees. In addition, confidentiality provisions are modified to allow disclosure of retirement information in certain limited situations outlined in the bill.

  23. TFFR Approved Legislation 2009(continued) House Bill 1360 – Regional Education Association (REA) Changes HB 1360 clarifies TFFR statutes by including licensed and contracted employees of REAs in the definition of “teacher” for TFFR participation and benefit eligibility purposes. This clarification does not change current TFFR practices.

  24. TFFR Approved Legislation 2009(continued) Senate Bill 2277 – Supplemental Retiree Benefit Payment SB 2277 provides a one-time supplemental retiree benefit payment to all TFFR retirees and beneficiaries who retired before January 1, 2009 and are receiving annuity benefits on December 1, 2009. The supplemental payment is equal to an amount determined by taking $20 per year of service credit, plus $15 per number of years since the member’s retirement. The supplemental payment can not exceed the greater of 10% of the member’s annual annuity or $750. The supplemental payment will be made in December 2009 and will be paid from the TFFR trust fund.

  25. Membership Individual Membership • Certified to teach • Under contract Dual Membership • You may qualify as a dual member if you have service credit in TFFR and the Public Employees Retirement System (PERS) or Highway Patrol Retirement System (HPRS).

  26. Service Credit Earned Service Credit • 700 compensated hours = 1 year • If compensated for less than 700 hours, service credit is granted in proportion to 700 hours Example: 650 hours/700 = .929 year Vesting • Three years of earned service – Five years for new hire after 7-01-2008 • Entitled to lifetime benefit when eligible • Public employment included for vesting and eligibility

  27. Purchase of Service Credit Active members may purchase eligible service credit for: • Refunds previously taken from TFFR • Air time • Government agency teaching • Leave of absence • Legislative service • Military service • Out-of-state teaching • Non-public school teaching **TFFR may accept tax deferred money by direct rollover from eligible retirement plans for the purchase of service credit. Eligible retirement plans include IRAs (not Roth IRA), qualified 401(a) and 401(k) plans, 403(b) tax-sheltered annuity plans, and 457 governmental plans.

  28. Salary “Salary” means your earnings in eligible employment for teaching, supervisory, administrative, and extracurricular services during a school year reported as salary on your federal income tax withholding statements plus any salary reduction or salary deferral amounts under 26 U.S.C. 125, 132(f), 401(k), 403(b), 414(h), or 457. Eligible salary includes bonus amounts paid to you for performance, retention, experience, and other service-related bonuses, unless amounts are conditioned on or made in anticipation of your retirement or termination.

  29. “Salary” Also Includes: In addition to your regular contract earnings, salary for TFFR purposes also includes additional pay received from your employer. Examples include: Adult education program Info. Technology coordination & services Chaperoning school events In-service/workshops/conferences Club advisor (not reimbursed for expenses) Coaching and assisting In-staff subbing Consortium type work Lunch room monitor Curriculum development Mentoring Driver’s education School programs Drug free school program (Latch key, gifted and talented) Indian education program Summer school Note: This list is not all-inclusive. Contact the administrative office if you have questions on whether payments made to you should be reported to TFFR.

  30. “Salary” Does NOT Include: • Fringe benefit or side, non-wage benefits which accompany or are in addition to your employment, including insurance programs; annuities; transportation, housing, and expense allowances; meals; lodging; or other benefits provided by your employer. • Insurance programs including medical, dental, vision, disability, life, long-term care, workers compensation, or other insurance premiums or benefits. • Payments for unused sick, personal, vacation, or other unused leave. • Early retirement incentive or severance pay, or other payments conditioned on or made in anticipation of retirement or termination. • Teacher’s aide, referee, bus driver, ticket taking or janitorial pay. • Amounts received by you in lieu of previously employer-provided benefits or payments that are made on an individual selection basis. • Recruitment bonuses. • Other benefits or payments not defined above that the Board determines to be ineligible TFFR salary.

  31. Service Retirement Benefits Eligibility • Vested member • Cease covered employment Retirement Classifications • Normal retirement • Early retirement • Deferred retirement

  32. Benefit Formula Final average salary* x 2.0% x service = monthly Single Life Annuity. What percent of your Final Average Salary (FAS) will you receive under the 2.0% multiplier? Years of Service 10 15 20 25 30 31 32 35 40 Percent of FAS 20% 30% 40% 50% 60% 62% 64% 70% 80% *Tier 1 Members FAS – three high fiscal year salaries ÷ 36. *Tier 2 Members FAS – five high fiscal year salaries ÷ 60.

  33. Summary of Benefits Tier 1 Members Tier 1 (Active, inactive, and retired members with TFFR service on July 1, 2008) *Note: If Tier 1 member refunds, then returns to TFFR employment, the member becomes a Tier 2 member. Tier 2 Members Tier 2 (New members and returning refunded members beginning July 1, 2008)

  34. Benefit Options • Refund of Account Value • Single Life Annuity • 100% Joint and Survivor • 50% Joint and Survivor • 10 Year Certain and Life • 20 Year Certain and Life • Level Income Option • Partial Lump Sum Option

  35. Level IncomeExample: Calculation of Level Income Supplement/TFFR Retirement Age 55 Estimated Social Security Benefit = $800 at age 62/$800 x 52% = $416 Calculation of Single Life Annuity: Single Life Annuity Non-Level Income $1,000 Level Income Supplement + 416 Level Income Single Life Annuity (before age 62) $1,416 At age 62 TFFR annuity is reduced by - 800 Level Income Single Life Annuity (after age 62) $ 616 Partial Lump Sum Option (PLSO)Example: Jane retires on June 1, 2009, with the Rule of 85. Her Single Life Annuity benefit is $1,700/month. She may elect the regular retirement option and receive $1,700/month for life or receive a PLSO distribution of $20,400 ($1,700 x 12) and a lifetime benefit of $1,530/month. Generally, the actuarial reduction for a PLSO is approximately 10%. Retirees using the PLSO may also select a Joint & Survivor Option or Term Certain Option to provide a continuing benefit to a beneficiary. These options would require another actuarial reduction to the $1,530.

  36. Teachers’ Fund for RetirementService Retirement Options • 2008-09 • Retirement Option Number • Single Life 131 • 100% Joint & Survivor 172 • 50% Joint & Survivor 28 • 10 Year Certain & Life 5 • 20 Year Certain & Life 12 • Total 348 Note: Of total, 11 members (3%) selected level income option. Of total, 18 members (5%) selected partial lump sum option.

  37. Employment After Retirement • 30 calendar days must elapse from retirement date • Return to covered employment for maximum number of hours based on length of contract: 9 month contract = 700 hours 10 month contract = 800 hours 11 month contract = 900 hours 12 month contract = 1000 hours • Non-contracted substitute teaching is unlimited • Extracurricular duties and professional development do not count toward the limit The annual hour limitation applies to ND public schools and state institutions covered by TFFR. It does not apply to ND public colleges and universities, private schools, employment outside of education, or out-of-state employment. Exceptions:Critical Shortage Area and Benefit Suspension and Recalculation

  38. Return to Teach Statistics for 2008-09 Superintendents 26 Other Admin 32 Teachers 226 Total Retirees: 284 Average Age: 60 Average Salary: $22,000 Employers:130

  39. Survivor Benefits Eligible Survivors • Designated beneficiary; if none, • Surviving spouse; if none, • Surviving children, if none, • Estate Death Prior to Retirement • Nonvested member - Refund of account value • Vested member - Refund of account value - Monthly benefit for life (if one beneficiary designated) - Monthly benefit for 60 consecutive months (5 years) Death After Retirement • Benefits paid based on the plan selected at retirement

  40. Disability Benefits Eligibility • One year service credit • Active member of TFFR • Application filed within 36 months from last date of employment • Disability must result in the inability to perform the duties of a teacher • Certified eligible by Board of Trustees Disability Formula • FAS (final average salary) x service credit (minimum 20 years) x 2.0% = Disability Single Life Annuity • No age reduction • Benefit options available

  41. Divorceand Your TFFR Benefits • TFFR benefits are generally considered a marital asset and subject to valuation and division in a divorce. • Division of TFFR benefits can only be accomplished if a court order called a Qualified Domestic Relations Order (QDRO) is filed and approved by the TFFR Board before being signed by the judge. • QDRO model has been established by TFFR and such language should be used in preparing the order. • Former spouse (alternate payee may only receive a lump sum payment from TFFR if you elect a refund upon termination of employment). • Alternate payee can elect to receive a monthly benefit for life based on the accrued benefits at the time of divorce.

  42. Divorce and Your TFFR Benefits (continued) • Monthly benefit to the alternate payee can begin when: • You reach normal retirement (age 65 or Rule of 85 using only years of credit prior to divorce); • You reach early retirement (age 55); • The alternate payee reaches a certain date (must be after you reach age 55); and • You retire. • Alternate payee can begin benefits and you can continue working. • The actuarial value of the alternate payee’s current and future benefits will reduce your benefit. • If TFFR is not to be divided, the divorce decree should state that you retain sole ownership of the retirement account.

  43. “I think that the life cycle is all backwards. You should die first, get it out of the way, then live 20 years in an old-age home. You get kicked out when you’re too young. You get a gold watch; you go to work. You work 40 years until you’re young enough to enjoy your retirement. “You go to college, you party until you’re ready for high school, you become a little kid, you play, you have no responsibilities, you become a little baby, you get back into the womb, you spend your last nine months floating. “And you finish off as a gleam in someone’s eye.” -Author Unknown- Reverse Living

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