April 19, 2002 |
2002-R-0451 | |
TEACHER, ALTERNATE, AND STATE EMPLOYEE RETIREMENT PLANS | ||
By: Judith Lohman, Chief Analyst | ||
You asked for a comparison of (1) the major components of the Teachers' Retirement System (TRS), the Alternate Retirement Plan (ARP), and Tiers II and IIA of the State Employees Retirement System (SERS); (2) benefits available under each for a person retiring at age 60 with 30 years of credited service; and (3) the annual state contributions for the TRS and ARP, excluding payments for TRS unfunded liability.
MAJOR PLAN COMPONENTS
Table 1 below shows the major parts of the three public pension plans. Tiers II and IIA of SERS are identical except that Tier IIA requires an employee contribution. Table 1 includes the requested information on state contribution rates.
Table 1: Major Components of TRS, SERS Tier II and IIA, And ARP
PLAN COMPONENT |
TRS |
SERS TIERS II and IIA |
ARP |
Members |
Public school employees who (1) hold positions requiring a teaching certificate, (2) hold the appropriate certification for the position, and (3) are employed at least half-time. |
Tier II: State employees hired between July 1, 1984 and June 30, 1997. Tier IIA: State employees hired after June 30, 1997. |
Unclassified employees of state higher education constituent units and the Department of Higher Education. |
Plan Type |
Defined Benefit |
Defined Benefit |
Defined Contribution |
Social Security Coverage |
No |
Yes |
Yes, if hired after January 1, 1991 |
Vesting Period |
10 years |
5 years |
None |
Employee Contribution |
7% |
Tier II: Regular - 0 Hazardous duty - 4% Tier IIA: Regular - 2% Hazardous duty - 5% |
5% plus additional voluntary 5% contribution |
State Normal Cost Contribution (excluding unfunded liability) |
3. 8% of member payroll |
Tier II: 7. 21% of member payroll Tier IIA: 2. 13% of member payroll |
8% of each member's salary |
Choice of Investment Options |
No |
No |
Yes |
Types of Retirement |
Normal, early, and proratable |
Normal, age 70, Early, and Hazardous duty |
Annuity, Optional Lump sum payment of up to 10% of accumulated funds |
Retirement Qualifications (Age/Years of Service) |
Normal: 60/20; Any/35 Early: 55/20; Any/25 Proratable: 60/10 |
Normal: 60/25 vesting; 62/10 vesting; 62/5 actual Age 70: 70/5 vesting Early: 55/10 vesting Hazardous Duty: Any/20 |
Any/Any |
Early retirement reduction |
30 years' service or less: 12% per year based on number of years away from normal retirement. More than 30 years' service: 6% for each year away from normal retirement. |
25 or more years' service: . 25% for each month prior to age 60. Less than 25 years' service: 0. 25% for each month prior to age 62. |
If lump sum payment is withdrawn prior to age 59½, may be subject to 10% penalty. |
Final Average Salary (FAS) |
3 highest-paid years |
3 highest-paid years |
Not applicable |
Annual COLA |
Yes |
Yes |
No |
Normal Benefit Formula |
2% x FAS x Years of Service |
35 years or less: 1. 33% x FAS + . 5% x FAS above annual breakpoint) x years More than 35 years: add 1. 625% x FAS x years over 35 |
None |
BENEFITS
Table 2 shows the hypothetical annual benefits available under the TRS and the SERS Tier II and IIA defined benefit plans for a regular employee retiring at age 60 with 30 years of service with various final salaries. The benefits shown are for the maximum benefit payout and assume the plan member takes no reduction to enable benefits to continue to a surviving spouse or beneficiary after his death.
Since the ARP is not a defined benefit plan, there is no way to determine the benefits any employee would receive under it.
Table 2: Annual Pension Benefit At Age 60 with 30 Years of Service
Final Average Salary |
TRS |
SERS Tier II and IIA |
ARP |
$ 30,000 |
$ 18,000 |
$ 11,970 |
Depends on contributions and investment earnings |
$ 45,000 |
27,000 |
19,590 |
Depends on contributions and investment earnings |
$ 60,000 |
36,000 |
27,810 |
Depends on contributions and investment earnings |
$ 75,000 |
45,000 |
36,060 |
Depends on contributions and investment earnings |
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