PREPARING FOR THE NEXT PHASE OF LIFE

1. PREPARING FOR THE NEXT PHASE OF LIFE Presented by Montgomery County Office of Human Resources Benefits Team

2. What Is Retirement To You? • Your Golden Years • Financial independence • Life style changes • Second careers • New interests & activities • The New Retirementality

3. Determining Needs & Expenses • The Big Items • Mortgages – payoff or move? • Vehicles and large consumer items • Consumer loans • Basic Living Expenses • Utilities – gas, electric, phone, internet, water • Fixed costs – real estate taxes • Variable costs – auto expense, property expense, groceries, medical, entertainment & travel

4. Determining Cash Flow & Income Sources • Pension(s), Social Security • Savings, investments, tax qualified plans • Banks and credit unions • IRAs, 401ks, insurance plans/policies • Deferred Compensation – 457 Plan • Additional income • Part time & full time income from a job • Business ideas & second incomes • Business ventures • Investment real estate

5. Identify Gaps & Shortfalls • Fixed & recurrent – too much month at the end of the money • Extra ordinary events • Medical expenses & conditions • Property damage and disasters • Unexpected life events – illness & accidents • Opportunities for wealth creation

6. SOURCES OF INCOME • Social Security • Early, Normal, Enhanced • Employees Retirement Plan • DROP/DRSP Program - Fire/Police • Deferred Compensation Plan • ING – Non-Represented Employees • Hartford – Represented Employees

7. What is Social Security? Social Insurance – FDR (1935) • Retirement Insurance • Disability Insurance • Survivor Insurance • Medicare Insurance (1965) • Social Security intended as supplemental income only, designed to replace part of the monthly earnings during retirement

8. Social Security Eligibility Retirement: (qualify with 40 quarters) • Age 62 with reduced benefits – 0.6% per month reduction • Age 65-67 with full benefits • Age 65 for Medicare benefits • Age 70 with enhanced benefits

9. Begin to Get a Handle Now! • Identify expenses • Use your checkbook and bank statements • Use your credit card statements • Save as much as you can • Hold expenses level when possible • Don’t waste time!!

10. Employees Retirement System (ERS) • Defined Benefit Plan • BIT (Board of Investment Trustees) is responsible for investment choices and paying your retirement benefit

11. Montgomery County Employees Retirement SystemERS • Pension based on Credited Service • Sick Leave • Average Final Earnings • Survivor benefits to spouse/children • Disability retirement benefit • DRSP/DROP program – Fire/Police only

12. What is your Retirement Membership Group? • If you are: a non-public safety employee who is not in a bargaining unit position You are in Group A • If you are: a non-public safety employee who is in a bargaining unit position (including any probationary employee) You are in Group H • If you are: public safety - Police Group F (P = DRSP) Fire Group G (Q = DROP) Correction/Sheriffs Group E • If you enrolled before July 1, 1978, you are in the Optional Non-Integrated Plan; Group A, H, E, F or G • If you enrolled before July 1, 1978, and integrated, you are in the Optional Integrated Plan; Group AZ, HZ, EZ, FZ or GZ • If you enrolled on/after July 1, 1978, you are in the Mandatory Integrated Plan, Group AK, HK, EK, FK or GK

13. WHEN CAN YOU RETIRE • Normal retirement – UNREDUCED BENEFIT • Varies by plan – based on age and years of service • Early retirement – REDUCED BENEFIT • Varies by plan – based on age and years of service If your age plus credited service equals 85 (with at least 35 years of credited service), you may elect early retirement without receiving a reduction in benefits • Benefits if found to be disabled • Vesting/Termination prior to eligibility age • Contributions plus 4% • Eligible for IRA rollover

14. Employees Retirement System (ERS) • Average Final Earnings (AFE) • Enrolled on/after 7/1/1978 – Highest consecutive 36 months of earnings (divided by 3). • Enrolled before 7/1/1978 – Highest consecutive 12 months of earnings. • Phantom General Wage Adjustment – 7/5/09 – 7/3/10 • Credited Service consists of: • County Service while in ERS • minus LWOP periods • plus Transfers or Purchases • plus Sick Leave up to 2 years – 4,136 hours

15. PAYMENT OPTIONS • All payment options provide the retiree a monthly pension payment for life. • The differences between the payment options and the amount of your payment is the degree of protection offered to your beneficiary. • Generally, the higher the protection for your beneficiary, the lower the payment amount to the retiree. • The date you begin receiving Social Security from the Federal Gov’t does not impact your pension. The reduction date is based on your birth date.

16. PENSION AMOUNTS • The amounts shown on your estimate are gross amounts and do not reflect deductions for any of the following which may or may not be applicable to you: • Federal Income Tax • State Income Tax • Group Insurance Premiums (after tax) • We cannot tell you what the net amount of your pension check will be. PLEASE CONSULT WITH YOUR TAX ADVISOR.

17. Payment Options Monthly pension benefits can be paid as: • Modified Cash Refund Annuity option • Ten Year Certain and Continuous option • Social Security Adjustment option – age 62/65 • Joint and Survivor Annuity option • Joint and Survivor Annuity Pop-up option • Social Security Adjustment option combined with Joint and Survivor Annuity option – age 62/65 • Social Security Adjustment option combined with Joint and Survivor Annuity Pop-up option – age 62/65 YOUR CHOICE OF PAYMENT OPTION IS A ONE-TIME IRREVOCABLE CHOICE AT RETIREMENT.

18. EMPLOYEE SELF-SERVICE

19. Modified Cash Refund Annuity Option Normal payment option for Mandatory Integrated [AK/HK/EK/FK/GK] plan members • The guarantee for the Modified Cash Refund Annuity option is an amount equal to your contributions and interest as of your date of retirement. If you die after you have received pension payments which equal or exceed your contributions and interest, there will be no payment to your beneficiary. If there are monies due to your beneficiary, they will be paid out as a lump sum. (Typically, the guarantee period is from 18 to 36 months.)

20. MODIFIED CASH REFUND

21. Ten Year Certain and Continuous Option Normal payment option for Optional [A/H/E/F/G] and Optional Integrated [AZ/HZ/EZ/FZ/GZ] plan members • The guarantee to your beneficiary is for 10 years (120 months). If you die before you receive 10 years’ (120 months) worth of payments, your monthly pension payments will continue to your named beneficiary until the end of the 10 years; then payment to your beneficiary stops.

22. 10 YEAR CERTAIN AND CONTINOUS

23. Joint and Survivor Annuity Option • If you choose this payment option, you will also choose the percentage of your monthly pension (100%, 70%, 50%, 30% or 20%) that your joint annuitant will receive if he or she survives you. If he or she does not survive you, your payment remains the same. • At your death, your joint annuitant will begin receiving a lifetime benefit based on the percentage you have chosen. • You must name your joint annuitant at retirement and it cannot be changed to anyone else (divorce/ remarriage). • The guarantee to a beneficiary (other than your Joint Annuitant) for this option is the same as your Normal payment option, Modified Cash Refund or Ten Year Certain & Continuous.

24. JOINT & SURVIVOR OPTIONBEFORE SSNRD

25. JOINT & SURVIVOR OPTIONAFTER SSNRD

26. Joint and Survivor AnnuityW/Pop-up Option • If you choose this payment option, you will also choose the percentage of your monthly pension (100%, 70%, 50%, 30% or 20%) that your joint annuitant will receive if he or she survives you. • If he or she does not survive you or you divorce, your pension will “pop-up” to the Modified Cash Refund Annuity payment amount plus any applicable COLAs.

27. Joint and Survivor AnnuityW/Pop-up Option Before SSNRD

28. Joint and Survivor AnnuityW/Pop-up Option After SSNRD

29. Social Security Adjustment Option • This option may give you a larger initial monthly benefit until either age 62 or 65 (you choose which age) and smaller monthly payments afterwards. • The date you begin receiving Social Security does not impact your pension. The reduction date is based on your birth date. • The guarantee for this option is the same as your Normal payment option.

30. Social Security Adjustment Option

31. Social Security Adjustment with Joint and Survivor Annuity Option • This option may give you a larger initial monthly benefit than the J&S Option until either age 62 or 65 (you choose which age) and smaller monthly payments afterwards. • If you choose this payment option, you will also choose the percentage of your monthly pension (100%, 70%, 50%, 30% or 20%) that your joint annuitant will receive if he or she survives you. If he or she does not survive you, your payment remains the same until you reach age 62 or 65.

32. Social Security Adjustment With Joint & Survivor OptionAge 62

33. Social Security Adjustment With Joint & Survivor OptionAge 65

34. Social Security Adjustment Option combined with Joint and Survivor Annuity Pop-up Option • This option may give you a larger initial monthly benefit than the J&S Option until either age 62 or 65 (you choose which age) and smaller monthly payments afterwards. • If you choose this payment option, you will also choose the percentage of your monthly pension (100%, 70%, 50%, 30% or 20%) that your joint annuitant will receive if he or she survive you. • If he or she does not survive you or you divorce, your pension will “pop-up” to the Modified Cash Refund Annuity payment amount plus any applicable COLAs • This payment option must be sent to the Board of Trustees actuary to be calculated.

35. How are COLAs determined? • If you belong to the optional non-integrated [A/E/F/G/H] or optional integrated [AZ/EZ/FZ/GZ/HZ] plan, your benefit is 100% of the change in the Consumer Price Index for the Washington Metro Area. • If you belong to the mandatory integrated [AK/EK/FK/GK/HK] plan,your benefit is 100% of the change in the Consumer Price Index for the Washington Metro Area up to 3%; and 60% of any change in the Consumer Price Index greater than 3%, not to exceed a total of 7.5%. The maximum 7.5% does not apply to disability retirees or retirees over age 65. • The COLA applies to both the initial retirement amount and the reduction amount.

36. Post Retirement Health& Life Insurance • It is the same coverage as that offered to active employees with a few exceptions: • Caremark High Option Rx Plan has $5/$10 copays instead of $4/$8. • You cannot take the NVA vision plan into retirement. You can continue it for 18 months through COBRA or you may elect the Retiree Discount Vision Plan (see vision benefits comparison sheet in your folder). • Optional Life insurance and Dependent Life insurance continue. Optional Life Insurance ceases at age 70. • Dental DHMO is not available to retirees; only the Dental PPO plan. • Flexible Spending accounts are also not available to retirees

37. How Much Will I Pay For My Insurance? • Your premium cost share with the County depends on your date of hire: • If you were hired on or after January 1, 1987, you will automatically receive the lifetime cost sharing with the County. The percentage you pay will depend upon your actual length of County service. For each whole year between 5 (50%) and 15 (30%) years, the County’s share increases 2% up to a maximum of 70%. If you were hired before January 1, 1987, you have the choice of continuing the same cost share you pay now (80% County; 20% you) for the length of time you were eligible for group insurance. NOTE:The premium cost share election is a one-time irrevocable choice at retirement.

38. Can My Spouse Keep My Insurance Upon My Death? • YES! Your spouse will be offered the option to continue group insurance for life. • The cost share percentage that you choose when you retire remains the same for your surviving spouse.

39. Retiree Health Insurance and Medicare • Part A of Medicare is mandatory; covers hospitalization benefits. (effective the month in which you turn 65). • Part B of Medicare is optional; covers physicians’ benefits. However, when you reach age 65, Carefirst BCBS and United Healthcare will process your claims as if you had elected Part B, whether you elect Part B or not. • You cannot continue in the Kaiser plan unless you elect Part B and enroll in the Kaiser Medicare Plus Plan. • After you apply for Medicare, Social Security will send you an enrollment card approximately 3 months before your 65th birthday. If you do nothing, you will be enrolled in Parts A and B. Only return the enrollment card if you do not want Part B.

40. Life Insurance • As an active employee, the face value of your life insurance policy is two times your annual salary if you are full-time and one time your annualized salary if you are part-time or non-represented. • The face value at retirement is calculated: Active life ins. amount x years of service* (up to 20 years)x 5% (20 x 5% = 100% of active life amount) $183,000 x 20 x 5% = $183,000.00 *Years of service is the number of years and months that you were eligible for group insurance coverage NOT credited service used for your retirement calculation

41. Life Insurance Here is an example of a life insurance reduction schedule: 8/1/11 = $183,000 8/1/16 = $164,700 8/1/17 = $146,400 8/1/18 = $128,100 3/1/19 = $45,750 65th birthday is 3/1/19 so reduction to 25% would occur on 65th birthday.

42. Montgomery County DeferredCompensation Plan • Administered through ING or Hartford • Allows additional savings on a pre tax basis • Offers numerous investment options • Enroll at any time • Contributions may be stopped at any time • Contributions may be changed at anytime • Investment choices may be changed at any time

43. Montgomery County Deferred Compensation Plan • Payroll deduction with pre tax dollars of eligible compensation or IRS limit $16,500 per year • Catch up provisions at age 50 -$5,500 per year • Last three years also offers additional catch up provisions

44. Montgomery County Deferred Compensation Plan • Eligible to rollover to IRA • Beneficiary must be named • Continues to accumulate tax deferred • Distributions mandatory at age 70 ½ based on IRS life expectancy tables • Fully vested contributions • Taxed as ordinary income at distribution • No penalty at distribution regardless of age

45. Annual & Compensatory Leave Payout • Paid approximately 4 – 6 weeks after date of retirement. • Two options on payout: • Leave paid to you minus approx. 42% taxes (Federal, State, FICA and FICA Medicare). • Leave payout to be a contribution in to your Deferred Compensation account. You need to contact Hartford or ING to change your 457 contribution for the 7/2/09 paycheck. Contribution subject to annual 457 maximums

46. Required Retirement Documentation • We will need to verify your date of birth. Appropriate documentation is birth or baptismal certificate, passport, or military records. • If you choose a payment option that provides a lifetime benefit to your spouse or domestic partner, we will need proof of age for that individual. We will also need proof of marriage for your spouse or a registered affidavit for your domestic partner.

47. Planning Ahead... One of the most important decisions you will need to make at retirement is the irrevocable choice of a pension payment option. The role of the Benefits team is to explain your options, not to provide selection advice. You are strongly encouraged to seek the advice of a financial counselor to guide you through this process, with emphasis on your personal and your family situation. Listed below are a few reasons why you may want to seek both professional tax and financial advice: • review of total financial resources • review of current and future expenses • review of appropriate tax withholdings • review of all insurances –life policies, long-term care, disability, etc. • review of estate planning