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![Page 1: Solid Finances Sponsor This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.](https://reader037.fdocuments.us/reader037/viewer/2022110208/56649dac5503460f94a9b8ef/html5/thumbnails/1.jpg)
Solid Finances Sponsor
• This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.
![Page 2: Solid Finances Sponsor This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.](https://reader037.fdocuments.us/reader037/viewer/2022110208/56649dac5503460f94a9b8ef/html5/thumbnails/2.jpg)
Employer Retirement Plans&
Social Security
Joel Schumacher
MSU Extension
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Question A: How many years have you worked for your current employer?
• Less than 2• 2 to 5• 6 to 10• 11 to 20 • 21 or more
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Retirement Income• Three Legged Stool– Social Security– Employer Retirement Plans– Personal Savings
• Additional Sources– Work– Asset Sale
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Two Types of Employer Plans• Defined Benefit Plan
Pension• Defined Contribution
401k 403b 457SEP Simple Deferred Compensation PlanESOP KSOP Profit Sharing Plan
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Question B: What type of plan do you currently participate in?
• Defined Benefit• Defined Contribution• Both• Neither
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Defined Benefit Plans• Employee and Employer Contribute– The employee rate is a fixed percentage.
• The Employer is responsible for investments.– Selection of Investments– Return on Investments
• The Employee is promised a retirement benefit based on a formula.
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Basic Benefit FormulaMonthly Benefit = Years of Service x Average Salary x Retirement Factor
– Typical Retirement Factors: 1.5% to 2.0%– Average salary is typically calculated over an
employee’s highest 36 to 60 month period
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MUS Specifics• PERS (If hired before 7/1/2011)– 1.7857% Factor for Years of Service under 25– 2.00% Factor for Years of Service Over 25– Highest 36 months of compensation
• PERS (If hired after 7/1/2011)– 1.5% Factor for 5 to 10 years of service– 1.7857% Factor for 10-30 years– 2.0% Factor for 30 or more years– Highest 60 months of compensation
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Benefit Examples– Employee Age 60– 24 years x $2,500 x .01785 = $1,071– About 42% of final salary
– Employee Age 60– 30 years x $3,500 x .02 = $1,800– About 60% of final salary
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When can you claim your PERS benefit?
• Early retirement (hired before 7/1/11)– 5 years of service, Age 50– 25 years of Service
• Service retirement (hired before 7/1/11)– 5 years of service, Age 60– 30 years of service– Age 65
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When can you claim your PERS benefit?
• Early retirement (hired after 7/1/11)– 5 years of service, Age 55
• Service retirement (hired after 7/1/11)– 5 years of service, Age 65– 30 years of service– Age 70
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PERS Payment Options• Participant’s Life• Participant & Spouse’s lives– Spouse receives same benefit– Spouse receives 50% benefit
• Longer of Participant’s life or 10 years• Longer of Participant’s life or 20 years
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Defined Benefit Plans
• Where can I find out more information?– Summary Plan Description– Member’s Handbook• Available from your Human Resource
Office
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Defined Contribution Plans• Lots of Different Names– IRS code section that provides the rules for• For Profit Companies is 401
– Sub-section “k” refers to employee contributions
• Non-Profit Employers is 403– Sub-section “b” refers to employee contributions
• Government Employers is 457
– IRS code Section for IRAs is 408• SEP Plans rules are in 408
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Defined Contribution (DC) Plans
• Many Different Features of DC Plans• Common features– Eligibility Rules– Employee Contributions (maximum amounts)– Employer Contributions• Match or Profit Sharing• Vesting
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Eligibility Rules
• New employees may have to wait to join the plan– Often plans have quarterly, semi-annual or annual
entry dates– Plans may require up to one year waiting periods
to join
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Employee Contributions• Most plans allow employee contributions– Some plans require employee contributions– Most plans all Employee to select their contribution level
• IRS Rules place a maximum on how much can be contributed annually– 2012 limit is $17,000
• Employees over age 50 can contribute an extra “catch-up” contribution– 2012 limit is $5,500
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Employer Contributions
• Several Types of Contributions– Matching• Employees must contribute to receive the match
– Profit Sharing• All eligible employees receive the employer
contribution.
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Employer Matching Examples– 100% of the first 3% and 50% of the next 2%• Employee Contributes 0% Employer 0%• Employee Contributes 3% Employer 3%• Employee Contributes 5% Employer 4%• Employee Contributes 10% Employer 4%
– 100% of the first 6%
– 50% of the first 10%
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Profit Sharing Examples
– Example A: 3% of an employees salary
– Example B: $3,000 divided evenly based on all employees salary• Employee A, $20,000 Salary Employer $1,000 • Employee B, $40,000 Salary Employer $2,000
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MUS Examples• TIAA-CREF– Employee contributes 7.044%– Employer contributes 5.956%
• PERS-Defined Contribution– Employee contributes 6.90%– Employer contributes 6.90% • Plus 0.27% to Plan Choice/Long-Term Disability Trust
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Vesting• Employee contributions are always 100%
vested.
• Employer contributions may have a vesting schedule.– If you terminate employment before a certain
number of years you may not receive 100% of the employer contributions.
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Vesting Examples• Common Schedules– Vesting 2/20• 1 year of service 0%; 2 years 20%; 3 years 40%; 4 years
60%; 5 years 80%; 6 years 100%– 5 year cliff• 1 to 4 years of service 0%; 5 years of service 100%
– 1/20; 1/25; 3 year cliff
• Max of 5 years for Cliff vesting • Max of 7 years for other schedules
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Investments Choices
• Employer selects a menu of investments– Typically 6 to 20 choices– Mutual Funds are common choices– Typically include most of the major asset classes– Employee is responsible for choosing the specific
investments
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When can I access myretirement account?
• When you terminate employment.– You can withdrawal funds at your own pace– You can transfer the funds to an IRA– IRS Penalty for withdrawals before age 59 ½ – Minimum Distribution Rules for those age 70 ½
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Question C: Would you rather have a promised benefit for life or lump sum?
1. Benefit for life2. Lump Sum
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Questions?
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Question D: What was the average monthly social security benefit in 2011?
1. $7802. $9593. $1,1814. $1,310
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Question E: Are you concerned about the financial status of the Social Security System?
1. Yes, very concerned2. Yes, a little concerned3. No4. I don’t think about it
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Will Social Security run out of money?
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Social Security System
• Two Benefit Programs
– Retirement
– Disability
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Social Security Retirement• Employee and Employer pay into Social
Security– Not all income is “covered” by Social Security– Generally “wage” income is covered– Income over $110,100 is not covered
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SS Retirement Eligibility• Workers must have 40 quarters of qualifying
work (10 years) to be eligible for benefits• Spouses of a worker with 40 eligible quarters
are also eligible• Workers must be at least– Age 62 for Early Retirement– Age 65 to 67 for Full Retirement
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Benefit Calculation• Based on your work history– Highest 35 years of work history– Adjusted for inflation
• Based on your age when you apply for benefits– Reduced benefits for early retirement– Increased benefits for working past Full
Retirement Age
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Birth year determines full retirement age.
Birth Year Full Retirement Age1937 651938 65 and 2 months1939 65 and 4 months1940 65 and 6 months1941 65 and 8 months
194265 and 10 months
1943-1954 661955 66 and 2 months1956 66 and 4 months1957 66 and 6 months1958 66 and 8 months
195966 and 10 months
1960 67
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Benefit Adjustments
• Reduced by 25% to 30% if you claim at age 62– Smaller adjustment for Age 63, 64, 65 & 66
• Increase by 8% for each year you work after your Full Retirement Age – Increases stop at age 70
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Example for Full Retirement Age 66
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Age Benefit Rate Example62 75% $81063 80% $86464 86.7% $93665 93.30% $1,00866 100% $1,08067 108% $1,16668 116% $1,25369 124% $1,33970 132% $1,426
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Question F: Do I have to quit working to claim Social Security Benefits?
1. Yes2. No, as long as I am at Full Retirement Age3. No
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Working While Claiming Benefits• If you are over your NRA no negative impact on SS benefit
– NRA is 65 to 67
• If you claim benefits between age 62 and your NRA there are some restrictions:– First $14,640 of wages have no impact– For each $1 you earn over $14,640 then $0.50 is reduced from
SS benefit• Special Rules for year in which you reach NRA
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Example
• John claims his SS benefit at age 62• John works part time (at age 63) and earns
$15,000• John’s benefit is reduced by $180– $15,000 - $14,640 = $360– $360 * 50% = $180
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How do I estimate my SS Benefit?
• Paper Statements– 1 mailed at age 25– Annual Statements once you reach age 60
• Online at www.ssa.gov– Need to provide:
First and Last Name Date of BirthMother’s Maiden Name State of BirthSSN
Last Year’s Wages
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Spouse Benefits
• You have a choice of:– Claiming based on your work record– Claiming based on your spouse’s work record• Generally receive 50% of the worker’s benefit
– Claiming based on your ex-spouses work record• Must have been married for at least 10 years• Generally receive 50% of the worker’s benefit
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Survivor Benefits
• Example:– Husband Age 72• Benefit is $1,100
– Wife Age 71• Benefit is $900
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Question G: What happens to the wife’s benefit if her husband passes away?
1. She receives $8002. She receives $1,1003. She receives $1,900
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Final Thought
Take Ownership of Your Retirement!No one else will!