seeking clarity on school employee's pension

[siamond]

Hi there,

I'm sure my questions will sound rather basic to some, but between the fact that we're expats and still learning to be Americans (now 15 years in the US), the fact that the school system (as an employer) is somewhat new to us, and the fact that we're facing some admins who seem totally unable to answer the most elementary question... we need a bit of help!

My wife is employed by a local middle school in MA (close to Boston). She's not a teacher, she operates (full time) the library & media library (and doing a darn good job of it!). Therefore she's an employee of the state of MA, if I got it right. Her salary isn't exactly stellar, but still, this counts, and she's contributing 9% of her gross salary to a pension. She's been doing it for 6 years, loves her job, wants to keep going for a while.

As far as we understand (?!?!), once she would have completed 10 years (true?) of employment, she's entitled to the pension at any time (true?) if & when she quits (true?), and her pension will be approximately equivalent to the average of the best 3 years of salary (true?). No clue how this gets adjusted over time (inflation-based? else? not at all?).

Therefore, as I plan to go through an early retirement soon (say 2015), by 2017 (10 years), we can make another big move, she quits, her pension starts coming in quickly (true?), and well, we can do whatever we want, e.g. move in another state, she may find a small job if she wants (true? no restriction?), etc. And they lived happily ever after!

Ok, as you noticed, I am not so sure about many of the assertions I made... If you happen to have hard facts on one point or another, please tell me... Or if you happen to have a pointer to a document that explains all of those pensions rules reasonably clear, please share! Many thanks in advance!

 

[utrecht]

All pensions are different but the main things you want to look into are:
1) When is she vested? in your case it sounds like you think its 10 years which is very possible. That means after 10 years of employment, she is eligible for a pension of some amount once she leaves.
2) She wont get the avg of her best 3 years salary. She will get the avg of her best 3 yrs times a percentage (probably in the 2% range) times how many years shes worked. So if she works 10 years she may get something like 20% of her 3 yr avg.
3) Early retirement reduction. Again, all pensions are different but if she retires before whatever the full retirement age is (55-60?), she will have her benefit reduced for every year she is below the full retirement age.

 

[siamond]

All pensions are different but the main things you want to look into are:
1) When is she vested? in your case it sounds like you think its 10 years which is very possible. That means after 10 years of employment, she is eligible for a pension of some amount once she leaves.
2) She wont get the avg of her best 3 years salary. She will get the avg of her best 3 yrs times a percentage (probably in the 2% range) times how many years shes worked. So if she works 10 years she may get something like 20% of her 3 yr avg.
3) Early retirement reduction. Again, all pensions are different but if she retires before whatever the full retirement age is (55-60?), she will have her benefit reduced for every year she is below the full retirement age.

More questions than answers greetings10, but I actually appreciate the feedback very much, this definitely helps.

1) Vesting do seem to be 10 years, that point at least seems solidly established.

2) Aaahhh... This did seem too good to be true...

3) She'll be 59 by 2017, so hopefully past or real close to such age limit. Thanks for pointing out this aspect, though. Another question to answer.

I guess the root cause of all my questions is that we just can't figure out what document of reference we should read to understand the exact terms of this specific pension. Would you believe that the local admins can't answer this obvious question?

 

[Mulligan]

More questions than answers greetings10, but I actually appreciate the feedback very much, this definitely helps.

1) Vesting do seem to be 10 years, that point at least seems solidly established.

2) Aaahhh... This did seem too good to be true...

3) She'll be 59 by 2017, so hopefully past or real close to such age limit. Thanks for pointing out this aspect, though. Another question to answer.

I guess the root cause of all my questions is that we just can't figure out what document of reference we should read to understand the exact terms of this specific pension. Would you believe that the local admins can't answer this obvious question?

If you were from my state Siamond, I could answer your questions, but every state and sometimes within each state have vastly different rules, so I don't want to even suggest an answer that may not apply to your state. I wouldn't be so hard on the administrator as they have nothing to do with the implementation and procedures of a pension. In fact based on your wife's status of not being considered a teacher, that would have put her in a separate pension altogether from the administrators/teachers system in my state. Most state pension systems have a regional or state office that gladly will answer questions about her pension. FWIW my pension system's office was very helpful in answering questions. They also would hold yearly regional meetings to answer specific questions from future retirees.

 

[clifp]

Doing a bit of Googling I'd start looking here and more generally on the mass.gov/treasury website.

 

[target2019]

This article seems to explain the pension system very well.

I was covered by my state's PERS when I was a part-time instructor. Eventually I was out of the system as teaching assignments stopped. After a year or two, I had to leave the system, and either take a lump sum, or have this transferred to my Vanguard SEP-IRA.

 

[siamond]

Many many thanks to those who answered. Just a few minutes on this forum, and I got very specific information that my wife has been looking for at her school for the past year without much luck...

Sounds that (given my wife's situation), it works basically as Utrecht explained, with a multiplying factor of 2.5%. Oh, and only $12k of the pension is inflation-adjusted, capped at 3% (ah, come on!). There is also a small annuity (e.g. interests on the accumulated contributions) in addition to the pension, but this doesn't go very far.

Ok, well, any $ received is a good $, but this is not exactly royal treatment... I need to adjust my ER plans, I had made unrealistic assumptions... Arumph.

Many thanks again for the very fast and very helpful answers.

 

[utrecht]

Most pensions aren't "royal treatment". You only hear in the news about the ones that are. Thats the way the media works. Do everything they can to incense people.

 

[target2019]

In my state some pensions are royal treatment, say for school administrators, who take the out and then get hired back as consultant administrator as the school board looks for a replacement. These types of abuse (although "legal") are what get attention in our state. However, to contrast, the librarian, or nurse (my M-I-L) who put in many years of dedicated service, get no attention in the media.

The great value in this pension, so long as the delivery is close to the promise, is that it can provide a well-needed cushion. As an example, my in-laws get $1 each from S/S. Her pension provides an additional $2. As a result, for the past 15-20 years, they have not needed to touch any investments.

Siamond, good luck with your emerging plan.

 

[Spanky]

but this is not exactly royal treatment...

2.5% times years of service times 3 best average salary is quite generous by today's standard. My megacorp pension plan pales in comparison.

 

[ERD50]

Quote:
but this is not exactly royal treatment...

2.5% times years of service times 3 best average salary is quite generous by today's standard. My megacorp pension plan pales in comparison.

Yes, 'royal treatment' is a subjective term. But I'm sure my MegaCorp is typical, so how about an actual, factual numeric comparison? My formula is rather complex, they changed things over time, there is a SS offset in the calculation. My average Final Earnings (AFE) is based on the average of best 5 of last 10 years. But if I work backwards to compare to that 2.5% number...

So 2.5% represents: 2.5% times years-of-service times AFE = $Pension

rearrange for % and

X% = ($Pension) / (years-of-service * AFE)

And for me, with 28 years service, that number comes to 1.35%, available at age 65 (cut it in half to take at 55), and no COLA whatsoever.

So w/o knowing if that 2.5% is available before age 65, and what % is COLA lite, we can't make a direct comparison, but even a little COLA-lite is better than none, and I'm sure the age requirement is no worse than mine.

So is it unreasonable to view a pension that is about 2x more generous as a 'royal treatment'?

-ERD50

 

[healthyandfun]

Good advice

Has been given by the previous posters.

As an employee of a school district in a different state, i noticed this in the original post and it caught my eye.
"She's an employee of the state of MA, if I got it right."

Please check and make sure that this is true. Her pay stub should state where the retirement contribution goes. Check with the Human Resources department of the school district to discover where you can find additional information. The school district website should have a link to the appropriate site. Do not rely on the district for advice. Go to the appropriate website and research how the pension is awarded. You should be able to access your wife's account and see all the pertinent information. Then, call the retirement system she is in directly and explain your situation, ask questions, and make sure everything is understood clearly. Sometimes they will give an estimate of the pension and send a booklet of how the pension is calculated. My experience with the employees in our system is that they are very helpful and very good at explaining things. You may be able to request a face-to-face meeting.

Remember, that each district/state has different rules. Get the information you need directly from the system she sends her contributions to every month. Good luck. Keep us informed with what you discover.

 

[siamond]

All right, all right, I take back the snotty/judgmental 'not a royal treatment' comment!

When reality dawned on me this morning (which could imply in turn that I have to delay a tad our ER plan), I'll admit I was a tad annoyed!

What really gets in my throat is not so much the way the pension is computed, it's the absolute numbers behind it. My wife does an absolutely stellar and amazing job, and yet her annual pay is just miserable. But well, she loves her job and does something really good with it, so... I should just shut up and replan...

====
healthyandfun, thanks for the advice. Will do. It did take us forever to figure out her status as an employee of the state. Wasn't intuitive to us.

 

[Spanky]

Yes, 'royal treatment' is a subjective term. But I'm sure my MegaCorp is typical, so how about an actual, factual numeric comparison? My formula is rather complex, they changed things over time, there is a SS offset in the calculation. My average Final Earnings (AFE) is based on the average of best 5 of last 10 years. But if I work backwards to compare to that 2.5% number...

So 2.5% represents: 2.5% times years-of-service times AFE = $Pension

rearrange for % and

X% = ($Pension) / (years-of-service * AFE)

And for me, with 28 years service, that number comes to 1.35%, available at age 65 (cut it in half to take at 55), and no COLA whatsoever.

So w/o knowing if that 2.5% is available before age 65, and what % is COLA lite, we can't make a direct comparison, but even a little COLA-lite is better than none, and I'm sure the age requirement is no worse than mine.

So is it unreasonable to view a pension that is about 2x more generous as a 'royal treatment'?

-ERD50

My megacorp pension is very simple. Megacorp puts 4.8% of annual compensation (salary + bonus) into a personal pension account (PPA) that invests in an income fund (i.e., stable value). The yield is about 3 - 4% for the past 10 years. You have an option to take the lump sum or life-time annuity fixed payment equivalent to an IRR ~4.33%. The lump sum option is always available whenever employment ends. Eligibility for retirement is 55 years of age + 10 years of service or age 62 and over.

The life-time payment turns out to be about 5.12% of 3 yrs of highest salary with 20 years of service. Compared to the not so 'royal treatment' pension asserted by the OP (40% of 3 yrs of highest salary -- 2.5% x 20), my pension is way inferior, albeit you do not have to contribute.

P.S. The sales revenue of said megacorp is $17 billion. It's a predominant medical device company in the world.