JANUARY 2019 - NC

Teachers’ and State Employees’ Retirement SystemSection 3:Qualifying for BenefitsVestingVested Deferred BenefitYou become vested in TSERS once you havecompleted a minimum of five years of membershipservice. This means that you are eligible to applyfor lifetime monthly retirement benefits based onthe retirement formula in effect at the time of yourretirement and the age and service requirementsdescribed in this handbook, provided you do notwithdraw your contributions. You may also be eligiblefor retiree health coverage. See page 28 for moreinformation on health coverage.If you leave TSERS for any reason other thanretirement or death, you can either receive a refundof your contributions, plus interest, or leave yourcontributions in TSERS and keep all the creditableservice you earned to that date.Service Retirement (Unreduced Benefits)You may retire with an unreduced service retirementbenefit after you: Reach age 65 and complete five years ofmembership service Reach age 60 and complete 25 years of creditable service Complete 30 years of creditable service at anyageEarly Retirement (Reduced Benefits)You may retire early with a reduced retirementbenefit after you: Reach age 50 and complete 20 years of creditable service Reach age 60 and complete five years ofmembership serviceYour early retirement benefit is calculated usingthe same formula as a service retirement benefitmultiplied by a reduction percentage based on yourage and/or service at early retirement. Becauseyour benefit may be paid over a longer period oftime than if you had waited until being eligible forservice retirement, your benefit will be reduced. Thetables beginning on page 12 show the effects thesereductions would have on your benefit.JANUARY 2019You may be entitled to receive a deferred benefit ata later date once you meet eligibility requirementsafter you have completed five years of membershipservice, provided you do not withdraw yourcontributions. Your benefit is calculated using theformula in effect on your retirement date. It is basedon your average final compensation and years ofcreditable service at that time.Refund of ContributionsIf you leave TSERS before you have five years ofmembership service, the only payment you canreceive is a refund of your contributions plus interest.State law prohibits us from making a refund earlierthan 60 days after you leave employment with anemployer that participates in TSERS. If you withdrawyour retirement contributions, you forfeit yourretirement service credit and rights to all benefitsassociated with the service for that time period,including medical coverage through the State HealthPlan, if applicable.However, if you leave state employment and you donot take a refund, you will retain your benefits andrights should you return to state service at a latertime.Set by state law, the interest credited on yourcontributions and paid with a refund is four percentcompounded annually on your prior-year endingbalance.Your Retirement Benefits8

Teachers’ and State Employees’ Retirement SystemSection 3:Qualifying for BenefitsTo receive a refund, complete Form 5 (WithdrawingYour Retirement Service Credit and Contributions).transferred service cannot be counted twice for thesame time period.Reciprocity Between Retirement SystemsA transfer can affect your eligibility for State HealthPlan coverage under the Retirement Systems. Formore information about the State Health Plan, seepage 28.Any credit you may have in the following RetirementSystems may be counted along with your credit inTSERS in order to determine your eligibility for areduced or unreduced benefit: Legislative Retirement System (LRS) Consolidated Judicial Retirement System(CJRS) Local Governmental Employees’ RetirementSystem (LGERS)However, only your creditable service in TSERSis used in computing the amount of your benefit inTSERS. Creditable service in any other system isused to compute benefits from that system.In addition, for members first hired prior to January1, 2021, any service credit you have in the UNCOptional Retirement Program may be added to yourcreditable service in TSERS in order to determineeligibility for benefits from TSERS.Transferring Service & ContributionsBetween SystemsAfter completing five years of membership servicein TSERS, you may transfer contributions andcreditable service from CJRS and LRS to TSERS.Contact us for additional information and instructions.Required Distributions After Age 70½In most cases, TSERS is required to pay benefitsto non-retired members with open TSERS accountsby April 1 of the year following the year in whichthe member reaches age 70½ or ceases to be anemployee, whichever is later. Members who arevested (five or more years of membership service)who fail to complete the retirement process willreceive a monthly retirement benefit based on themaximum allowance. Non-vested members who failto complete a refund application will receive a refundof their contributions and interest by April 1 of theyear following the year in which the member reachesage 70½.You can transfer your contributions and creditableservice between TSERS and LGERS as long asyou are an eligible member of the system to whichyou are transferring, do not receive a refund of yourcontributions from the system from which you aretransferring and file Form 5TR (Transferring Serviceand Contributions Between Systems).Transferred creditable service counts towardyour eligibility for a monthly benefit and is used tocompute the amount of your benefit. OverlappingJANUARY 2019Your Retirement Benefits9

Teachers’ and State Employees’ Retirement SystemSection 4:How Your Benefit is CalculatedRetirement Formula:Your annual benefit 1.82%of average final compensationxyears and monthsof creditable serviceAverage final compensation is the average of yoursalary during your four highest-paid years in a row. Ifyour four highest-paid years in a row include a finalpayment for unused vacation leave and/or proratedlongevity, your average final compensation may beincreased by the extra payment(s). Final payments,if any, for unused sick leave or reimbursements forexpenses are not includable in your average finalcompensation.to TSERS, provided you have not withdrawn yourcontributions. It also includes credit for eligiblepurchased service and eligible unused sick leavethat is converted to creditable service at retirement.See pages 22-24 for more details.Service Retirement Calculation ExampleAssume employee Mary Benson works for 10months per year and retires at age 60 with 32years and two months of creditable service and anaverage final compensation of 40,954. BecauseMary has more than 30 years of creditable service atretirement, she receives her basic benefit of about 24,000 a year (about 2,000 monthly) for the restof her life under the maximum allowance. Monthlypayments would stop at her death.The following steps show how we calculate Mary’sbenefit. Use the spaces in the left-hand column to fillin your figures for an estimate of your benefit.Creditable service is the total of all servicecredit that counts toward retirement. It includesmembership service for any period you contributeJANUARY 2019Your Retirement Benefits10

Teachers’ and State Employees’ Retirement SystemSection 4:How Your Benefit is CalculatedStep 1Add your salary during your4 highest-paid years in a rowThen, divide the total by 4to get your average finalcompensationStep 2YouYear 1 Year 2 40,484Year 3 41,350Year 4 41,994Total 163,816Step 1 39,988 40,954 40,954 x .0182Total 32.2 yearsDetermine your creditable service(see pages 22-24)Calculate your annualbenefit* by multiplyingStep 2 by Step 3Step 5Calculate yourmonthly benefit* bydividing Step 4 by 12x .0182 745.36Step 3Step 4/ 4divide by 4Average Final CompensationMultiply Step 1 by .0182to apply the retirement formula*(see page 10)exampleStep 2 Step 3 745.36xx32.2TotalAnnualBenefit 24,000.59Step 4 24,000.59divide by 12TotalMonthlyBenefit / 12 2,000.05(This is an estimate of the payment you willreceive each month before taxes or anyother deductions.)*Remember, if you retire early, these numbers will change. See next page for how to calculate early retirementamounts.JANUARY 2019Your Retirement Benefits11

Teachers’ and State Employees’ Retirement SystemSection 4:How Your Benefit is CalculatedEarly Retirement Reduction PercentagesYour age at retirement is an important factor in determining your monthly benefit. As you saw on page 8, if youdo not meet the requirements for a full service retirement, you may still retire early, but you will receive a reducedmonthly benefit for your lifetime.Early retirement benefits are calculated using the same formula as a service retirement multiplied by a reductionpercentage based on your age and/or service at early retirement. If you are between ages 60 and 65, with less than25 years of creditable service, your early service retirement benefit will be reduced to the following percentages. Ifyou are between birthdays when payments start, the reduction will be adjusted proportionately.If you are this agewhen payments startYou receive this percentageof your benefit64. . . . . . . . . . . . . . . . . .63. . . . . . . . . . . . . . . . . .62. . . . . . . . . . . . . . . . . .61. . . . . . . . . . . . . . . . . .60. . . . . . . . . . . . . . . . . .97%94%91%88%85%If you are between ages 50 and 59, with less than 30 years of creditable service, your early retirement will bereduced to the percentages shown in the table below.AgeYears of Creditable UARY 2019Your Retirement Benefits12

Teachers’ and State Employees’ Retirement SystemSection 4:How Your Benefit is CalculatedEarly Retirement Calculation ExampleAssume employee Fred Wise works 12 months per year and retires at age 61 with 24 years and three monthsof creditable service and an average final compensation of 40,954.Here is how we calculate this benefit 40,954.00x x .0182745.3624.2518,074.98(average final compensation)(creditable service)Now apply the early retirementreduction percentage from page 12. x 18,074.98(percentage at.88 age 61)15,905.98Fred receives a benefit under the maximum allowance of about 15,905 a year (about 1,325 monthly). Hispayment will start at age 61 and continue for the rest of his life.Assume, however, that Fred is age 59 instead of age 61. With 24.25 years of creditable service, his earlyservice retirement reduction percentage is 0.80 instead of 0.88. In this case, Fred receives a benefit under themaximum allowance of about 14,460 a year (about 1,205 a month). His payment will start at age 59 andcontinue for the rest of his life.JANUARY 2019Your Retirement Benefits13

Teachers’ and State Employees’ Retirement SystemSection 4:How Your Benefit is CalculatedExamples of Benefits PaidThe following chart shows the approximate monthly benefit paid under the maximum allowance option atvarious salary levels, depending on age and creditable service. These are only examples. Your own benefit iscalculated individually and depends on your age, creditable service and average final compensation.Monthly Retirement Benefit Under Maximum AllowanceAverage Final CompensationAgeYrs. of Service ,00030,0005020 /A40 3,4383,0572,6752,2932,1021,9111,7191,5281,3371,146 3,4113,0332,6542,2752,0851,8951,7061,5161,3271,137 4,0953,6403,1852,7302,5022,2752,0471,8201,5921,365 JANUARY 2019Your Retirement Benefits14

Teachers’ and State Employees’ Retirement SystemSection 4:How Your Benefit is CalculatedBenefit LimitationsOccasionally, a retiree may be subject to the benefitlimitations described below: Contribution-Based Benefit CapAs a member of TSERS, you contribute sixpercent of your monthly income toward yourretirement. If you receive significant salaryincreases in the years before retirement orover the course of your career, your monthlyretirement benefit at retirement may exceedwhat your contributions would be expectedto fund. Significant late-career promotions,conversion of benefits into compensation, andleave payouts at retirement may also cause yourmonthly retirement benefit to exceed what yourcontributions would be expected to fund. TheContribution-Based Benefit Cap was created toprotect this system for current and future retirees,by providing a method for the payment of theseunforseen costs.If you retire on or after January 1, 2015, with anaverage final compensation (AFC) of 100,000or more (adjusted annually for inflation), you mayfall under a contribution-based benefit cap.If you were first hired before January 1, 2015,your last employer will be required to pay theadditional contribution if it is determined that yourallowance is in excess of the cap and is subjectto an adjustment. TSERS will notify your employer and will provide a statement of the cost of theadditional contribution required to pay for yourbenefit in excess of the cap.a benefit reduced to the benefit cap unless youpay the additional contribution. TSERS will notifyyou and will provide a statement of the cost ofthe additional contribution required to pay foryour benefit in excess of the cap, along with thedeadline to submit permit. IRC Section 415(b) Annual PensionBenefit LimitIf you are a highly compensated employee, yourTSERS benefits may be subject to the InternalRevenue Code (IRC) section 415(b) annual pension benefit limit. The determination of whetheryour retirement benefit will be subject to the limitcan only be made at retirement. The limit varies every year, so your benefit could be affectedone year but not the next. The limit varies eachyear and is set by the IRS. The limit is affectedby many factors that were established by the IRSthat may or may not apply to a particular individual.The General Assembly established a QualifiedExcess Benefit Arrangement (QEBA) fund to paythe part of a retiree’s retirement allowance thatexceeds the limit. Members hired prior to January 1, 2015, are eligible to receive benefit payments from the QEBA fund.If you were first hired on or after January 1, 2015,your employer may choose whether or not topay this additional contribution; if your employerchooses not to pay, you will be required to acceptJANUARY 2019Your Retirement Benefits15

Teachers’ and State Employees’ Retirement SystemSection 5:Your Benefit Payment OptionsAt retirement, you must elect one of the payment options described on page 18. On average, the paymentoptions are mathematically equal to one another. That is, each option is calculated so that its total value isthe same as the value of the other options if you and the beneficiary you name (if any) to receive a monthlypayment after your death live your expected life spans. The monthly payment amounts will differ based on theage of the beneficiary you select, if any.Considering Your OptionsFirst, decide whether you need a payment option that provides a monthly benefit to a beneficiary after yourdeath. If you do not select one of these options, all of your retirement benefits will be used to provide you witha lifetime monthly payment that stops at your death.Your choice of payment options is personal and should take into account your needs during retirement and theneeds of a dependent, if any, after your death. Neither the payment plan selected by a co-worker nor the oneselected by the largest number of retirees should have any effect on your personal decision.Permanent DecisionYou cannot change your selected payment option once you cash your first retirement check or after the 25th ofthe month following the month your first check is mailed (whichever is earlier) except under one of the followingtwo conditions: If you select an option that provides a monthly benefit to your spouse as a beneficiary after your death(Option 2, 3, 6-2 or 6-3) and later become divorced from that spouse. If you are rehired in a position covered by TSERS and contribute to your new account for at least threeyears.JANUARY 2019Your Retirement Benefits16

Teachers’ and State Employees’ Retirement SystemSection 5:Your Benefit Payment OptionsHere are Your Benefit Payment Options: Maximum AllowanceWhen you retire with a full service retirementbenefit, your basic benefit is the maximum allowance and is calculated under the formula onpage 8. If you retire early, your maximum allowance is calculated using the same formula, whichis then reduced for early retirement. In eithercase, you will receive your maximum allowancefor as long as you live. All monthly paymentsstop at your death. Option 2: 100% Joint & Survivor You receive reduced monthly payments forlife. After you die, your monthly survivor beneficiary receives the same amount monthly forlife. Option 3: 50% Joint & Survivor You receive reduced monthly payments for lifewhich are slightly larger than the payments inOption 2. After you die, one half of your payment continues to your monthly survivor beneficiary forlife. Option 6–2: Modified Joint & Survivor(combination Maximum Allowance andOption 2) You receive reduced monthly payments forlife. After you die, your monthly survivor beneficiary receives the same amount monthly forlife. However, if your beneficiary dies before you do,your monthly payments increase to the amountpayable under the maximum allowance.JANUARY 2019 Option 6–3: Modified Joint & Survivor(combination Maximum Allowance andOption 3) You receive reduced monthly payments forlife. After you die, one half of your payment continues to your monthly survivor beneficiary forlife. However, if your beneficiary dies before youdo, your monthly payments are increased tothe amount payable under the maximum allowance.It is important to note that if you select a benefitpayment option that names a beneficiary, you shouldimmediately notify the Retirement Systems if thatperson dies before you.NOTE: Under Options 2, 3, 6-2 and 6-3, you mayname only one beneficiary to receive a monthlysurvivor benefit after your death. You may notchange your survivor beneficiary after you retireexcept under one of the following circumstances: If you named your spouse as survivor benefici

Disability Income Plan of North Carolina (DIPNC) 33 TSERS Disability Retirement Benefits 33 SECTION 13 DEATH BENEFITS 34 Active Employee Death Benefits 34 Retiree Death Benefits 35. JANUARY 2019 Your Retirement Benefits 5 DISCLAIMER: The availability and amount of all benefits you might be eligible to receive is governed by North Carolina law. .