The benefit calculation is determined by multiplying the participant’s final average earnings (“FAE”) x the benefit multiplier x the participant’s years of service. The participant’s final average earnings are the highest consecutive 36 or 60 months of service during a particular period. To determine how many months of earnings your plan uses to calculate the FAE please see Section 15(B)(3) of your Adoption Agreement. Please see Section 15(B)(1) of the Adoption Agreement to determine your plan’s benefit multiplier. Employers with a split final average earnings formula will also have a corresponding covered compensation method. The covered compensation method can be found in Section 15(B)(2) of the Adoption Agreement. Note that some employers have a cap on the number of years of service a participant can count towards the benefit calculation. Please see Section 15(A) of the Adoption Agreement to determine whether your employer has a cap on years of service.
Benefit Calculation for Elected Officials
If elected officials participate in your plan, their retirement benefits are usually calculated differently than regular employees’ benefits. Please see Section 15(B)(4) of the Adoption Agreement. The elected official benefit is usually a flat dollar amount per month for each year that the elected official was in office.
Early (Reduced) Retirement
Your plan may offer a retirement option for retirees to receive a reduced benefit at an earlier age than the normal retirement age. The early retirement benefit is reduced to account for the additional payments the participant will receive by starting at a younger age. Please see Section 14(A) of the Adoption Agreement for the age and service requirements for early retirement under your plan. The benefit reduction factors can be found in Section 15(C) of the Adoption Agreement.
Please see Section 14(B) of the Adoption Agreement for the age and service requirements to receive a normal, un-reduced, retirement benefit. A participant must meet both the age and service requirements in order to be eligible. Some employers have more than one normal retirement qualification requirement that will apply to different classes of employees or elected officials.
Alternative Normal Retirement
Some plans provide for alternative normal retirement (“ANR”) qualifications. These are usually designed for participants who have been employed with the employer for a long period of time or for public safety employees. ANRs generally allow a participant to receive an unreduced retirement benefit at a younger age than the normal retirement qualifications. Not all plans have an alternative normal retirement qualification. If your plan has an ANR it can be found in section 14(C) of the Adoption Agreement.
Early Retirement Incentive Program
Plans may elect to provide a one-time Early Retirement Incentive Program (“ERIP”). If you are interested in providing an ERIP please contact Michelle Warner. GMA will help you determine the cost of an ERIP. If the employer wishes to offer an ERIP after receiving the cost study, GMA will draft an ERIP Addendum for the employer to adopt and will also provide guidelines to help the City Attorney draft the appropriate notices to employees.
Cost of Living Adjustments
Some plans provide for a cost of living adjustment (“COLA”) for retirees who are receiving benefits. If your plan provides for an automatic COLA, it will be found in Section 16(B) of the Adoption Agreement. An employer may also provide for a one time or ad hoc COLA. This would require a written plan amendment to incorporate the ad hoc COLA into an addendum.
Retirement Payment Options
Once a participant qualifies for a retirement benefit he or she can select the benefit option on the Retirement Application. Option A is a single life annuity. This option provides the maximum monthly retirement benefit and pays a monthly benefit to the retiree for the rest of his or her life. No benefit is paid to a beneficiary once the retiree passes away. Option B is a joint and survivor benefit. As with Option A, the retiree will receive a monthly benefit for the remainder of his or her life, but the retiree can select a beneficiary to whom a benefit will be paid for the beneficiary’s entire life beginning at the date of death of the retiree. Option B has four sub-options. A participant can choose the 100% option, the 75% option, the 50% option or the 25% option. The monthly amount paid to the retiree and the monthly amount paid to the beneficiary depends on the % option chosen. Option C is a life and period certain benefit. This provides for a lifetime monthly payment to the retiree. When a participant submits his or her retirement application he or she also chooses the period of time for the payment to the beneficiary to last after the participant dies. The participant is guaranteed a monthly lifetime retirement payment, but the beneficiary’s right to payment will depend on the remaining time period selected. The participant has the option to select 5, 10, 15, or 20 years.