University of Maryland

1
Welcome!

• University of Maryland
• Pre-Retirement Seminar

2
Agenda
Morning Session
Afternoon Session

• Pension Benefits
• Retirement Procedures
• State Health Insurance Benefits
• Medicare

• Social Security
• Financial Planning
• Legal Issues

3
Pension System Overview

• Eligibility Requirements
• Benefit Calculations
• Option Selection
• Necessary Forms
• Unused Sick Leave
• Cost-of-Living Adjustment
• Annual Leave

4
Eligibility Requirements
Service Retirement Pension System

• Age 62 with at least 5 years of eligible service
  or
• 30 years of eligible service regardless of age

Time
When
Age
How
Plan
5
Eligibility Requirements
Early Retirement State Pension System

• Age 55 with at least 15 years of eligible service
• Lose ½ percent per month or 6 percent a year for
  every year under age 62

6
Eligibility Requirements Old Retirement System
Service Retirement
Early Retirement

• Age 60 or
• 30 years of service

• 25 years of service
• Lose ½ percent per month or 6 percent per year
  for every year under 30 years of service

7
Calculation of Pension Benefits
Service Credit
Average Final Salary

• Membership Credit
• Military Credit
• Purchased Credit (Normal cost anytime. Full
  cost 12 months prior to your retirement date)

• Retirement System Three highest years
• Pension System Three highest consecutive years

8
Pension System Formula for Basic Allowance

• 1.2 percent x AFS x Years of Service prior to
  6/30/98
• Plus
• 1.4 percent x AFS x Years of Service after
  6/30/98
• Divided by 12

9
Retirement System Formula for Basic Allowance

• AFS x Years of Service
• 55
• Divided by 12

10
Monthly Payout Options

• Basic Allowance (Maximum)
• Largest monthly allowance
• No protection for beneficiary(ies)
• Benefits cease at death
• Single Life Annuities
• Options 1 and 4
• Provides lifetime monthly benefit to retiree and
  may provide lump sum payout to beneficiary(ies)
  at retirees death
• Dual Life Annuities
• Options 2,3,5, and 6
• Provides continuing monthly benefit to surviving
  beneficiary
• Provides access to health insurance for surviving
  beneficiary at subsidized rate

11
Single Life Annuities Option 1

• Guarantees full return of Present Value of
  retirees Basic Allowance. Present Value is the
  combination of employee and employer
  contributions plus interest
• Present Value is reduced each month by amount of
  monthly benefit. Typically takes about 9 years to
  pay out funds
• Remainder of present Value, if any upon death of
  retiree is paid in lump sum to designated
  beneficiary(ies)

12
Single Life Annuities Option 4

• Guarantees full return of employees
  contributions only plus interest (Present Value).
  Amount is usually paid out within two to three
  years
• Present Value is reduced each month by the amount
  of the retirees pension payout
• Remainder, if any, is paid in a lump sum to
  designated beneficiary(ies) upon death of retiree

13
Dual Life Annuities Options 2 and 3

• Option 2
• 100 survivorship benefit beneficiary receives
  same monthly payout as retiree
• Guarantees continuing health insurance coverage
  for surviving spouse at subsidized rate

• Option 3
• 50 survivorship beneficiary receives ½ of
  retirees monthly payout
• Guarantees continuing health insurance coverage
  for surviving spouse at subsidized rate

14
Dual Life Annuities Pop Up Provisions -
Options 5 and 6
Pop-Up Provision guarantees surviving spouse a
specific percentage of retirees pension if
retiree dies first. If beneficiary dies first,
then retirees pension amount pops-up to Basic
Allowance.

• Option 5
• 100 survivorship beneficiary receives same
  amount as retiree
• Surviving spouse guaranteed access to health
  insurance at subsidized rate

• Option 6
• 50 survivorship beneficiary receives ½ of
  retirees monthly benefit
• Surviving spouse guaranteed access to health
  insurance at subsidized rate

15
Special Option 7

• A member may propose a personalized benefit to
  meet his or her specific needs

Must be actuarially sound
Must be approved by Board of Trustees
Continuation of health insurance is not available
for surviving beneficiary
Must request Option 7 in writing prior
to retirement
16
Comparison of Payout Options
17
Some Things to Consider in Making Your Selection

• Does your spouse have their own pension?
• Does your spouse have access to health insurance
  in the event of your death?
• What are your income needs upon retirement?
• What expenses will you have at retirement?
• Women live longer than men. They will have a need
  to retirement benefits to last longer. For them
  Options 5 or 6 may be the best choice

18
Necessary Forms

• Application for Service Retirement (Form 13-23)
• Electronic Fund Transfer Sign-Up (Form 85)
• Reemployment After Retirement (Form 127)
• Federal and State Tax Withholding Request (Form
  766)
• Health Benefits Enrollment Form for Retirees
• Designation of Beneficiary Form for Options 1
  and 4 (Form 4)
• Proof of Birth for Beneficiary for Options 2, 3,
  5, and 6

19
Things to Do Twelve Months Prior to Retirement

• Request an estimate of benefits (Form 9). Check
  all options to obtain information on all the
  payout choices
• Apply to purchase service for any eligible, prior
  employment (Form 26)
• Make sure that you have applied for any eligible
  military credit (Form 43)

20
Things to Do Two Months Prior to Retirement

• Contact Benefits Office and complete retirement
  forms
• Forms should be sent to the State Retirement
  Agency one month prior to your retirement date

21
Unused Sick Leave

• Must retire directly from active employment
• For every 22 days of sick leave State adds 1
  month to your service credit (if 11 or more days
  are leftover, an additional month is credited
• Sick leave cannot be used to qualify for
  retirement
• Amount of days verified by employer at time of
  retirement
• Maximum of 15 sick leave days per year of service
  may be credited

22
Annual Leave

• Annual leave is paid out in a lump sum
• Maximum for exempt and non-exempt employees is 50
  days
• Maximum for faculty is 45 days
• However, if someone retires during the calendar
  year, annual leave payout can exceed maximum

23
Earnings Limit

• Applies only if you work for a State Agency that
  participates in State Retirement System.
• Limit is the difference between Average Final
  Salary and Basic Allowance.
• Example 35,000 (AFS) - 17,000 (Basic
  Allowance) 18,000 Earnings Limit

24
Time Line and State Correspondence

• Retirement always first of the month
• Last paycheck from UMCP
• Payout of annual leave from UMCP
• Retirement check received between 25 28 of
  month. First check usually sent to home.
• Will receive COBRA letter from State Benefit
  Office stating benefits cancelled IGNORE THIS!
• Will receive letter from State Benefit Office
  confirming coverage and premium costs. Letter
  will request check to cover first month premium
  and will ask if you want future premiums to be
  taken from retirement check.

25
Cost-of-Living Adjustment (COLA)

• Awarded July 1 of each year
• Must be retired at least twelve months on July 1
  to receive COLA
• Percentage based on Consumer Price Index as
  published by U.S. Department of Labor and Bureau
  of Statistics

26
COLA Calculations

• Pension System
• Up to 3 percent compounded

• Retirement System
• Plan A (7 Contribution) unlimited compounding
• Plan B (5 Contribution) Up to 5 compounding
• Plan C (Bifurcated)
• Prior to Plan selection unlimited or up to 5
  compounded
• After Plan selection up to 3 compounded if
  contributory