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Indiana Public Retirement System

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Indiana Public Retirement System

Indiana Public Retirement System (INPRS) > My Fund > Public Employees > My Choice: Retirement Savings Plan Member Handbook: Retiring from the Plan My Choice: Retirement Savings Plan Member Handbook: Retiring from the Plan

This section of the handbook explains the issues you may face when you apply for retirement. The issues include:

  • the benefits available to you,
  • annuitization,
  • the selection of the payment options, and
  • working after retirement.

Other issues that are related to being a retired member are covered in the After Retirement section.

Payments are made using direct deposit. On the same day each month, your payment will be deposited directly into the account you choose. You will receive a yearly notice of deposits. Your money cannot be lost or stolen. There are no delays due to mishandled mail or incorrect addresses. Please contact us at (888) 286-3544 to request a form be mailed to you, or download it here.

Separation from Service

If you are a member of the My Choice: Retirement Savings Plan and you end service and later return to state employment in a position covered by the plan, you are entitled to receive credit for your years of participation in the plan before you ended service. Your annual variable (employer share) contribution amounts are forfeited and will not be restored to your account upon rehire.

New employees who elect the My Choice: Retirement Savings Plan and then rehire or return to state employment must continue membership in the plan, not the fund (PERF Hybrid).

Non-vested members (less than one year of participation)

If you are terminated with less than one year of participation in the My Choice: Retirement Savings Plan and your account balance is $1,000 or less, you cannot defer your account balance. If you do not request a distribution election within two years after your last day in pay, balances are automatically paid to you. Payment is made in a lump sum directly to you (minus the 20 percent federal income tax withholding and state and local taxes).

Account Balances

If your account balance is more than $1,000 ($1000.01 or more) and you do not request a distribution, payment will be deferred until March of the year after you turn 70½. At that time, a Required Minimum Distribution (RMD) will be processed. Rules about the RMD take precedence over any of the automatic cashout or rules regarding suspension.

Vested members (have one or more years of participation)

If your vested account balance is less than $1,000 and you have more than one year of participation, the account will follow the 20-year suspendable account process.

If you have more than $1,000 or more than one year of service, your account balance will remain in the plan. Your money will remain in the account until you elect a final distribution, partial withdrawal, or until a minimum distribution payment is required. If your account balance falls below the required minimum balance to remain in the plan, you will receive the money in a lump sum.

If you are vested with a balance, your distribution options are:

  • a lump sum (with or without a rollover),
  • a direct rollover to another eligible plan, or
  • a monthly annuity if you are age 62 with five years of participation and have an account balance of at least $15,000.

Calculating Your Plan Benefits

Vested Status

You become 100 percent vested when you end employment, for normal retirement this is age 62 plus five years of participation. Full vesting also occurs if you die in the line of duty.

Vesting schedule:

  • One year = 20 percent
  • Two years = 40 percent
  • Three years = 60 percent
  • Four years = 80 percent
  • Five years = 100 percent

Years of Participation

Only full years of participation count toward vesting in the employer contributions. For example, if you work four years and 10 months you would receive 80 percent of the employer share (variable) portion.  You need to review your service time before separating from service.

Retirement Date

You may think of the last day you work or the last day you were on payroll as your retirement date, but INPRS uses a different definition. INPRS uses an “effective date” for retirement benefits. The effective date of your retirement is the first day of the month after your last day in pay status.

EXAMPLE: Your last day in pay status is Aug. 2. Your effective date of retirement is Sept. 1.

Payment Methods

If you meet age and years of participation requirements and you have at least $15,000 in your account balance, you may annuitize it. Your rollover account may be used in the calculation of the minimum account balance. That is, you may take this money as a lifetime monthly annuity payment. You can also choose to receive a distribution of the funds when you retire from the My Choice plan  or wait to receive your money until a later date.

Your account will be valued the day after receipt of your application. If your application is received after 4 p.m., your account will be valued the next business day. It will be transferred to a Fixed Value Fund in order to minimize loss while your request is processed. However, you may transfer your monies between investment options at any time before we receive your application. You may transfer monies via phone or online.

Any trailing contributions and amounts remaining in your account following any cancellation of the annuity will be moved to the Money Market Fund. You may also reallocate your money to any of the available investment options under the plan.

Taxation on your My Choice: Retirement Savings Plan

How you decide to receive your money can have a huge impact on your taxes. We urge you to consult with a tax advisor. Customer service representatives can explain options to you, but cannot offer tax advice. The information below is included to help you and your advisors with federal tax terms as they apply to My Choice: Retirement Savings Plan benefits.

Post-tax contributions to your account are considered “tax basis.” Tax basis refers to the portion of your contribution that was taxed at the time the money was paid into your account. The employer’s contribution is not taxed and is not considered tax basis. After you retire, PERF uses the 1099-R form to report your post-tax (tax basis) contribution to the Internal Revenue Service (IRS) as non-taxable. You may recover your tax basis under certain IRS rules found in IRS publication 575.

You can choose to receive a lump sum distribution of the funds in your account. The entire tax basis is recovered since there is not a recurring payment. The annuity recovery will be based on your age. If you annuitize your account, the basis allocated to the monthly annuity payment is divided up and recovered over a set number of monthly payments. The IRS determines the rate of recovery. A part of each monthly payment will remain non-taxable as long as the basis remains.

Read more about tax basis here.

If INPRS receives contributions after you have requested a final distribution and the total account balance has been paid, INPRS will accept the contribution and pay another distribution using your previous distribution instructions. If you were paid a disbursement in error, INPRS will work to restore the money.

The IRS issued a special letter ruling to INPRS. The letter concludes that your My Choice: Retirement Savings Plan account funds and the monthly annuity payment that is paid to you are not separate accounts. Basically, upon retirement, your post-tax money must be recovered over a set number of months along with your annuity. Contributions to your account

 that were made prior to Dec. 31, 1986 are the only exception to this rule. Federal law allows you to recover Pre-1987 basis immediately.

Leave Your Plan Invested: If you end employment, you may choose to leave your plan invested with INPRS. Based on IRS regulations, you must begin distribution at age 70 1/2. Your funds will remain invested according to your directions until you elect to receive your funds.

Withdraw Entire Account: If you decide to withdraw your entire account, you must choose: a direct rollover, have it paid directly to you, or partial rollover to a qualified plan for the taxable portion. Please consider the tax consequences you may face if you choose a complete withdrawal of the taxable portion of your account.

Tax Withholding

INPRS is required to withhold income taxes on distributions. INPRS must withhold federal taxes on monthly payments unless you choose not to have taxes withheld.  Make sure to complete the tax withholding forms when you apply for benefits.

Applying for Retirement Distribution

When you are ready to apply for retirement benefits, select Member Login to access your online account. Submitting your application online is quick and easy. You may also download a copy of the application here.

Section Four: After Retirement