Partial Lump-Sum. Option Plan. For members enrolled in the. Defined Benefit Plan Combined Plan

Transcription

1 Partial Lump-Sum Option Plan For members enrolled in the Defined Benefit Plan Combined Plan

2 Partial Lump-Sum Option Plan Overview Table of Contents Partial Lump-Sum Option Plan Overview...1 Member cost of PLOP...2 Estimating the cost of PLOP...3 Payment of monthly retirement benefits...6 Payment of PLOP...6 Items to consider...7 Employment after retirement and a PLOP payment...7 Special tax provisions...8 Sixty-day rollover option...8 Purchasing service credit and PLOP...9 Contacting STRS Ohio Publications available The Partial Lump-Sum Option Plan (PLOP) allows you to take an amount from six to 36 times the monthly Single Life Annuity (SLA) benefit in a lump sum at retirement. The PLOP amount selected within this range must be in $1,000 increments. Monthly benefits still begin with your retirement date and are payable for life, but they are reduced to reflect the amount taken in a lump sum. A plan of payment for your lifetime retirement benefits Single Life Annuity, Joint and Survivor Annuity or Annuity Certain must be selected for determining the remainder of your lifetime benefit. The one-time lump-sum payment may be: Directly rolled over into a traditional individual retirement account (IRA), a Roth IRA, an eligible employer plan or another qualified plan. Paid to you through direct deposit to a financial institution named at retirement. The payment will be subject to any federal taxes, state taxes and penalties due. Twenty percent will be withheld for federal income taxes, but this may not be sufficient to pay the taxes due. Upon request, STRS Ohio will withhold Ohio income tax. A combination of the two payment options above. If you are enrolled in the Combined Plan, at retirement you can select a PLOP payment for the defined benefit portion of your account, starting at age 60 or later. This brochure is a summary written in plain language for use by STRS Ohio members. It is not intended as a substitute for the Ohio Revised Code or the Ohio Administrative Code or for any state or federal law or regulation, nor will its interpretation prevail should a conflict arise between it and any law or regulation. More information may be obtained by contacting STRS Ohio toll-free at

3 Member cost of PLOP The Defined Benefit Plan and Combined Plan tables below show the amount a monthly benefit is reduced for each $1,000 of lump-sum payment. For example, a 55-year-old Defined Benefit Plan participant retiring July 1, 2016, who receives a $10,000 lumpsum payment, would have his or her benefit reduced $6.64 a month for life ($ = $66.40). Age Defined Benefit Plan PLOP Cost Factor Table* For retirement dates of Aug. 1, 2013, and later Reduction per $1,000 Age Reduction per $1, $ $7.09** **Used in example on Page 4. Estimating the cost of PLOP The worksheet on Pages 4 5 provides an example to help you estimate the cost of taking a PLOP payment. When complet ing your own example, be sure to use the appropriate PLOP Cost Factor Table (Defined Benefit Plan or Combined Plan). In addition, Defined Benefit Plan members can estimate benefits with a PLOP payment by using the service retirement calculator at Defined Benefit or Combined Plan members can also request a service retirement estimate by calling STRS Ohio toll-free at Age Combined Plan PLOP Cost Factor Table* Reduction per $1,000 Age Reduction per $1, $ $ *These factors are also used for Defined Benefit Plan and Combined Plan survivor benefit recipients who have elected a retirement-based benefit. Currently, this benefit is payable when a member dies before retiring with STRS Ohio but after meeting eligibility for service retirement. See the Survivor Benefits brochure for additional information

4 In the example estimate below, a 60-year-old member in the Defined Benefit Plan with a $3,000 per month Single Life Annuity (SLA) is eligible to choose a lump-sum payment from $18,000 $108,000 (six 36 times the monthly SLA benefit) and elects to take a $50,000 lump-sum payment. The cost per $1,000 of lump-sum payment for a member retiring July 1, 2016, at age 60, is $7.09 per month. This Defined Benefit Plan member s monthly cost for a $50,000 payment is 50 $7.09 or $ To determine the adjusted benefit, subtract $ from the original $3,000 SLA. The member would receive $2, per month after the lump-sum payment and could take a further reduction to provide survivor benefits through a Joint and Survivor Annuity or Annuity Certain. The member must choose a plan of payment that will be used to finalize the lifetime retirement benefit. PLOP Estimate Worksheet Defined Benefit Plan Participant Retirement age of member in example: 60 Retirement date: July 1, 2016 I. Calculate PLOP range II. III. Example: $ 50,000 PLOP 1. Single Life Annuity (SLA) $ 3, $ 2. SLA times 6 (minimum PLOP) $ 18, $ 3. SLA times 36 (maximum PLOP) $ 108, $ 4. Your PLOP amount (must be within minimum and maximum range) Calculate cost of PLOP 5. PLOP reduction factor based on age at retirement (from table on Page 2) 6. PLOP amount divided by $1,000 (PLOP amount $1,000) 7. Monthly cost of PLOP (line 5 line 6) Calculate PLOP-adjusted benefit $ 50, $ $ 7.09 $ $ $ $ $ 8. Single Life Annuity (SLA) $ 3, $ 9. Cost of PLOP from line 7 $ $ 10. PLOP-adjusted SLA (line 8 line 9) $ 2, $ 11. Plan of payment option rate the percent of SLA used to determine a Joint and Survivor Annuity or an Annuity Certain plan of payment* 12. PLOP-adjusted plan of payment amount (line 10 line 11) Your example: $ PLOP 90.94% % $ 2, $ *The plan of payment option rate may be found on retirement estimates you receive from STRS Ohio or by calculating an estimate on the STRS Ohio website at

5 Payment of monthly retirement benefits STRS Ohio issues retirement benefits on the first banking day of each month. Most service retirees who file a Service Retirement Application at least 30 days before their effective retirement date receive a partial monthly benefit payment on the date of their retirement. Monthly retirement benefits are paid through direct deposit to the financial institution listed on your Service Retirement Application. Payment of PLOP A PLOP payment will be paid 91 days after your retirement date or the date all necessary information is received and your retirement benefit is finalized, whichever is later. A PLOP payment from STRS Ohio can be processed three ways. You can have: 1. All of the PLOP payment paid by direct rollover to a traditional individual retirement account (IRA), a Roth IRA, an eligible employer plan or another qualified plan to avoid the immediate tax withholding and possible penalty. 2. All of the payment paid directly to you. 3. Some portion paid as a rollover with the remaining amount paid to you. The PLOP payment will be electronically deposited to the same financial institution you listed to receive your monthly benefits, unless you elect to roll over the PLOP payment to a qualified plan. If you are married and elect to take a PLOP payment, spousal consent is required on your Service Retirement Application. Items to consider The decision to take a lump-sum payment at retirement is a serious one and should be made with great care. Before considering a lump-sum payment, it is important to estimate how much it will reduce the monthly retirement benefit. The monthly benefit reduction due to the PLOP is permanent. Future benefit enhancements and costof-living increases, if eligible, will be calculated on the reduced benefit. Members should carefully consider the reduced benefit they will receive after taking the lump-sum payment to be sure they can still meet future financial obligations. Remember, the monthly benefit will be further reduced by federal and state taxes and, if applicable, health care, dental and vision premiums, and deductions for the optional retiree-funded death benefit. Before electing a PLOP, an individual counseling session with an STRS Ohio benefits counselor is strongly recommended. Employment after retirement and a PLOP payment Employment in a public position in Ohio is restricted during the first two months following retirement. If you are employed by only one public employer at the time of retirement, you must wait two months after your date of retirement to return to public employment. Retirees who return to public employment within two months after their retirement date must forfeit their monthly benefit for each month worked during the violation period. The amount a retiree forfeits by violating the two-month waiting period is the Single Life Annuity monthly benefit calculated before the reduction for a PLOP payment and a Joint and Survivor Annuity or Annuity Certain, if selected. The difference between the actual monthly benefit amount and the pre-plop Single Life Annuity benefit will be deducted from future monthly benefits

6 Special tax provisions Before selecting a PLOP payment, it is important to understand the tax implications of receiving a lump sum at retirement as well as the restrictions on rollovers. Under federal tax laws, lump-sum payments paid directly to you that are eligible for rollover are subject to a mandatory 20% federal tax withholding. In addition, you may be subject to a 10% penalty for early withdrawal. This penalty does not apply if you withdraw the lump sum after you reach age 59-1/2, or you have separated from service and have taken payment in or after the year in which you turned age 55. If you are age 70-1/2 or older, you may be subject to the required minimum distribution rules established by the Internal Revenue Code and will not be eligible to roll over the entire PLOP amount. A PLOP payment is also subject to Ohio income tax for residents of the state and may be taxable in the state of residence for non-ohio residents. Upon request, STRS Ohio will withhold Ohio income tax from your PLOP payment. STRS Ohio is unable to withhold income tax for any other state. For further information regarding special tax provisions, consult your tax advisor. If you elect a PLOP payment, a 1099-R form will be mailed to you in January of the year following your PLOP payment or can be accessed online via an Online Personal Account. Sixty-day rollover option If you initially choose to have a PLOP payment paid directly to you and later decide to roll it over to a qualified plan, you can do so up to 60 days after you receive the PLOP payment. You can roll all or part of the PLOP payment to an eligible employer plan that accepts rollovers. The rollover will need to be done by you, not STRS Ohio. The portion of your payment that is rolled over will not be taxed until you take it out of the qualified plan. You may roll over up to 100% of the eligible rollover distribution (subject to IRS required minimum distribution regulations), including an amount equal to the 20% of the taxable portion that was withheld for federal tax. If you choose to roll over 100%, you must find other funds within the 60-day period to contribute to the qualified plan to replace the 20% that was withheld. Conversely, if you roll over only the 80% of the payment that you received, you will be taxed on the 20% that was withheld for federal tax. Purchasing service credit and PLOP Many members are eligible to purchase service credit that will increase their monthly benefit. The availability of a PLOP can be a useful tool to help determine if purchasing credit is worthwhile. Example: Assume you are planning to retire on or before July 1, 2016, at age 60 with years of STRS Ohio credit and a final average salary (FAS) of $50,000. Also assume you have 3.00 years of withdrawn STRS Ohio service credit which you can restore at a cost of $20,000. Without the purchased credit, your monthly Single Life Annuity benefit (with years of service credit) would be $2,841. The benefit is calculated by multiplying the years of contributing service credit by 2.2% of the FAS. 2.2% $50,000 $34, % % $34,100 $2,841 With the purchase of 3.00 years of withdrawn service credit, your monthly Single Life Annuity benefit (with years of credit) increases by $275, to $3, % $50,000 $37, % % $37,400 $3,116 If you plan to purchase credit, you may wish to use a PLOP payment to replenish funds used to buy the service credit. This may be more advantageous if the increase in the monthly benefit resulting from the purchase is more than the monthly reduction to the benefit for the PLOP payment. For example, the PLOP reduction for the 60-year-old Defined Benefit Plan member (retiring July 1, 2016) on Page 4 is $7.09 for each $1,000 of PLOP payment. Therefore, a $20,000 PLOP payment would result in a $142 (20 $7.09) monthly reduction. As noted above,

7 the purchase of this member s three additional years of service credit resulted in a monthly increase of $275. After taking a $20,000 PLOP payment, this member would have a net monthly increase of $133 ($275 $142). A member may not want to take a PLOP payment if the minimum payment is considerably larger than the cost of the service, and the monthly benefit after the PLOP payment will be lower. For example, a member may be eligible to purchase one year of service that would increase the monthly benefit by $90; however, the minimum PLOP payment may cause a $150 reduction, resulting in a net decrease of $60. If you are purchasing service credit, all purchasable service must be certified and a cost statement issued before your retirement date. The service must be purchased within three months after your retirement date. PLOP payments will be paid 91 days after your retirement date or the date all necessary information is received and your retirement benefit is finalized, whichever is later. Because credit must be purchased before the PLOP payment is issued, you must use funds from some other source to purchase credit and use the PLOP payment to replenish those funds. There are two ways you can use the PLOP payment to replenish funds used to purchase credit: 1. You can roll money from an IRA, qualified plan or eligible employer plan to purchase credit and take a PLOP payment to cover the amount needed to replenish the account. 2. You can take a PLOP payment to pay yourself back directly for any service credit purchased. Keep in mind that a PLOP payment made directly to you is subject to a 20% federal tax withholding. Therefore, you may consider requesting a PLOP payment amount that also covers the taxes that will be withheld. If you plan to purchase credit, please review the Purchasing Service Credit brochure and talk to an STRS Ohio benefits counselor for further details on purchasing service credit, certification of credit and payment options. Contacting STRS Ohio By phone: (toll-free) Our dedicated team of member service representatives is available to answer your questions when you need them. Call Monday Friday, 8 a.m. 5 p.m. When you need more detailed information, our benefits counselors can provide you with one-onone consultation in our Columbus office, through a TeleConference or during field counseling sessions held throughout the state each year. On the Internet: A quick way to access information is through STRS Ohio s website, where you will find the items below and much more. Benefit information (while teaching and in retirement) Online Personal Account information Videos and on-demand webinars Counseling and seminar information STRS Ohio publications and forms Benefit calculators By ContactUs@strsoh.org news service STRS Ohio updates members about legislation, benefits and other issues affecting the STRS Ohio membership through our news service eupdate. All members with an on file receive the eupdate

8 Publications available Call toll-free to request the following STRS Ohio publications: Account Withdrawal Comprehensive Annual Financial Report Death Benefits Disability Allowance Disability Benefits (Combined Plan) Disability Retirement Educational Opportunities Employment After Retirement Partial Lump-Sum Option Plan Preparing for Retirement Purchasing Service Credit Service Credit Guidelines Service Retirement and Plans of Payment Survivor Benefits Understanding Your STRS Ohio Benefits Plan Summary These publications also are available on the STRS Ohio website at

9 15-190, 6/15/23.5M State Teachers Retirement System of Ohio 275 East Broad Street Columbus, OH