PERF Hybrid Plan Member Handbook: Two-Part Benefit Structure
Membership in PERF means you are working toward earning a retirement income. You and your employer may share in paying for this benefit. However, this depends upon how your employer participates in PERF. There are two pieces making up the PERF Hybrid plan benefit structure:
- The monthly pension benefit, and
- The Annuity Savings Account or ASA
Monthly Pension Benefit
This portion of your PERF benefits is paid as a lifetime monthly benefit. It is funded entirely by your employer at no cost to you, and remains an employer asset. When a member applies to receive a retirement benefit, the employer account will be used to fund those retirement benefits. Members who choose to leave PERF-covered service and do not become eligible to receive a retirement benefit cannot withdraw these funds. Since this is a relationship between PERF and employers, you will not be asked to make any decisions regarding the management of pension benefit contributions.
Annuity Savings Account (ASA)
The second part of the Hybrid plan benefit structure is the Annuity Savings Account (ASA). It serves to supplement the pension benefit at retirement and is an important way of increasing your retirement savings. However, if you leave covered employment before becoming eligible to receive a retirement benefit, you may take a distribution of your ASA.
Within the ASA there are two types of contributions – mandatory and voluntary. The mandatory portion can be paid by the employer, the employee, or shared by both. The voluntary portion is optional and available to members who work for an employer who participates in the voluntary contributions program.
Mandatory Contributions
State law requires that 3 percent of an employee’s gross wages (regular and overtime pay) must be contributed to fund the ASA.
- If you work for the state, a quasi-governmental agency, or a university, the 3 percent is paid by your employer before taxes are calculated on your wages.
- For all other employers, the 3 percent may be deducted from your paycheck, or your employer may pay all or part of this mandatory 3 percent contribution. The governing body of the employer makes this decision, and may change it at any time.
Whether deducted or paid by the employer, this is a mandatory contribution to benefit each member of the fund. It is sent to PERF for deposit in your ASA, as mandated by state law. If you are not vested at the time of distribution, the non-taxable benefit will be paid directly to you in a lump sum or you can elect to roll over the non-taxable amount in some cases. If you are vested at the time of distribution, IRS regulations mandate that your non-taxable benefit must be recovered over the life of the pension. A portion of each monthly pension payment will be non-taxable until your entire post-tax voluntary contribution amount has been recovered.
| In general, you become vested in the ASA immediately and contributions are credited to an individual account in your name. However, you can only withdraw funds from your ASA as a distribution when you separate from PERF-covered employment or at retirement. If you are re-employed in a PERF- or TRF-covered position within 30 days from the date of termination, you are not eligible for a distribution. You are not eligible for a distribution from PERF if you are an active member in TRF or vice-versa. If you are no longer in a PERF- or TRF-covered position but are still employed with the same employer, you are not eligible to take a distribution until you have a bonafide separation from service with your employer. Employment on a part-time basis is not considered separation from employment. YOU CANNOT TAKE A LOAN AGAINST YOUR ASA. You must fully separate from your employer in order to withdraw your funds. |
Voluntary Contributions
You may also be able to make additional contributions to your ASA if your employer’s governing body has decided, by resolution, to allow payroll deductions for this purpose. The employer can make this decision at any time, and may choose to stop payroll deductions at any time. Voluntary contributions to the ASA must be made through your employer through a payroll deduction. The maximum for all types of voluntary contributions is 10 percent of gross wages in addition to the 3 percent mandatory contribution.
Post-Tax Voluntary Contributions
When you make post-tax voluntary contributions, federal, state and Social Security taxes have already been withheld. Your take home pay would be reduced by the total amount contributed. Since these funds have already been taxed, they will not be taxed again; however, it is important to note that any earnings or interest accrued on these funds are still taxable. If you are not vested at the time of distribution, the non-taxable benefit will be paid directly to you in a lump sum or you can elect to roll over the non-taxable amount in some cases. If you are vested at the time of distribution, IRS regulations mandate that your non-taxable benefit must be recovered over the life of the pension. A portion of each monthly pension payment will be non-taxable until your entire post-tax voluntary contribution amount has been recovered.
For you to make post-tax voluntary contributions, your employer must simply agree to deduct the amount requested (up to ten-percent [10%]). That money is then sent to PERF as a contribution to your ASA. You may choose to stop making post-tax voluntary contributions or change the amount deducted at any time.
Pre-Tax Voluntary Contributions
The Internal Revenue Service has given its approval for the Public Employees’ Retirement Fund to accept voluntary contributions on a pre-tax basis, as well.
You are urged to carefully consider all the conditions and consequences of pre-tax contributions because making changes later is severely restricted.
The conditions that apply to pre-tax contributions include:
- Your employer must have elected to participate in this program.
- You must have five years of creditable service in PERF.
- The maximum for all types of voluntary contributions is ten percent (10%) of gross wages in addition to the three percent (3%) mandatory contribution.
- You must choose to make a voluntary pre-tax contribution of not more than 10 percent of your gross wages within two years following the date of August 31st after you have reached five years of PERF-covered service.
- The percentage of each pay period’s wages that you choose to contribute pre-tax CANNOT be changed as long as you work for the same employer in any PERF-covered position.
- If you leave employment and return to the same employer, your pre-tax contribution must be reinstated.
- If you work for a different PERF employer, and have not taken an ASA distribution, you will be able to make a new pre-tax contribution decision, if your new employer has elected to participate.
- Your employer could choose to discontinue pre-tax contributions, which would allow you to discontinue making them.
Further details on this option are available here.
Self-Directed Investment Options
The PERF ASA program allows members to actively participate in managing their retirement benefits through self-directed investment options. Mandatory and voluntary contributions to your account are invested according to your choices in one or more of the eight options available through PERF:
- Guaranteed Fund
- Money Market Fund
- Fixed Income Fund
- Large Cap Equity Index Fund
- Small/Mid Cap Equity Fund
- International Equity Fund
- Inflation-Linked Fixed Income Fund
- Target Date Funds
You may choose among these options for the first time when you enroll in PERF. You may also log in to your PERF Online account to complete your investment direction election, or call (888) 526-1687 Monday through Friday from 8 a.m. to 8 p.m. EST, except holidays and weekends, to complete your request via phone with a customer service representative.
If you do not submit these choices to PERF, all ASA contributions will automatically be invested in a target date fund based on the year you will turn 65.
Effective Aug. 2, 2010, you will be able to view daily valuations of your ASA contributions and make daily changes to your investment allocations. In the past you could only do this quarterly.
You direct PERF to invest a portion of your account (present balance and future contributions) into any or all of the investment funds in at least 1 percent increments. Or, you can invest your current contributions and new contributions separately. This means you can direct both current and future contributions or leave current balances as they are and direct future contributions only. These investment options have grown in number over the years as the INPRS Board of Trustees has added new asset classes to the investment of the overall PERF portfolio.
Quarterly Member Statements
PERF mails a quarterly member statement for the ASA to all fund members.
You will receive a statement as long as you have money invested in your ASA— even if you are no longer employed in a PERF-covered position. This is one reason why it is so important to maintain a correct address with the Fund.
The quarterly statement shows how much you have contributed and any change in value to your holdings. For most PERF members, the employer picks up the 3 percent mandatory contributions, which are pre-tax contributions. However, where the employer does not pick them up, the employee pays them as post-tax contributions. The 3 percent is taxed as income and then payroll deducted into the ASA. The earnings on the contributions are tax-deferred until the member takes them out. This is also true for voluntary pre- and post-tax contributions. Tax obligations apply when payment is made to the member as a retirement benefit or an ASA distribution. Many members assume that the amount shown on the quarterly statement is the entire benefit they would receive if they were to retire. It is important to remember the largest portion of retirement income will come from the pension, which is not shown on the quarterly statement.
If you would like to calculate your own benefit estimate, log in to your PERF Online account. Please remember this is only an estimate of your benefit amount.
Rollover Savings Accounts (RSAs) Into PERF
Members are able to deposit with PERF funds rolled over from any of the following:
- A qualified plan described in IRS Section 401(a), 403(a), an annuity contract or account described in Section 403(b).
- An eligible plan maintained by a state or political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state under IRS Section 457(b).
- An Individual Retirement Account (IRA) described in IRS Section 408(a) or 408(b).
These RSA funds may be invested in any of the current investment options except for the Guaranteed Fund. They may be withdrawn at any time prior to retirement. At retirement, these funds may be combined with your pension and ASA as part of your total benefit.
Participating in the Fund
Membership Eligibility
Your employer chose to join PERF. It also chose the positions that are covered under the PERF plan. Therefore, you become eligible for PERF membership when you begin employment in a position your employer chose to cover under the PERF benefits structure.
For a position to be PERF-covered, making you eligible for membership, the position must be:
- Full time,
- Specified in a resolution passed by the employer’s governing body, and
- Not covered by another public retirement or pension plan (except Social Security or the Prosecuting Attorneys’ Retirement Fund, established by IC 33-39-7-9)
- There are some statutory exclusions for membership in the fund, as laid out in IC 5-10.3-7.
Enrollment
When you begin working in a PERF-covered position, your employer will complete a Membership Record informing PERF that you have become employed in a covered position and will begin participation in the fund. PERF will open an ASA in your name and you formally become a member. Once PERF receives contributions, you will receive a welcome packet detailing your membership information. The packet will include instructions for you to register for a personalized PERF Online account (a passcode will be mailed to you); here, you can designate beneficiaries, update your address, and make fund allocations for your ASA. If you do not make ASA allocations, your contributions will default to a target date fund based upon your estimated year of retirement.
Naming Beneficiaries
You immediately begin saving toward your retirement when you become a member of PERF. After enrollment, you may name a beneficiary to receive the assets remaining in your ASA in the event that you die. You may name one or more individuals, a trust, estate, or other legal entity, such as a charity. If you designate more than one primary or contingent beneficiary for your ASA, benefit shares may be allocated in percentage increments. If no beneficiary is named, any assets would pass to your estate.
Changing Your Personal Information
| As long as you have assets with the Fund, it is critical that you keep PERF informed of any changes to your name, address or beneficiaries. You can most easily update your address and beneficiary information by registering for PERF Online here. Changing your name, address or beneficiaries with your employer will not update that information with PERF. You will need to contact PERF separately to update your personal information. |
Beneficiaries – You may change the beneficiary of your ASA at any time before you retire. You may do so by registering for PERF Online and using the View or Change Beneficiary function or by requesting the appropriate paperwork by phone, filling out the form and mailing it back to PERF.
The importance of reporting any change of beneficiary cannot be overemphasized. Failure to make changes could result in payment being made to a named beneficiary who is no longer your choice to receive your ASA balance.
Address/Name – The address on file in PERF’s records is the only contact information we have for you. If you leave PERF-covered employment, you may be eligible to receive a distribution of your ASA. Therefore, you must report any change of address directly to PERF in a document that includes the following:
- Social Security number,
- Previous name and/or address,
- New name and/or address, and
- Printed name and signature.
- Employer’s name should also be included.
A change of address can be easily submitted via PERF Online once a member has registered. Change of name requests must be submitted only in writing and accompanied by the appropriate legal documentation such as a court order, divorce decree, or marriage license.
Life Events
Divorce
Indiana law prevents assigning PERF benefits. Accordingly, PERF cannot honor any divorce decree which requires it to pay anyone other than you or your named beneficiary. In order to be consistent with the laws governing PERF, and in order to satisfy Indiana’s domestic relations laws, divorce decrees should order you (or your legal beneficiary) to make payments to an ex-spouse rather than ordering PERF to make such payments. In addition, Indiana law prohibits PERF from garnishing your benefit for child support payments.
Qualified Domestic Relations Orders (QDRO’s)
Under state law, benefits in the Fund are exempt from any legal process. QDRO’s do not apply to PERF. Even though they are the product of federal legislation, which normally supersedes state law, they do not apply to PERF since it is a governmental plan exempt from the QDRO requirements.
Vested Status
Vested status in the Public Employees’ Retirement Fund means you have at least 10 years of creditable service in PERF-covered employment. You will be entitled to full pension benefits when you meet these age and service requirements:
- Age 65 with 10 years of creditable service,
- Age 60 with 15 years of creditable service, and
- At least age 55 and the sum of your age at retirement and your total years of creditable service under PERF equals 85 or more (known as the “Rule of 85”).
You do not have to work for the same employer and the jobs do not have to be for 10 consecutive years, in order to reach vested status. A total of 10 years in any combination of PERF- and /or Teachers' Retirement Fund (TRF)-covered positions for which an employer makes contributions qualifies as creditable service for vesting purposes.
You become vested for the ASA immediately.
Creditable Service
You receive service credit for each period of continuous employment in a covered position. In addition, you may be entitled to service credit during military service and certain types of leave.
A school corporation employee who works the full school term or contract period for a position will receive credit for one year of service. Otherwise, service credit for school corporation employees will be granted for actual time worked.
Service credit will be granted in monthly increments. One month of service credit will be awarded for each month that a member works at least one day and contributions are submitted.
Teaching Service
If you retire with service in both PERF and the Indiana State Teachers’ Retirement Fund (TRF), you will be asked to choose from which fund you would like to retire. You will receive a single, combined benefit from that fund. When you complete your final service, your pension will be calculated on the basis of combined creditable service between the two funds. You will be credited one year for each year of covered service, no matter which fund you participated in at the time of service. Any annuity will be computed on the basis of total amounts credited to both accounts.
Military Service
Members who served in the United States armed services are eligible for PERF service credit equal to actual military service if they meet all of the following conditions:
- Were in a PERF-covered position prior to entering the military;
- Left PERF-covered position and went directly into active duty in the United States Armed Services;
- Did not withdraw their Annuity Savings Account; and
- Left military service and returned to the same employer in a PERF-covered position within 120 days after receiving an honorable discharge.
Members may also be eligible for service credit if the provisions of the federal Uniformed Services Employment and Re-employment Rights Act (USERRA) cover their military service. The conditions for USERRA eligibility are:
- You must have applied for or currently hold a civilian job;
- You must have given written or verbal notice to the civilian employer prior to leaving the job for military training or service except when precluded by military necessity;
- You must not have exceeded the five-year cumulative limit on periods of service, subject to certain exceptions;
- You must have been released from service under conditions other than dishonorable; and
- You must have reported back to the civilian job in a timely manner or submit a timely application for re-employment.
Purchasing Additional Service Credit
You may purchase additional service credit that can be used toward the calculation of the pension benefit if you have worked in a similar position(s) in another state, have worked for a quasi-state agency before it became PERF-covered or have prior military service or are vested in PERF and/or TRF. All service may be purchased in increments of one month.
The purchase cost of additional service is calculated on your age, years of service, and salary. Therefore, the sooner you make such a purchase, the lower the purchase cost. Minimum service requirements may apply. If you separate from service and withdraw your ASA before vesting, the cost of the additional service plus interest will be returned to you. If you separate from service and re-employ in a PERF- or TRF-covered position at a later date, you can repurchase the service at the service purchase cost recalculated at the time of repurchase.
Purchasing “Air Time” Service Credit
If you are vested, you may purchase an additional one year of service credit for every five years of actual accrued service. For example, if you have 15 years of service, you would be allowed to purchase an additional three years of credit. Your retirement benefit would be calculated using a total of 18 years. The cost to purchase this service depends upon your age, years of service, and salary. Payment for this purchase can be made in a lump sum or amortized over five years.
Purchasing Out-of-State Service Credit
State law provides for the purchase of out-of-state service credit with the Public Employees’ Retirement Fund if you meet the following qualifications:
- You have at least one year of service in a PERF-covered position;
- Prior service in another state in a comparable position that would be creditable service if you had been in Indiana; and
- You are no longer eligible to use those years to claim a retirement from any other retirement system.
Purchasing Military Service Credit
Active PERF members who served in the United States Armed Forces and were honorably discharged may purchase up to two years of military service credit at actuarial cost. This is in addition to any other military service credit that is granted by law to members.
You may make the purchase of service after you have been in the Fund for a period of one year. To determine the cost of purchasing this military service, contact PERF by phone or register for PERF Online and use the service credit purchase calculator.
You may not use any purchased service for vesting purposes. Therefore, to become eligible to retire and receive the pension benefit, you still must have 10 years of actual PERF-covered service. The additional purchased service will be used in the calculation of your retirement benefit.
More information regarding PERF’s process for purchasing service can be found in
35 IAC 1.2-3-13.
Leaves of Absence From PERF-Covered Employment
Fewer and fewer employees stay with the same employer their entire career. Even if they do, situations often arise that force them to take time away from their positions. You may take certain types of leave from a covered position and still earn or retain service credit.
You should be certain to speak with your employer about any leave and ask them to contact PERF. Also, check with PERF to find out how your leave will affect your creditable service and eligibility.
Unpaid Leave
You may be entitled to service credit for unpaid leaves of absence totaling six months or less during any four consecutive years. Your employer must approve this leave and a copy of the grant of leave of absence should be filed with PERF within 90 days after the leave commences. Contact PERF for further information.
Family and Medical Leave Act (FMLA)
You may also receive credit for up to 12 weeks of leave taken during a calendar year under the Family Medical Leave Act (29 USC 2601, et seq.). If this leave is in addition to the six months of unpaid authorized leave in a four-year period, it is considered creditable only for vesting and for the purpose of determining eligibility and not for calculating benefits.
Adoption Leave
You are entitled to up to one year of service credit for Adoption Leave.
Paid Leave
During a paid leave of absence, employer and employee contributions will be made and creditable service will be granted.
