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This section of the handbook explains the issues a member applying for retirement will confront, including how the Defined Benefit (pension) is calculated, the normal and early retirement benefits available to members, and the selection of the pension and Annuity Savings Account (ASA) payment options. Working after retirement and other issues related to being a retired member are covered in the After Retirement section.
Indiana Code 5-10.2-4-8(c) provides that if a PERF member who is receiving retirement benefits is re-employed in a PERF-covered position within thirty (30) days of the date on which the member left employment, the member’s retirement benefits are stopped. Full repayment of benefits received is due from the member.
In addition, a PERF member’s application for retirement benefits is void if the member has an agreement, formal or informal, prior to his or her retirement, with a covered employer to become re-employed in a covered position.
Vested status is the ten (10) or more years of PERF- or TRF-covered service needed to receive a benefit from PERF. You must be vested to collect a pension.
Pension Benefit Calculation
You will begin collecting a lifetime monthly pension benefit after you officially retire from PERF-covered service. The size of the pension portion of your monthly check is calculated using a formula set by law. PERF cannot alter this formula, which uses three factors:
The Benefits Calculator here is available to get an idea of how the formula works. You may also obtain a benefit estimate using this calculation once you are within two years of eligibility for early or normal retirement.
Payment of an estimated retirement benefit must be at least 85 percent of the actual benefit.
Final Average Salary
“Final Average Salary” refers to your highest five years of compensation in a PERF- or TRF-covered position. PERF will combine 20 quarters in groups of four consecutive quarters (as mandated by law) over your entire PERF- or TRF-covered career. The resulting average in all cases will be the highest possible benefit.
Additional payments up to $2,000 made upon termination in contemplation of retirement (for example, pay for unused vacation days or severance) are included in this calculation.
All creditable service is subject to final certification at retirement. The employer’s governing body or its agent must agree that you were employed full-time (or on an approved leave of absence) and the employer must make the contributions to fund the pension benefit corresponding to your service.
Members who retire with service in both PERF and TRF are required to elect which retirement fund to receive their pension benefits from when they apply for retirement.
If, after retirement, you believe an error was made in calculating your creditable service, you may request a re-examination of your benefit at any time. You may only appeal the re-examination decision under the Indiana Administrative Orders and Procedures Act if the re-examination is requested within six years after the payment commencement date.
Your last day in pay status is generally the date most people think of as the day they “retire.” PERF uses an “effective date” for retirement benefits. The effective date of your retirement benefits can be no earlier than the first day of the month following your last day in pay status.
|EXAMPLE: Your last day in pay status is Aug. 2. Your effective date of retirement is Sept. 1.|
The calculation of the pension benefit rewards members who earn more years of service even though they have the opportunity to retire at an earlier age. There are three ways you become eligible to receive full (unreduced) pension benefits under PERF:
PERF also provides early retirement options (assuming you do not yet qualify for full retirement benefits). Your pension benefit will be reduced based on your age if you take early retirement. You will qualify for early retirement with a permanently reduced pension if:
Keep in mind that if you choose to take early retirement, your pension benefits will remain at a reduced level even after you reach 60 years of age.
If you are entitled to early retirement with reduced benefits, the following chart shows how the pension part of the benefit is reduced according to your age:
|Retirement Age||% of Pension|
By law, if you are eligible to receive pension benefits and wait to submit a retirement application, PERF can only pay up to six months of retroactive benefits.
The payment decisions you make at retirement will affect the amount of your monthly payment and determine whether or not any survivors or beneficiaries will receive monthly payments after you pass away. How much you will receive each month in retirement benefits will depend on your wages, service, pension option and ASA election.
Five Year Guaranteed Beneficiary Benefit (Option 10): You will receive a monthly benefit for the rest of your life. If you pass away before receiving benefit payments for five years, your beneficiary will receive that monthly benefit for the remainder of those five years OR a lump sum distribution equal to the present value of those remaining payments. After five years, there are no payments available to the beneficiary.
Example: Member X has been retired and receiving a monthly benefit for 24 months. During the 24th month, member X dies. The beneficiary of member X is entitled to receive the monthly benefit for the remaining 36 months or the present-day value of the remaining payments.
Benefit with No Guarantee (Option 20): You will receive a monthly benefit for life, but there are no monthly payments to anyone after your death. However, the balance of your ASA will be distributed to your beneficiary or estate if it is larger than the payments previously made to you.
Joint with Full Survivor Benefits (Option 30): You will be paid a monthly benefit for life. After you pass away, the same monthly benefit will be paid to your beneficiary for his/her lifetime.
Joint with Two-Thirds Survivor Benefits (Option 40): You will be paid a monthly benefit for life. After you pass away, two-thirds of your benefit will be paid to your beneficiary for his/her lifetime.
Joint with One-Half Survivor Benefits (Option 50): You will be paid a monthly benefit for life. After you pass away, one-half of your benefit will be paid to your beneficiary for his/her lifetime.
Integration with Social Security (Option 61): A member who retires between ages 50 and 62 may integrate the PERF monthly pension benefit with the member’s estimated Social Security benefits. This does not affect the amount of the benefit received from the Social Security Administration.
Before age 62, the member’s benefits will equal the sum of the member’s Social Security estimate, multiplied by actuarial factors, and the member’s early retirement benefit. This will result in the member receiving a larger monthly benefit payment before age 62. After age 62, the member’s benefit will equal the difference between the member’s Social Security estimate, multiplied by actuarial factors, and the member’s pre-62 monthly pension benefit. Depending upon the member’s estimated Social Security disbursement, benefit payments may be greatly reduced at age 62.
|Important Notice (Applies to Options 10, 20, 30, 40, 50, and 61)|
|If you and your beneficiary pass away, you didn’t withdraw your ASA at retirement, and the total amount of payments received up to the date of death (including pensions and ASA payments) is less than the balance of the ASA at the time of retirement, then either the beneficiary or member’s estate will be paid the remaining ASA balance. Please note that if a total distribution of the ASA is chosen as the payment option, this guarantee does not apply. Also, if a partial distribution of the ASA is chosen, this guarantee only applies to the remaining ASA balance.|
Five Year Guaranteed Beneficiary Benefit with ASA Cash Refund (Option 71): In order to select this option, you must choose to combine at least a portion of your ASA with your lifetime monthly pension benefit. If you select this option, you will receive a monthly benefit for the rest of your life. If you die before receiving payments for five years, your beneficiary will receive the pension of that monthly benefit for the remainder of those five years OR a lump sum equal to the present value of those remaining payments. Also, upon your death (whether you die before or after receiving five years of benefits), your beneficiary may receive any remaining balance of your ASA.
Option 71 is not available to members who elect to receive total payment of their ASA upon retirement. However, if the member chooses a partial withdrawal of the ASA (a distribution of the 1986 Tax Basis), Option 71 is available. Please note that your ASA balance is reduced with each monthly benefit paid. Therefore, if you die after the account has been reduced to zero, there will be no ASA distribution to your beneficiary.
Your ASA is the second piece of your two-part retirement benefit. You may annuitize this ASA. That is, you may take this money in combination with your pension as a lifetime monthly payment. Or you may choose to receive a distribution of the ASA funds when you retire from PERF, or defer distribution to a later date.
Effective July 1, 2011, a vested member who is eligible for early retirement may withdraw the member's ASA, without forfeiting his or her pension benefit, so long as the member separates from service for more than 30 days.
Members who elect to withdraw their ASAs at retirement will remain invested according to their pre-retirement investment allocations until their ASA is paid out at the time PERF processes their retirement.
Members who elect to annuitize their ASAs at retirement will have the balance of their ASA put into a fixed value account set at the same rate as the Guaranteed Fund. This happens not more than 30 days prior to processing the member’s retirement application or the member's retirement date.
Members who elect to defer their ASA at retirement will have the balance of their ASA invested according to their pre-retirement investment allocation.
Taxation on the ASA
The decision of how to receive the distribution of your ASA can have significant tax implications, and we urge you to consult with a tax advisor. PERF can explain your options but cannot offer tax advice. The information below is included to aid you and your advisors with federal tax provisions as they apply to PERF benefits.
Any contributions to your ASA made with after-tax dollars are considered “tax basis” because you have already paid taxes on those dollars. Mandatory contributions paid by your employer were not taxed at the time they were paid. Therefore, they do not create “tax basis”. Upon retirement, any after-tax contribution (your tax basis) is reported by PERF as non-taxable on the IRS Form 1099-R issued to retired members and the IRS. However, it is important to note that your tax basis is recoverable under very specific IRS rules. The following briefly outlines the basis recovery rules applicable to your situation.
You can elect to receive a total distribution of your ASA at the same time you begin receiving your monthly pension benefit. However, if you elect to do so, federal tax law does not allow you to immediately recover your entire basis when you receive your ASA. Instead, part of the basis has to be allocated to the monthly pension benefits. The basis allocated to the monthly pension payment is divided up and recovered over a mandatory number of monthly payments, as determined by applicable IRS regulations. Therefore, a portion of each monthly benefit paid to you is non-taxable, for as long as basis remains.
This division of the basis is required because the IRS has issued a letter ruling to PERF concluding that the ASA and monthly pension benefits payable to you do not constitute separate accounts. The consequence of this ruling is that, upon retirement, basis from contributions to the ASA must be partially allocated to your pension benefit, as we have described above. One exception to this basis allocation rule is also relevant: a special provision of federal tax law permits you to immediately recover any tax basis that you may have had in your ASA on Dec. 31, 1986. The post-1986 basis, however, must be allocated to your monthly retirement benefits.
|Any ASA contributions totaling $1,000 or less received after the final date on which a member’s retirement benefit is processed may be paid directly to the member if no election was made.|
Leave Your ASA Invested with PERF: You may choose to leave your ASA invested with PERF. When you decide to do this, you defer distribution of your ASA balance at this time. According to IRS regulations, you must begin distribution at age 70 1/2. Until you elect to receive your funds, they will remain invested according to your directions.
Combine ASA with Lifetime Pension Benefit: You may choose to receive, as part of your monthly benefit, the total amount of your ASA. You will not receive any other distribution from the ASA other than this monthly payment. In contemplation of retirement, if you apply for retirement benefits and choose to annuitize payment of the ASA with the pension benefit, your account balance and any contributions posted after the final date on which your benefits are processed will be moved into a fixed value account. This happens not more than 30 days prior to processing the member’s retirement application. The same rate as the Guaranteed Fund will apply until the amount is paid to you.
Withdraw Entire ASA: If you decide to withdraw your entire ASA, you must choose either a direct rollover, complete withdrawal, or partial rollover to a qualified plan for the Taxable Portion of your ASA and, if it applies to you, one of these choices for the 1986 Tax Basis Portion. Please consider the tax consequences you may face if you choose a complete withdrawal of the Taxable Portion of your account.
Withdraw 1986 Tax Basis Portion of ASA and Combine Taxable Portion with Pension Benefit: If you make this choice for your ASA, you will withdraw the non-taxable (1986 Tax Basis) portion of your ASA in the form of a direct rollover, a complete distribution, or a partial rollover to a qualified plan, and then receive the balance of the account as a part of your monthly payment.
PERF is required by law to withhold 20 percent for federal income taxes for any part of the eligible rollover distribution that is not directly rolled over. You will have to pay federal and state income taxes on this taxable portion.
You may name only one beneficiary if you select any of the joint with survivor benefit options (30, 40, or 50). You may name a person(s), trust, your estate, or other legal entity as beneficiary if you select retirement options 10, 61, or 71. If you name more than one beneficiary under those options, any benefits due upon your death will be directed as designated on your application.
You will receive a monthly benefit for life under each retirement payment option. Several of the options provide for further payments to your beneficiary or beneficiaries.
Changing beneficiaries after retirement has different procedures and restrictions (see After Retirement).
When you are ready to apply for retirement benefits, please select "Member Login" to register for your PERF Online account if you do not already have one. Submitting your application online is quick and easy. You may also download a copy of the application .
At Age 70 With 20 Years of Service
You may begin receiving retirement benefits while continuing to work in a PERF-covered position if you are age 70 and have at least 20 years of creditable service. A member who chooses to begin receiving monthly retirement benefits while working in a PERF-covered position cannot earn additional service credit towards retirement, but may continue to make contributions to their ASA.
Special Provisions for Those in Elected Office
You may begin receiving retirement benefits while continuing to work in an elected position if:
If you are receiving monthly retirement benefits and are elected or appointed to an eligible elected position covered by PERF, you may continue or discontinue your retirement benefits while in office. If you continue your benefits, you will not earn additional service credit, and you may choose to make ASA contributions, but are not obligated to do so. If you discontinue retirement benefits, mandatory 3 percent contributions must be made to your ASA, and you will earn additional service credit.