- Written by WVMFT
RETIREMENT OVERVIEW by Jory Segal
Thinking about retirement is not a priority for new faculty members. We were all excited to start a new position, and there are so many things to process that retirement issues usually move to the bottom of the list.
Putting off learning about how to best position yourself for retirement, is not a good idea. Understanding your options and making informed decisions for your future will hopefully allow you to become financially secure in retirement. My brief overview is just an introduction to your options for retirement as a faculty member at WVMFT. It is very important for adjunct faculty to study their retirement options.
Full-time faculty are automatically placed into a defined benefit traditional pension plan with Cal Strs. Adjunct faculty have a choice of a defined benefit, Cal Strs, or a defined contribution plan with Apple. BOTH full-time AND adjunct faculty can choose to contribute additional funds to employee only, defined contribution plans for educators, known as 403B's or 457's. (These are similar to employee only contribution plans in the private sector, known as 401k's.)
Types of Workplace Retirement Plans:
- Defined Benefit
- Defined Contribution
- Cash Balance
- Employee only Contribution Plan (403B or 457)
Most retirement plans, (except ROTH IRA’s), are “tax deferred”. Contributions to the plans are NOT taxed. Withdrawals are taxed. Early withdrawals may incur a tax penalty.
TRADITIONAL PENSIONS are DEFINED BENEFIT plans. WVMFT uses a defined benefit plan.
There is a “vesting requirement” that is usually five years of full-time equivalent employment. The benefit, (pension), is defined by a formula that is usually based on years of service, retirement age, and final or highest yearly salary.
Benefit = years of full-time equivalent service times retirement age factor (a ratio) times the average of the 3 highest yearly earnings
(if you have worked 30 years or more full-time, it is the highest one year)
If you are an adjunct faculty and teach a 50% load for 2 years you would have one year of full-time equivalent service.
The Benefit is usually paid monthly and it is guaranteed for life and may include COLA, (cost of living adjustments). Disability insurance and death benefits, (to a designated survivor), are options usually included in most plans. The minimum retirement age is 55.
If you are already in CalPERS, we would recommend that you stay in CalPERS and not change to CalSTRS. The minimum retirement age for CalPERS is 50 and the benefit is based on the highest 12 consecutive months.
Unused sick leave can increase the years of full-time service credit for STRS and PERS. The number of unused sick leave days would be divided by the FTE days by the last employer and that number determines how much unused sick leave the district reports to CalSTRS. Sick leave can be transferred from a previous employer to your new employer.
The DEFINED BENEFIT SUPPLEMENT Program from CalSTRS is used if you work more than 1.0 (a full year of service credit) in any year. Any additional earnings have 8% contribution by the employer and 8% by the employee that go into a special account. The account earns guaranteed compounded interest and can be paid as a lump-sum or annuitized upon retirement.
DEFINED CONTRIBUTION PLANS are in many ways similar to a 401K. In education they are a 403B or 457.
Immediate vesting
The employer and employees contributions are defined. Employers are not required to contribute.
Contributions are tax deferred.
The Retirement Benefit is the account balance at retirement. (includes contributions and hopefully any earnings, but losses are possible)
Some plans may offer an option to annuitize the funds upon retirement.
They are not pensions, they are uninsured private savings accounts.
CASH BALANCE PLANS “hybrid plans” including the “APPLE PLAN”
Immediate vesting
The employer and employee contributions are defined. They are usually 3.75 to 4% each for a total of 7.5 to 8%, depending upon the plan.
Guaranteed annual minimum interest (employee cannot lose money)
The Retirement Benefit is the account balance at retirement.
The plan’s funds are invested by paid professionals.
May be an optional annuity option based on age and the account balance. (CalSTRS cash balance plan.)
The minimum retirement age is 55.
Contributions are tax deferred.
Not portable to outside CA.
IRA’s
Roth or traditional contribution plans. No employer contributions.
ANNUITIES
Lifetime income based on age and the amount of contribution.
Usually offered by life insurance companies that seek to make a profit.
Sometimes offered as a benefit option in defined contribution and cash balance plans
CalSTRS offers a defined benefit plan that is mandatory for full-time faculty in California. It is optional for part-time faculty. Its cash balance plan is not available for full-time faculty and part-time faculty will be enrolled in it unless their District offers Social Security or the APPLE Plan.
SOCIAL SECURITY
Sort of a defined benefit plan, need 40 credits to vest. Minimum retirement age is 62.
Retirement benefit defined by a formula based on average annual earnings over 35 years. 6.2% contribution for both employee & employer. Contributions not tax deferred and the benefits are sometimes taxable.
Portable to most other states and jobs.
WEP AND GPO (SOCIAL SECURITY PENSION REDUCTIONS)
The WEP and GPO may apply if you concurrently receive retirement benefits from Social Security and also from CalSTRS defined benefit or cash balance plans.
WEP is the windfall elimination provision that MAY reduce your Social Security benefit by up to approximately $428 monthly in 2016. (The reduction cannot be more than 50% of your benefit from non-covered employment.) SSA Publication No. 05-10045. You are subject to this provision of you have less than 30 years of “substantial earnings” in employment covered by Social Security.
GPO is the Government Pension Offset. It may reduce or wipe out your Social Security spousal, widow, or widower benefits. SSA publication No. 05-10007
WORKING AFTER RETIREMENT Your retirement benefit is reduced dollar for dollar by any compensation earned from CalSTRS-covered employment during the first 180 calendar days following your most recent retirement effective date.
Post retirement earnings limit for 2018 was $45,022.
CHECK WITH YOUR EMPLOYER BEFORE YOU RETIRE TO MAKE SURE THAT THEIR REPORTING TO CALSTRS IS CORRECT.
Social Security: www.ssa.gov 800-772-1213
CalSTRS: www.calstrs.com 800-228-5453
Apple: www.midamerica.biz 800-634-1178
CalPERS: www.calpers.ca.gov 888-225-7377