Retirement

RETIREMENT OVERVIEW

by Jory Segal

Thinking about retirement is not a priority for new faculty members. We were all excited to start a new position, and there are so many things to process that retirement issues usually move to the bottom of the list.

Putting off learning about how to best position yourself for retirement, is not a good idea. Understanding your options and making informed decisions for your future will hopefully allow you to become financially secure in retirement. My brief overview is just an introduction to your options for retirement as a faculty member at WVMFT. It is very important for adjunct faculty to study their retirement options.

Full-time faculty are automatically placed into a defined benefit traditional pension plan with Cal Strs. Adjunct faculty have a choice of a defined benefit, Cal Strs, or a defined contribution plan with Apple. BOTH full-time AND adjunct faculty can choose to contribute additional funds to employee only, defined contribution plans for educators, known as 403B’s or 457’s. (These are similar to employee only contribution plans in the private sector, known as 401k’s.)

TYPES OF WORKPLACE RETIREMENT PLANS:

1. Defined Benefit

2. Defined Contribution (403B or 457)

3. Cash Balance

Most retirement plans, (except ROTH IRA’s & 403B’s), are “tax deferred”. Contributions to the plans are NOT taxed. Withdrawals are taxed. Early withdrawals may incur a tax penalty.

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TRADITIONAL PENSION (CalSTRS)

SJECCD uses the CalSTRS defined benefit plan.

CalSTRS offers a defined benefit plan that is mandatory for full-time faculty in California. It is optional for part-time faculty. There is a “vesting requirement” that is five years of full-time equivalent employment. The benefit, (pension), is defined by a formula that is usually based on years of service, retirement age, and final or the average of 3 consecutive years of the highest salary

Age factor

The age factor is the percent of final compensation you are entitled to for each year of service credit. This percentage is determined by the date you were first hired to perform CalSTRS creditable activities and your age on the last day of the month in which your retirement is effective.

For members under CalSTRS 2% at 60, your age factor is:

• Set at 2 percent at age 60.

• Decreased if you retire before age 60.

• Increased to a maximum of 2.4 percent if you retire after age 60.

For members under CalSTRS 2% at 62, your age factor is:

• Set at 2 percent at age 62.

• Decreased if you retire before age 62.

• Increased to a maximum of 2.4 percent if you retire after age 65.

Notes:

• If you have worked 30 years or more full-time, it is the highest one year.

• If you work a 50% load for 2 years as a part-time employee, you would have one year of full-time equivalent service.

• The Benefit is usually paid monthly and it is guaranteed for life and does include COLA, (cost of living adjustments).

• The monthly benefit is not based on the amount of contributions.

• Disability insurance and death benefits, (to a designated survivor), are options usually included in most plans.

• The plan’s funds are invested by paid professionals.

• The minimum retirement age is 55.

• Not portable to outside CA.

• Unused sick leave can increase the years of full-time service credit. The number of unused sick leave days would be divided by the FTE days by the last employer and that number determines how much unused sick leave the district reports to CalSTRS. Sick leave can be transferred from a previous employer to your new employer.

• The DEFINED BENEFIT SUPPLEMENT PROGRAM from CalSTRS is used if you work more than 1.0 (a full year of service credit) in any year. Any additional earnings have 8% by the employer and 8% by the employee that go into a special account. The account earns guaranteed compounded interest and can be paid as a lump-sum or annuitized upon retirement. This account was established in 2001 and you can learn more about it by visiting CAL STRS.

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DEFINED CONTRIBUTION PLANS (403b or 457)

Notes:

• Similar to 401k’s. In education they are a 403b or 457.

• Immediate vesting (no waiting period).

• The employer and employees contributions are defined. Employers are not required to contribute.

• Contributions are tax deferred.

• The Retirement Benefit is the account balance at retirement (includes contributions and hopefully any earnings, but losses are possible)

• Some plans may offer an option to annuitize the funds upon retirement.

• They are not pensions, they are uninsured private savings (investment) accounts.

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CASH BALANCE PLANS

Notes:

• These are “Hybrid plans” including the “APPLE PLAN” and the CAL STRS “CASH BALANCE”

• Immediate vesting for Associate, Part-time ,Faculty AND rehired retired faculty.

• The employer and employee contributions are defined. They are usually 4% each for a total of 8%.

• Guaranteed annual minimum interest (employee cannot lose money)

• The Retirement Benefit is the account balance at retirement.

• The plan’s funds are invested by paid professionals.

• There is often an optional annuity benefit based on age and the account balance.

• The minimum retirement age is 55.

• Contributions are tax deferred.

• Not portable to outside CA.

OTHER OPTIONS

IRA’s:

• Roth or traditional contribution plans.

• No employer contributions, may not be tax deferred.

ANNUITIES:

• Lifetime income based on age and the amount of contribution.

• Usually offered by life insurance companies that seek to make a profit.

• Sometimes offered as a benefit option in defined contribution and cash balance plans

SOCIAL SECURITY:

• Similar to a defined benefit plan, need 40 credits to vest.

• Minimum retirement age is 62.

• Retirement benefit defined by a formula based on average annual earnings over 35 years. 6.2% contribution for both employee & employer. Contributions not tax deferred and the benefits are sometimes taxable.

• Portable to most other states and jobs.

WEP AND GPO:

• The WEP and GPO may apply if you concurrently receive retirement benefits from Social Security and also from CalSTRS defined benefit or cash balance plans.

• WEP is the windfall elimination provision that MAY reduce your Social Security benefit by up to approximately $480 monthly in 2020-21. (The reduction cannot be more than 50% of your benefit from non-covered employment.) SSA Publication No. 05-10045. You are subject to this provision of you have less than 30 years of “substantial earnings” in employment covered by Social Security.

• GPO is the Government Pension Offset. It may reduce or wipe out your Social Security spousal, widow, or widower benefits. SSA publication No. 05-10007

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Working After Retirement

Your retirement benefit is reduced dollar for dollar by any compensation earned from CalSTRS-covered employment during the first 180 calendar days following your most recent retirement effective date.

Post retirement earnings limit for 2023-24 is $50,655.

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Contact Numbers:

• Social Security: www.ssa.gov 800-772-1213

• CalSTRS: www.calstrs.com 800-228-5453

• Apple: www.midamerica.biz 800-634-1178

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