The Defined Benefit Retirement Plan Basics
Plan Features
PLAN FEATURES
Your Defined Benefit Retirement Plan has numerous features. These include:
CONTRIBUTIONS
Both you and your employer contribute to PERS.
Employee Contributions
For members hired before 7/1/2011: You contribute 6.9% of your compensation to PERS. Your 6.9% contribution is calculated on your gross compensation, before any pre-tax deductions. Your employer will withhold the contributions and send them to PERS.
For members hired on or after 7/1/2011: You contribute 7.9% of your compensation to PERS. Your 7.9% contribution is calculated on your gross compensation, before any pre-tax deductions. Your employer will withhold the contributions and send them to PERS.
Employer Contributions
Employers contribute 7.17% of their total PERS covered payroll to PERS. Of the 7.17% employer contribution, the State contributes 0.1% for local governments and 0.37% for school districts.
Employer contributions provide "pooled" funds for:
- Retirement, disability and death benefits
- Education
Employer contributions are not refunded to participants.
| ADDITIONAL CONTRIBUTIONS: |
|---|
|
Payments to purchase various types of optional service credit are the only method of contributing additional funds to the Defined Benefit Retirement Plan. (See Purchase of Service below) |
Back to top
GUARANTEED ANNUAL BENEFIT ADJUSTMENT (GABA)
Whether you retire with a service retirement or an early retirement benefit, you are eligible for the Guaranteed Annual Benefit Adjustment (GABA). The GABA ensures an increase in your benefit from your previous year.
GABA Increase:
- 1.5% for members hired on or after July 1,2007
- 3% for members hired before July 1,2007
GABA Eligibility:
- After 12 months of benefits
- Effective with the following January 1st benefit
- Applies to:
|
Service retirement benefits Early retirement benefits Disability benefits Survivorship benefits |
The GABA is not tied to inflation, but it gives you and your family some inflation protection!
Back to topFIVE YEAR VESTING
|
You are vested when you complete five years of membership service. "Vested" means that you are guaranteed a retirement benefit when you meet the age and membership service requirements for early or service retirement. Once vested, you may also be eligible for disability retirement. |
| REMEMBER |
|---|
|
Vesting in the Defined Benefit Retirement Plan means you have the right to a benefit. The benefit is a lifetime income in the form of monthly retirement payments. |
Back to top
PURCHASE OF SERVICE
Eligible participants, who have elected the Defined Benefit Retirement Plan, may purchase various types of service. Participants purchase service to increase their retirement benefit. Service that may be purchased includes:
|
Refunds * Retroactive * Absence Due to Illness of Injury * Montana Public Service Military Federal Volunteer Service Other Public Service |
* Vesting is limited to 3 types of service listed above.
When you purchase the above listed service you receive both service credit and membership service.
When purchased service entitles you to both service credit and membership service, it may improve your early retirement factor or qualify you for:
|
An early retirement The 2.0% factor for 25 years or membership service |
Another type of service you may purchase is:
|
Additional ("one for five") |
When you purchase "one for five" service, you receive service credit but not membership service. It is not used to determine eligibility for service retirement, early retirement, or the 2% factor.
Additional years of service credit will increase the amount of your benefit because service credit is used in the formula.
If you are interested in purchasing service, you must send a written request to MPERA. A written request can be in the form of an email sent to mpera@mt.gov. MPERA will assist you in determining:
- If you are eligible to purchase service
- The amount you may purchase
- The cost of your purchase
Only you can determine if purchasing service would be to your advantage. You may wish to contact a financial or tax advisor to assist with your determination.
Back to topPAYMENT OPTIONS
As a Defined Benefit Retirement Plan participant, you have serveral benefit payment options at retirement:
Option 1: Lifetime Retirement Benefit
Option 2: Joint and 100% Survivor
Option 3: Joint and 50% Survivor
Option 4: Lifetime Benefit with Period Certain
- 10 Year Period Certain
- 20 Year Period Certain
You may choose the payment option that best meets your personal circumstances, financial needs and objectives. Although you will not select your payment option until you retire, a general understanding of your options may be helpful in making your retirement plan choice.
Both the service and early retirement formulas calculate Option 1: Lifetime Retirement Benefit.
Option 1 pays the largest monthly benefit for your life. The monthly benefit ends upon your death. However, your beneficiary will receive any balance left in your account. That account balance is the amount available at retirement less the total benefits already paid to you. Retirees typically exhaust their account balance in three to five years.
In contrast, each of the alternatives to Option 1 involves a reduction in your benefit in exchange for continuing benefits to your contingent annuitant.
Option 2 pays you less than Option 1. After your death your contingent annuitant receives the same benefit you received. You cannot choose Option 2 if there is more than a ten year age difference between you and your non-spouse contingent annuitant.
Option 3 pays you less than Option 1, but more than Option 2. After your death, your contingent annuitant receives half of the benefit you received.
Option 4 pays you a lifetime benefit and may pay a continuing benefit to your contingent annuitant. If you die before the end of the certain or guaranteed period (10 or 20 years period certain), your contingent annuitant receives the benefit until the guaranteed period ends.
BENEFICIARY:
The person named by an Option 1 retiree, or by an active or inactive participant, to receive any survivorship benefits or lump-sum payments after the participant's death.
CONTINGENT ANNUITANT:
A person named by the retired participant to receive a continuing benefit after the participant's death.
The beneficiary and the contingent annuitant may be the same or a different person.
Back to top
SERVICE DEATH PAYMENT
A service death payment will be paid to your benficiaries if you die:
|
While in active service Within 6 months after terminating active service, but before receiving a retirement benefit Within 6 months after a disaility benefit begins While disabled, if you have been continuously disabled since leaving active service and are not receiving a disability retirement benefit. |
The service death payment includes your account balance and an amount calculated as 1/12 times your last 12 months of pay time the lesser of 6 or your years of service credit. This is usually a half year of salary.
EXAMPLE: JOHN
John had an account balance of $50,000 and 14 years of service credit when he died.
| John's Death Payment Calculation | |
|---|---|
| $30,000 x 1/12 |
Last 12 Months of Salary Equals $2,500 |
| $2,500 x 6 |
Lesser of 6 or 14 Years Service Credit |
| $15,000 + $50,000 |
Account Balance |
| $65,000 | DEATH PAYMENT |
Beneficiaries may receive the death payment as a lump sum or as a fixed monthly annuity payment. Annuity payments under a death payment are not entitled to receive GABA.
Survivorship Benefit
A vested participant's beneficiary who is eligible for a death payment may choose a survivorship benefit instead. The survivorship benefit is a lifetime monthly payment, which is often more than the monthly annuity payments under the death payment.
The GABA applies to a survivorship benefit. Beneficiaries must apply for a survivorship benefit within 90 days of receiving notice that they are eligible for a death payment.
| REMEMBER |
|---|
|
Keep your beneficiary information up to date. You can update your beneficiary information by completing a PERS membership card and submitting it to your payroll clerk. Your payroll clerk must forward the membership card to MPERA. Benficiary changes will take effect when MPERA has the updated card on file. |
Back to top
DISABILITY BENEFITS
The Defined Benefit Retirement Plan has a disability provision for vested participants. You must apply to the Public Employees' Retirement Board (the Board) to receive disability benefits. Once the Board determines you are disabled, you must terminate employment before your benefit payments may begin.
When you start receiving disability benefits, you may be subject to on-going medical reviews to document your continued disability status. Subject to these medical reviews, disability payments continue to age 60, at which time your benefit automatically converts to a service retirement benefit. Your benefit is not recalculated when it is converted.
REFUNDS
If you terminate your employment, whether you are vested or not, and wish to take a refund, you will receive only your contributions plus interest. You may receive your refund as a taxable lump-sum or roll it into another eligible employer plan, IRA or a Roth IRA.
By taking a refund, you give up all rights to any benefits from PERS.
Back to topGo to page 1 of DBRP Basics - Defined Benefit Retirement Plan
Go to page 2 of DBRP Basics - Service Retirement
Go to page 3 of DBRP Basics - Early Retirement
Go to page 4 of DBRP Basics - Money Purchase Benefit
