The Retirement Commission approved changes to the "factors" associated with the pension benefit payment options. These changes were based on a periodic review and analysis of the actual experience of the retirement fund which led to a revision of the actuarial "factors"; this is the first revision since 2009. These changes will take effect for any SERS retiree on or after 1/1/2020 (this will not impact current retirees).
The "factors" impact the reduction to your pension if you elect to continue your pension to a survivor upon your death. If you choose to continue pension payments to a survivor after you pass, then your pension will be reduced based upon which pension option you select. The reduction is determined by the "factors". These factors are an actuarial determination based on the retiree's age at retirement compared to the age of the designated contingent and how much of the pension the contingent will receive. There are 4 pension options to select from when you retire, these options did not change, the change is only in the amount your pension will be reduced based on which of these pension options are selected. The 4 Options are:
- Straight Life (this means no reduction to your pension but the pension payments stop upon your last breath of air).
- 100% Contingent (your designee will continue receiving 100% of your pension upon your death [this has the biggest reduction to your pension])
- 50% Contingent (your designee will continue recieving 50% of your pension upon your death)
- 10 or 20 Year Certain (your designees may collect your pension upon your death for the first 10 or 20 years of retirement)
Based upon which option you select from the choices above, your pension is multiplied by the associated factor in these charts to obtain your final pension amount. These factors are what were updated recently. This is the first adjustment since 2009. These updates are actuarily driven and were recommended to the Retirement Commission prior to adoption. These are not negotiated and they are not designed to make the pensions lower than in prior years; the Comptroller's Office indicates that in many cases the changes made will improve pension payments.
The "factor" charts are based on the retirees age at retirement and cross-matched to the age of the designated beneficiary. So when doing your final pension calculations, use the current pension calculation formula and then as the final step, multiply that result times the factor listed to determine your final pension amount.
The pension formula for Tier 2, 2A, & 3:
1.4% x average salary below the breakpoint (2019 breakpoint is $83,400)
+
1.8333% x average salary above the breakpoint (2019 breakpoint is $83,400)
x
years of credited service up to 35 years....if over 35 years of credited service: then add 1.625% x average salary x years of service over 35
THEN: multiply this result by the factor selected from the charts based upon which beneficiary payment option you select. To use these charts, find the page that is labeled as the "Member Age" which represents the retiree's age at retirement, then on that same page, find the age of the designated contingent...this will be the "factor" used to determine the final pension amount.
Example Retirement Calculation: $90,000 average salary, 37 years of service, age 61 at retirement, spouse is age 60.
Step 1 Find Pension amount up to the Breakpoint: 1.4% x $83,400 [or whatever the breakpoint is for the retirement year] = $1167.60
Note: if your average salary is below the breakpoint, then use 1.4% x Average Salary and Step 2 = 0
Step 2 Find Pension amount above the Breakpoint (if wages exceed the breakpoint): 1.8333% x $6,600 = $120.98 [the $6600 is the amount over the breakpoint...$90,000 - the breakpoint of $83,400=$6600]
Step 3 Add the two numbers from above: $1167.6 + $120.98 = $1288.58
Step 4 Multiply times the years of credited service (up to a maximum of 35) = $1288.58 x 35 = $45,100.23
Step 5 Add in the formula for years of service over 35 years (if applicable)= $90000 x 1.625% x 2yrs= $2925
Step 6 Add lines 4 and 5: $45100.23 + $2925 = $48025.23
This is your pension amount before you select a beneficiary option...if you select Straight Life, this is your pension.
Step 7 Apply the Factors from the Charts to the 4 Pension Options: determine your reduction based on the factors in the charts....for our example the retiree is 61, and the beneficiary is 60. So based on the charts, we find the page listed as "Member Age 61":
100% Contingent has a factor of: .8807 from that page of the charts so the result from above would be $48,025 x .8807= $41,772
50% Contingent has a factor of: .9366 from that page of the charts so the result from above would be $48,025 x .9366= $44,980
10 Year Certain has a factor of: .9860 from that page of the charts, so the result would be $48,025 x .986 = $47,353
20 Year Certain has a factor of: .9434 from that page of the charts, so the result would be $48,025 x .9434 = $45,307