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Part-time Faculty Retirement Workshop

Part-time Faculty Retirement Workshop. By Deborah Dahl Shanks FACCC Retirement Committee. What are the available options?. STRS: State Teacher’s Retirement System Cash Balance Defined Benefit Social Security IRAs, 403(b), 457(b), Tax-sheltered Annuity.

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Part-time Faculty Retirement Workshop

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  1. Part-time Faculty Retirement Workshop By Deborah Dahl Shanks FACCC Retirement Committee

  2. What are the available options? • STRS: State Teacher’s Retirement System Cash Balance Defined Benefit • Social Security • IRAs, 403(b), 457(b), • Tax-sheltered Annuity

  3. State Teachers Retirement System • Cash Balance, a hybrid defined benefit plan, available to PT faculty only • Defined Benefit, a full defined plan which is available to ALL teachers regardless of status as FT or PT. • Both may affect Social Security benefits, both primary and survivor: WEP & GPO

  4. STRS Cash Balance Plan • STRS Cash Balance- employee contributes 4% (negotiable)- employer contributes 4%- Immediate vesting; - No Service Credit • Cash Out [Lump Sum (pay taxes)]over 55 – immediate under 55 – 6 month wait • Annuity • Convertibleto STRS DB service credit

  5. Why CB plan? • The Cash Balance plan is for PT CCC faculty who would not ordinarily “vest”. • Good for PT faculty only teaching one classor starting late in career after private sector career. • Not good for PT faculty teaching 60% or more or will need a substantial monthly pension or want to convert unused accrued sick leave.

  6. Retiring with Cash Balance • STRS will ask you what you want to do with your Cash Balance account. • Choices include:1. Roll into a private annuity or IRA 2. Cash out lump sum [paying all the tax]3. STRS annuity [life or time specific – see the DBS calculator] • Typical life annuity: $50,000 at age 63 pays approx. $500 a month for life.

  7. OPT IN or OUT of CB • You may be in both CB and DB. What to do? • You may choose to:1. stay in CB and then cash out your DB money once no longer employed. 2. move to DB and then roll your CB money into that plan to retrieve service credit. 3. opt out of CB and move to Social Security [if offered] at the end of a semester [when “unemployed”]. Basic cash out rules apply or roll into other tax-exempt plan.

  8. Conversion from CB to DB • You should consider converting if you:1. plan on being a career teacher or foresee your ability to vest 5 FTE years.2. teach 40% or more each semester3. work in more than one district4. want a larger life-time STRS pension and want to convert unused sick leave hours.

  9. STRS Defined Benefit Plan • Required for all FT K-14 teachersand an option for all PT/hourly teachers • STRS Defined Benefit- 8% employee contribution (2% to DBS supplement to 2010)- 8.25% employer contribution .25% sick leave conversion- VEST: 5 years FTE service credit • Monthly Retirement based upon formula

  10. STRS DB Benefits • Survivor Benefits and Beneficiaries • Disability Benefits • Inflation Protection • CB to DB conversion, re-deposits, permissive purchase of time, air time, sick leave conversion • 403(b) savings program • CalSTRS Home Loan Program • Long Term-Care Program through CalPERS • STRS DB Supplement account

  11. What is needed? • Three parts to the DB retirement formula: • SC X age factor X final earnable/12 Service Credit: history of work record based upon load.Age Factor: a factor dependent upon age at retirement as per STRS Handbook.Final Earnable/12: typically final 3 averaged years divided by 12 for monthly benefit.

  12. Service Credit • SERVICE CREDIT = FTE years service Reflect % of teaching/work load history • Converts MONEY into SERVICE CREDIT • Computation: actual earnings divided by “earnable”: FTE hours X $ hourly rate example: $22,950 [actual] div. by earnable $36,750 [525 X $70/hr] = .625 SC [ex. includes Office Hour & substitute pay] (Earnings/earnable are reported monthly by district payroll for all creditable service.)

  13. What is my FTE? • “Full Time Equivalent” in yearly hours based on contract work classification • FT faculty weekly teaching hours X 35 • In CCCCD [examples] hours per week English Comp. = 12 FTE [525 min.] Lecture = 15 FTE [525] Lab/Tutorial = 20 FTE [700] PE = 22 FTE [770] Lib./Counselor are at 1050 minimum

  14. Calculating my “earnable” • Your FTE X hourly pay rate equals your earnable in a single classificationExamples: 525 X $50 = $26,250.00 [Lecture] 770 X $50 = $38,500.00 [PE] • Earnable in multiple classifications:PE and teach history averages the two $32,375.

  15. How can I accumulate Service Credit? • Classroom instruction [FTE] % load • Unused Sick Leave Hours [converted at retirement] • Substituting • Office Hours [FTE X rate = SC] • Permissive Buy Back of TimeBuy service based on creditable time not previously contributed to STRS • Air Time: Non-teaching time (expensive)

  16. Permissive Buy Back • Retrieval of previous years of creditable service from in/out of California [public service]: as teaching, counseling, substituting, military (more see Handbook) • Earnable X % [age category] is cost of one year Service Credit. (Same formula is used for the CB to DB conversion.) • You can pay out of pocket, from another pre-tax retirement account (IRA) or on time.

  17. Permissive Service Credit Costs • Cost to buy permissive service credit is based upon age. • This scale is used for general permissive & Cash Balance buying of service credit. • AGE YRS RATE SALARY COST • 20-29 1.0 18.6% $50,000 $ 9,300 • 30-39 1.0 18.8% $ 9,400 • 40-49 1.0 19.5% $ 9,750 • 50-59 1.0 23.9% $11,950 • 60 + 1.0 27.7% $13,850

  18. Permissive Buy Back: CB to DB • Formula: “earnable” X permissive % rate = cost of 1 year of service credit • “annual earnable” = FTE X hourly pay rate • Two options: 1. money in account buys direct SC as much as will cover [approx. ½ of actual] 2. total “permissive” SC converted to cost using CB money + secondary source or may pay in installments.

  19. Converting Option One • Total money in CB account used to buy as much Service Credit as can without out-of-pocket expense to self. • Example: Account has $8157.00 earnable = 525 X $50 = $26,250 • Age of member: 35 • Member’s earnable = $26,250$26,250 X 18.8% = $4935 = 1 SC • Account purchases direct SC of 1.65 years [$8157 div. by $4935]

  20. Converting Option Two • “Permissive” SC buy back using CB account to purchase the total service credit • Period of CB account = 3.5 SC earned • Cost of 3.5 SC = $17,272.50 (3.5 SC years X $4935) • Member contributes balance of $9115.50for full service credit. May be done onmonthly payment plan or a direct roll-over from an acceptable pre-tax account [ex: 403 (b), 401 (k), IRA] (not a Roth IRA)

  21. Sick Leave Hour Conversion • Unused Sick Leave converted at time of retirement is added to your service credit history (only available for DB members) • 6 hours = 1 SC day [Ed Code 22717] • Example: 525 hours [1 FTE year] converts by dividing by 6 = 85 day An academic year = 85/175 days = .5 SC

  22. What is the Age Factor and when can I retire? • Age Factor = Pre-determined factor in STRS handbook at time of retirement • Examples of factors: age 55 = 1.4 age 60 = 2.0 age 63 = 2.4 [maximum] • Earliest retirement age = 55

  23. Final Compensation • Final Computation = average of 3 final years “earnable” salary or 3 highest earnable consecutive years. • Final computation earnable = actual gross payment divided by % load teaching. • Example: $25,000 3 year average grossdivided by .60 [% load] = $41,666 earnable

  24. Computing my retirement • Service credit X age factor X final compensation = “unmodified benefit” • Check your Service Credit record and project work load to retirement age plus sick leave hours. • Check STRS book for age factor for the projected age you want to retire. • Calculate approximate Final earnable income [div. by 12] • Use the CalSTRS website calculators

  25. Example: Basic Retirement • JOHN: Basic PT Retiree started work post 1996 (the year is 2021). • History: 25 years at 60%, retires age 65 avg. earnings at $25,000/year • Final comp. = 25,000/.60 = 41,666 earnable divide by 12 = $3472 • 15 yrs. SC X 2.4 age X $3472 = $1249.92 unmodified monthly benefit

  26. Supplemental Account • Defined Benefit Supplement Account adds an additional contribution to a secondary account from anything over 100% [DBS]. • Your supplemental account also accumulates 2% of your 8% basic contribution (up to 2010). • If that account is more than $3500 then it can be paid out as an added benefit or cashed out at retirement.

  27. AB 1586 • Law to fix impairment to PT retirees whose service record pre-dates 1996 law change. • Computes years of service before 1996 and years of service after 1996 and give the PT member the best retirement based upon their service record. • STRS is currently formulating a computer program to accomplish this.

  28. STRS & FACCC Task Force • What we have accomplished:1. New PT Section in the STRS Handbook Clearer information and more user friendly 2.Impairment Calculations [AB 1586] Underway and retroactive.3.Change Mandatory DB enrollment [AB3076 (Mullin)] No longer can a PTer be forced into DB against his/her will as long as defined as a “temporary” employee4.CB to DB Service Credit Conversion

  29. STRS/FACCC: What’s next? 1. Change/Simplify District Reporting to require FTE compliance to law2.Improve STRS DB Statements: separate districts and classifications for ease of tracking3. Sick Leave conversion calculations: tie to the FTE classifications standards (525 min.) 4. Possible New PT only DB program

  30. STRS Contacts • STRS website www.calstrs.comfor information, forms and statements • STRS Ombudsman: Tom Barretttbarrett@calstrs.com • STRS toll-free phone: 800-228-5453 • Call to request CB to DB conversion request form or have a membership review.

  31. Social Security & Teachers • Social Security- Federal Defined Benefit Plan- Employee contribution- District contribution- Qualify: 40 quarters; earning & age- Not all districts offer Social Security- yearly statement gives history & estimated benefits, earnings record • Can be affected if receive STRS benefits.

  32. WEP and GPO Off-sets • These are known as the Windfall Elimination Provision (employee) and • The Government Pension Off-set (survivor benefit). • These can affect Social Security benefits for teachers and spouses (who were teachers) if they do not have 30 years significant earnings in the SS system.

  33. Windfall Elimination Provision • Teachers and other Public Employees • Effective January 1, 1986 • WEP reduces first $695 from 90% to 40% if less than 20 years of substantial earnings (amount changes each year) • 21 years factored at 45%25 years factored at 70%30 or more years of substantial earnings at full factor of 90% [NO OFF-SET]

  34. Example of WEP • 1. teaches PT CCC and pays into STRS2. works PT private sector pays into SS • only 4 years of substantial earnings under Social Security so full WEP • Example: $800 average SS earnings40% of first $ 695 = $ 278.0032% of next $2398 = $ 62.0015% of remainder = 0 • Total SS benefit with WEP = $340.00

  35. Significance and effects • Full Social Security would have been $678 • WEP benefit is $340An off-set [loss] of $338 • NOTE: The off-set cannot be more than ½ of the STRS pension. So if STRS pension is less than $676.00 then the off-set will be less. • WEP does not apply if 30 years as a FT worker and substantial earnings paid.

  36. How would that work? • Original SS benefit was $678 • The Full WEP off-set = $338 • If STRS monthly pension is $600.00 then the off-set cannot exceed $300.00 • Social Security benefits would then be$378 [instead of the previous $340] • So it is important to know or project the STRS pension and compare to projected SS benefits.

  37. Calculating WEP • Calculating WEP is one of the most complex of the Social Security entitlement provisions. There is now a hand-dandy chart that shows how your benefits can be affected by WEP on the Social Security website. And you don’t even have to touch a calculator. • http://www.socialsecurity.gov/retire2/wep-chart.htm

  38. Government Pension Off-set • Affects Spousal Benefits of FT private sector employees whose spouses are in the public sector. • Age 65 spouse receives 50% of PIA“Primary Insurance Amount” • Age 64 – 45.8% of PIA • Age 63 – 41.7% of PIA • Age 62 – 37.5% of PIA

  39. STRS Pension & the GPO • Social Security spousal and widow benefit reduced by 2/3 of the STRS pension • Dennis receives $1612 in SS at age 65Leslie [wife] would receive $806 [50%] • Leslie is a teacher and receives STRSpension of $900; 2/3 = $600 [off-set](Regardless of SS Leslie might receive) • $806 spouse - $600 STRS = $206 benefit

  40. GPO Widow Off-set • Leslie, a teacher, becomes a widow • Widow receives 100% of spouse benefit • $1612 = widow’s SS benefit- 600 = 2/3 of STRS pension offset$1012 = Social Security Widow Benefit • Total retirement as a widow is$900 STRS + $1012 SS widow = $1912 [GPO is not affected by the ½ rule]

  41. What does this all mean? • Knowledge is Power: Be Informed • Know your Options: Ask Questions • Consider where you are now & the future • Support the organizations who advocate for your rights & attend workshops. • Deborah Dahl Shanks, FACCC Retirement Committee • deborahadahl@aol.com; (510) 724-2631

  42. THE END Faculty Association of California Community Colleges “Part-time Faculty and Retirement Committees”

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