PERF Hybrid Plan Member Handbook: Membership
Your employer chose to join PERF and decided which positions would be covered under the PERF plan. You qualify for PERF when you begin working in a position your employer covers with PERF benefits.
A position is PERF-covered, making you qualified for membership, when it is:
- full time,
- named in a resolution passed by your 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 noted in IC 5-10.3-7.
After your employer enrolls you in the fund, PERF opens an Annuity Savings Account (ASA) in your name and you become a member. Once PERF receives contributions, you’ll receive a welcome packet with your membership information. The packet has instructions for you to register for an online account. A passcode will be mailed to you. Once you’ve registered, you can name beneficiaries, update your address, and make investment elections for your ASA. If you don’t make investment elections, your contributions default to a target date fund based on your estimated year of retirement.
You immediately begin saving for your retirement when you become a PERF member. After enrollment, you can name a beneficiary to receive the money still in your ASA after you pass away. You may name one or more people, a trust, estate, or other legal entity, such as a charity. If you name more than one primary or contingent beneficiary for your ASA, you must choose a percentage for each beneficiary. If no beneficiary is named, any assets would pass to your estate.
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. A PERF benefit has two parts:
- the monthly pension benefit, and
- the ASA
Your pension benefit is paid as a lifetime monthly benefit. Your employer funds this at no cost to you, and it is an employer asset. When you apply for a retirement benefit, your employer's contributions will fund those retirement benefits. If you leave a PERF-covered position before you qualify for a retirement benefit, you cannot withdraw these funds. This is a relationship between PERF and employers, you will not be asked to make decisions about the management of pension benefit money.
The second part of the PERF benefit is the Annuity Savings Account (ASA). It supplements your pension benefit at retirement. It is an important way to boost your retirement savings. If you leave covered employment before you qualify for a retirement benefit, you may withdraw your ASA.
The ASA has two types of contributions – mandatory and voluntary. The mandatory part can be paid by the employer, the employee, or shared by both. The voluntary part is optional and available to you if you work for an employer who participates in the voluntary contributions program.
State law requires that 3 percent of your gross wages (regular and overtime pay) must be contributed to fund your 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 paid by your employer. The employer makes this choice, and may change it at any time.
Whether paid by you or your employer, the mandatory contribution benefits each member of the fund. It is sent to PERF and deposited in your ASA.
Not vested and vested for the purpose of determining non-taxable recovery is defined in the Important Terms section of this document.
If you are not vested when you withdraw your ASA, the non-taxable amount is paid to you in a lump sum or in some cases, you can roll over the non-taxable amount. If you are vested at withdrawal, IRS regulations require that part of your non-taxable benefit must be recovered over the life of the pension. Part of each monthly pension payment will be non-taxable until your entire post-tax contribution amount is recovered. Additional information can be found in the Taxation on the ASA section in this document.
Vesting is the status that determines eligibility for a retirement benefit. You must be vested to collect a pension.
You are vested in PERF when you have at least 10 years of creditable service in a PERF-covered position. You will be entitled to receive full pension benefits when you meet these age and service requirements:
- at least age 65 with 10 years of creditable service,
- at least age 60 with 15 years of creditable service,
- at least age 55 and the sum of your age at retirement and your total years of creditable service equal 85 or more (“Rule of 85”).
You don’t have to work for the same employer and the jobs don’t have to be for 10 consecutive years in order to reach vested status. A total of 10 years in any combination of PERF- or TRF-covered positions counts as creditable service for vesting.
You become vested in the ASA immediately.
Voluntary contributions to the ASA are made through a payroll deduction with your employer. You may make additional contributions to your ASA if your employer allows a payroll deduction. The employer can make this decision at any time, and may also stop at any time. The maximum for all types of voluntary contributions is 10 percent of your gross wages in addition to the 3 percent mandatory contribution.
Post-Tax Voluntary Contributions
When you make after-tax voluntary contributions, federal, state and Social Security taxes are withheld. Your take home pay will be reduced by the total amount contributed. Since these funds have already been taxed, they are non-taxable. Please note that any income or interest earned on these funds is still taxable.
If you are not vested at the time of distribution, the non-taxable benefit is paid to you in a lump sum or in some cases, you can roll over the non-taxable amount. If you are vested at the time of distribution, IRS regulations require that part of your non-taxable benefit must be recovered over the life of the pension.
Part of each monthly pension payment will be non-taxable until your entire post-tax contribution amount has been recovered.
In order for you to make after-tax voluntary contributions, your employer must agree to deduct the amount requested (up to 10 percent) and send that money to PERF. You can stop making post-tax contributions or change the amount deducted at any time.
Pre-Tax Voluntary Contributions
The IRS allows PERF to accept voluntary contributions on a pre-tax basis.
Carefully consider all the conditions and impacts of pre-tax contributions. Your ability to make changes later is severely restricted.
The conditions that apply to pre-tax contributions include:
- Your employer must be part of this program.
- You must have five years of creditable service in PERF.
- The maximum voluntary contribution is 10 percent of your gross wages in addition to the 3 percent mandatory contribution.
- You have two years from August 31 after you reach five years of PERF-covered service to choose a pre-tax contribution. This contribution cannot be more than 10 percent of your gross wages. This contribution is in addition to the mandatory 3 percent employee contributions.
- As long as you work for the same employer in any position, you will not be able to stop or change the pre-tax percentage.
- If you end service and later return to the same employer, your pre-tax contribution must be reinstated.
- If you work for a different PERF employer, and do not take an ASA distribution, you can make a new pre-tax contribution decision, if your new employer participates in this option.
- Your employer can choose to stop pre-tax contributions. This decision will allow you to stop making them.
More details on this option are available here.
PERF allows you to manage your retirement benefits with self-directed investment options for your ASA. You may decide how to invest the mandatory and voluntary contributions in your ASA in one or more of the eight funds available through PERF:
- Stable Value 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 select from these options for the first time when you enroll in PERF. You can also log in to your online member account to make or change your investment choices at any time. If you don’t have a computer, call (888) 286-3544 Monday through Friday from 8 a.m. to 8 p.m. EST, to speak to a customer service representative.
If you don’t make an investment selection, all ASA contributions will automatically be invested in a target date fund. The goal of a target-date fund is to be a "one-stop shop" for you. Target date funds consider the year in which you plan to retire in order to provide appropriate risk diversification.
You may view valuations of your ASA and make changes to your investment choices on a daily basis. The valuation of your ASA includes a deduction of investment costs.
You may choose to invest your ASA (present balance and future contributions) in any or all of the investment options in at least one percent amounts. You may also choose to invest your current balance and new contributions separately. This means you can direct both current and future money, and direct future contributions only. Our investment options have grown and will be revised as the INPRS Board of Trustees adds new investment choices to the PERF portfolio.
To roll funds in to PERF from another qualified plan, you must be currently employed in a PERF-covered position. The only exception is if you roll over funds at the time of your retirement. This process must be initiated within 30 days of your last day in pay.
Funds from any of the following may be combined with your PERF funds:
- A qualified plan described in IRS Section 401(a), 403(a), an annuity contract or account described in Section 403(b).
- A qualified plan maintained by a state, political subdivision of a state, or an agency 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 can be invested in any of the current investment options. They can be withdrawn at any time before retirement. At retirement, these funds may be combined with your pension and ASA as part of your total benefit.
Section Two: Your PERF Benefits