Teacher Pension Question ...

[green night]

my spouse is a part time teacher. She's been roughly half time over the last 8 years. Am I understanding this correctly? ... if she continues part time ... she'll have two issues with her pension.

1) She's accumulating her service at a 1/2 rate.

2) Her final average compensation which is defined as her last 3 years of salary is effectively cut in half because she's working 1/2 time.

In scenario planning, it seems that if she works full time the last 3 years, then it would effectively more than double her pension.

Scenario A - She has 8 years of 1/2 time. Let's assume another 8 years of 1/2 time. Total service is 16 years * .5 = 8 service years earned. Pension factor 1.5. Multiple last 3 years of Final average years of compensation = $35,000
Roughly $4,200 annual pension

Scenario B - She has 8 years of 1/2 time. Let's assume 2 more years of 1/2 time and 3 years of full time service. Total service 10 years of 1/2 time and 3 years of full time. = 8 service years earned. Pension factor 1.5. Multiply last 3 years of compensation = $70,000. Roughly $8,400 annual pension.

Am I understanding this correctly? It seems key that the last 3 years she must max her salary .... State of Michigan Teachers Pension (MIP 7%).

Thanks in advance!

 

[ERD50]

Sure, if the rules are based on final 3 years salary, then going full time those last 3 years will boost that pension. Unless there are other details in the small print - you'll need to verify that.

It's one of the problems with DB pensions (from the funding/sustainability side) - in a situation like that, the pensioner really gets a pension that is out-of-line with what they (and their employer) put in.

Of course you didn't make the rules, so go for it if you can manage it.

-ERD50

 

[green night]

Sure, if the rules are based on final 3 years salary, then going full time those last 3 years will boost that pension. Unless there are other details in the small print - you'll need to verify that.

It's one of the problems with DB pensions (from the funding/sustainability side) - in a situation like that, the pensioner really gets a pension that is out-of-line with what they (and their employer) put in.

Of course you didn't make the rules, so go for it if you can manage it.

-ERD50

Thanks ... i think that she would not be getting what she deserves if she didn't do this .... she's already getting years of service at a 1/2 time rate. For 1/2 time she shouldn't get 1/4 of the pension. She should get 1/2 the pension.

 

[ERD50]

Thanks ... i think that she would not be getting what she deserves if she didn't do this .... she's already getting years of service at a 1/2 time rate. For 1/2 time she shouldn't get 1/4 of the pension. She should get 1/2 the pension.

I'm not following you. $4,200 is half of $8,400, not 1/4.


I guess you are alluding to the idea that she earned half as much working half-time, and her service years are cut in half?

I try not to touch words like 'deserved', or 'fair'. But the half-time person at least has the opportunity to work another half-job (and possibly earn another half-pension in that job).

But I suppose if someone earning $X annually contributes the same % of their salary into the pension system, then they should earn 'points' at the same rate? Devil's in the details though, one would need to know all the details of how the plans are funded to know what makes economic sense.

It could also be that it is not intended to make economic sense. Maybe the 1/2 versus full credits are to encourage full-time workers versus part time? Hard to say.

-ERD50

 

[utrecht]

Thanks ... i think that she would not be getting what she deserves if she didn't do this .... she's already getting years of service at a 1/2 time rate. For 1/2 time she shouldn't get 1/4 of the pension. She should get 1/2 the pension.

Shes getting years of service at 1/2 time rate because shes working 1/2 of a normal schedule. How is that not fair?

Are you saying if she works 16 years part time she deserves the same pension of a teacher that works 16 years full time?

 

[green night]

Scenario 1a - 16 years full time. 70000 salary, multiplier 1.5. 16,800 annual pension.

16800 for full time

4200 for half time

That's why I'm saying 1/4 benefit.

But she's contributed half of what she would have if she worked full time.

 

[green night]

Shes getting years of service at 1/2 time rate because shes working 1/2 of a normal schedule. How is that not fair?

Are you saying if she works 16 years part time she deserves the same pension of a teacher that works 16 years full time?

I expected half the pension ... But it's only a quarter ... Ran the #s several times.... Used admin calculator ... Always the same. My instinct is the same as yours but you effectively get penalized twice ....

 

[Texas Proud]

If the pension is like Texas.... it is the highest paid years, not the last paid years...

But, since she is working 1/2 all the time, she does not have any high paid years...


I bet they have the restriction so someone does not work half for many years (say 20) and then work 3 full years to bump up their pension to the point that would match someone who worked full time the whole 23 years....



Also, she KNEW what she was getting when she signed up to work... so she agreed to the 1/4 prior to starting on day one.... kinda 'not fair' to try and make a fairness issue out of it now that she has been working there for a number of years....

 

[pb4uski]

Yes, that is what it looks like to me. If you had two people who each put in 20 years, one half time and the other full time same FTE compensation ($70k in this case) them you would expect the half-time employee's pension to be 50% of the full-time employee's pension - but it isn't the way this jurisdiction applies the pension formula.

I think you have the answer though - have her go to full time for the last 3 years.

 

[Mulligan]

The levers to pensions are usually salary, years of service, and multiplier. Greatly increase either of the 3 levers (or all of them) at the end and you will usually get a disproportionate increase in pension income. Obviously the salary lever is increased sharply thus resulting in the bigger spike. Added motivation Green Light to her working full time the last three years...additional income those final three years. Maybe some of the largesse will be given to you!


Sent from my iPad using Tapatalk

 

[Chuckanut]

I've heard of double dippers. This sounds like a half dipper.

 

[clifp]

I haven't seen a pension that only gives service credit for 1/2 times workers at 1/2 the rate.

On the other hand suddenly jumping from 1/2 to full time work is clearly a form of pension spiking. I would definitely set up a meeting with pension administrator and make sure that you are correct. She should be getting 16 years of service at whatever her salary is. That is how most pension systems work.

 

[green night]

I haven't seen a pension that only gives service credit for 1/2 times workers at 1/2 the rate.

On the other hand suddenly jumping from 1/2 to full time work is clearly a form of pension spiking. I would definitely set up a meeting with pension administrator and make sure that you are correct. She should be getting 16 years of service at whatever her salary is. That is how most pension systems work.

It's not logical but i'm confident especially since i have 8 years of 1/2 time to see where she's at NOW which is basically 4.08 "service years earned" ...

i'll set something up with the administrator ... good advice.

 

[green night]

If the pension is like Texas.... it is the highest paid years, not the last paid years...

But, since she is working 1/2 all the time, she does not have any high paid years...


I bet they have the restriction so someone does not work half for many years (say 20) and then work 3 full years to bump up their pension to the point that would match someone who worked full time the whole 23 years....



Also, she KNEW what she was getting when she signed up to work... so she agreed to the 1/4 prior to starting on day one.... kinda 'not fair' to try and make a fairness issue out of it now that she has been working there for a number of years....

It's not .... I'll put the 3 scenarios on 1 response.


Standard Full time worker ... 16 years full time. 70000 salary, multiplier 1.5. 16,800 annual pension.

My Wife (standard 1/2 time worker .... 16 years half time (8 service years earned) 35000 salary, multiplier 1.5. 4200 annual pension.

Having the last 3 years full time. She has 8 years of 1/2 time. Let's assume 2 more years of 1/2 time and 3 years of full time service. Total service 10 years of 1/2 time and 3 years of full time. = 8 service years earned. Pension factor 1.5. Multiply last 3 years of compensation = $70,000. Roughly $8,400 annual pension.

 

[Homebrew]

I don't know the first thing about all this, but I'll throw this thought out there:

For the 16 years of 1/2 time service, she is getting 8 full-time years of credit. Wouldn't it also follow that $35,000 earned over 16 years, would be equivalent of $70,000 over 8 years?

That is, are you sure her salary isn't also adjusted to an equivalent full-time basis?

 

[utrecht]

I stand corrected. It does appear shes getting penalized twice.

 

[Rustward]

You need to read the fine print or look for an estimator provided by your spouse's pension system.

My only experience is with DW's Texas TRS pension. The benefit is based on three highest years of salary. In order to get the full pension, the employee is required to have a predetermined (age plus years of service) in order to receive an "unreduced" pension. In DW's case, age + "years of service" must be greater than 80 to get the "unreduced" pension. That threshold(80, referred to as the "rule of 80") is based on when the employee entered the plan. It is higher than 80 (85 I believe) for newer employees. If DW had retired before reaching the "rule of 80", her pension would have been reduced.

So you need to research the "formula" that your spouse's pension uses, as well as the pension systems definitions of the variables that are part of the "formula", particularly "year of service". Do not assume that "year of service" means 12 months of teaching.

Most of these teacher pensions are similar, but they are far from identical. Research carefully.

Your comment about maxing salary in the last three years -- not exactly true if your spouse's pension system uses highest three years.

Read all the documentation and understand the definitions.

 

[Socal Tom]

It's not logical but i'm confident especially since i have 8 years of 1/2 time to see where she's at NOW which is basically 4.08 "service years earned" ...

i'll set something up with the administrator ... good advice.

I agree double check with the administrator. Are you sure the "salary" component isn't based off of the full time salary per the wages tables in the contract?
Tom

 

[Texas Proud]

It's not .... I'll put the 3 scenarios on 1 response.


Standard Full time worker ... 16 years full time. 70000 salary, multiplier 1.5. 16,800 annual pension.

My Wife (standard 1/2 time worker .... 16 years half time (8 service years earned) 35000 salary, multiplier 1.5. 4200 annual pension.

Having the last 3 years full time. She has 8 years of 1/2 time. Let's assume 2 more years of 1/2 time and 3 years of full time service. Total service 10 years of 1/2 time and 3 years of full time. = 8 service years earned. Pension factor 1.5. Multiply last 3 years of compensation = $70,000. Roughly $8,400 annual pension.

Good point... she can spike, but not equal to a full time the whole time there.....


Maybe they know that most people will try and work full time for the last 3 years to bring it up to 1/2...

 

[Chuckanut]

My pension system worked the same way initially. They halved not only one's pay but also the years of service. Halving one would be fair. Halving two was not, IMHO. Later the plan was changed so that if a teacher worked 1/2 time or more they got a full year of service. Less than that and they got 1/2 year of service. Thus, the pension worked out to be 'fair'.
Note: I don't know of one teacher who worked less than 1/2 time in real life.

Spiking? Well my state uses an average of the 5 highest earning years, so one needs a very long spike to make it work. Note: I don't know of one part-time teacher who ever worked 5 full time years to increase her pension, though it is possible.

This is another reason to give the pension funding money directly to the worker to be placed into tax advantaged accounts owned and controlled solely by the worker. Depending on others does not always work out.

 

[healthyandfun]

Rustward's advice is right on! Unfortunately, the rules are not in your wife's favor since she will probably never qualify for a full pension. In Texas, the reduction of a pension of a teacher with 19 or fewer years of service can be as much as 53%. Check the website for your state for all the rules and call the administrator more than once to verify your calculations. Rules do change. Texas is moving toward the pension being based on the 5 highest salaries (instead of 3). Good luck!

 

[green night]

https://www.michigan.gov/orsschools/0,4653,7-206-36450_36469---,00.html

link to overview ....

 

[clifp]

https://www.michigan.gov/orsschools/0,4653,7-206-36450_36469---,00.html

link to overview ....

Ok so I am reading this..

your years of service used to calculate your pension reflect the years, or fractions of years, you have worked in the DB plan for a Michigan public school. In general, you earn one year of service when you work 1,020 hours in a school fiscal year. No more than 30 hours can be credited in a one-week period if you're on a weekly payroll, or 60 hours if you're paid biweekly. For more information on how you earn service, click here.

Now if she is working less than 20 hours a week than her years of service is being reduced, but it seem proportional to me.. So for example if she is working 3 days a week 4 hours a day she is getting .6 years pension credit for each year she is working. So yes her pension will about ~1/4 of a full time teacher but she only worked 1/4 time..

 

[green night]

Ok so I am reading this..



Now if she is working less than 20 hours a week than her years of service is being reduced, but it seem proportional to me.. So for example if she is working 3 days a week 4 hours a day she is getting .6 years pension credit for each year she is working. So yes her pension will about ~1/4 of a full time teacher but she only worked 1/4 time..

In her case, she works full days (arrives 730am - leaves 330pm, has lunch, etc) three days one week and two days the next week. We can look back and it's been roughly .5 service each year. She gets half the sick, personal, half in service days, etc. They require her to do everything in half..... the point is I can assure you though it's 1/2 of what a full time teacher works.

 

[clifp]

In her case, she works full days (arrives 730am - leaves 330pm, has lunch, etc) three days one week and two days the next week. We can look back and it's been roughly .5 service each year. She gets half the sick, personal, half in service days, etc. They require her to do everything in half..... the point is I can assure you though it's 1/2 of what a full time teacher works.

I believe you. I am just saying that according the linked you provided if she works 1020 hours a year (1/2 time) she gets 1 year of pension credit for every year worked. So she should have 16 years * 1.5%/year which equals a pension of 24% of the average of her highest 3 consecutive earnings.