A TRS member may receive an unreduced standard annuity at: Age 65 with 5 or more years of service, or Combination of age and years of service equaling or exceeding 80 (example: age 55 with 25 years of service equals 80) and be at least 50 years old To assist you in planning, the following formulas are used to determine the basic life-time retirement annuity (maximum standard annuity) and to calculate certain death and disability benefits.
CALCULATING A RETIREMENT ANNUITY
Annual compensation is defined as "salary and/or wages paid or payable to a member during the school year." Any expenses, allowances, bonuses, fringe benefits and payments for unused vacation or sick leave are excluded.
YEARS of SERVICE x PERCENTAGE FACTOR x AVERAGE HIGHEST 3 YEARS = YEARLY MAXIMUM STANDARD ANNUITY
28 years x 2.3% = 64.4% x $50,000 = $32,200 Maximum Standard Annuity for 2 monthly benefit amounts of $2,683
RETIREMENT PLANS
In this example, a member may select any one of 5 payment plans at the time of retirement. The following examples are based on the retirement formula above, a 55 year old member and a 55 year old beneficiary.
Maximum Standard Annuity Monthly Benefits
$2,683 per month throughout the retiree's lifetime. Payments cease upon the death of the retiree.
Option 1 - 100% Joint Annuity*
$2,483 per month throughout the retiree's lifetime. Upon the retiree's death, the same payment continues during the life of the primary beneficiary named at the time of retirement and is based on the age of the beneficiary.
If the primary beneficiary dies before the retiree, the retiree's future monthly annuity payments will increase to the amount of the standard maximum annuity ($2,683) as if the member had elected the maximum standard monthly benefit at time of retirement. This is often known as the "pop-up provision."
Option 2 - 50% Joint Annuity*
$2,579 per month throughout the retiree's lifetime. Upon the retiree's death, one-half of this payment ($1,289) continues during the life of the primary beneficiary named at time of retirement. This is also subject to the "pop-up provision" (see explanation under Option 1).
Option 3 - Life with Payments Guaranteed for 60 Months
$2,677 per month throughout the retiree's lifetime. If the retiree dies within 60 months after the date of retirement, payments are made to the primary beneficiary (or beneficiaries) for the remainder of the 60 months.
Option 4 - Life with Payments Guaranteed for 120 Months
$2,657 per month throughout the retiree's lifetime. If the retiree dies within 120 months after the date of retirement, payments are made to the primary beneficiary (or beneficiaries) for the remainder of the 120 months.
Option 5 - 75% Joint Annuity*
$2,530 per month throughout the retiree's lifetime. Upon the retiree's death, three-fourths of this payment ($1,897) continues during the life of the primary beneficiary named at time of retirement. This is also subject to the "pop-up provision" (see explanation under Option 1).
*Options 1, 2 and 5 are calculated based on the age of the beneficiary.
PARTIAL LUMP SUM OPTION (PLSO)
The 76th Texas Legislature established the Partial Lump Sum Option (known as the PLSO) for those TRS members who are eligible for unreduced retirement benefits (not for those electing early age retirement) after September 1, 1999, and those not participating in the DROP (Deferred Retirement Option Plan). Through this new program, qualified members may select a partial lump sum distribution in addition to a standard or optional retirement annuity when they retire.
Members may select a partial lump sum distribution not to exceed an amount equal to 36 months of a standard retirement annuity. When this option is selected, the member's annuity will be actuarially reduced to reflect that distribution and will be computed so that no actuarial loss results to TRS. This will be explained further in the lecture. NOTE: This is a welcome windfall for an educator.
While there are three options to take, as a 12, 24 or 36 month PLSO and multiple payment dates are available, it is often best to maximize your PLSO and move these funds (known as a "roll over") as pre-tax to an income-producing fund. By utilizing at least a moderate fund investment, an educator can often offset most or all of the actuarial reduction of the TRS annuity.
This also offers tremendous equity available as one ages and needs to boost retirement income. Therefore, in most cases, it will take a minimum of 36 years of receiving TRS benefits to receive the same benefit as can be received through the investment of PLSO funds. The lecture will assist you to understand these numbers.
HIGHLIGHTS of the 1999 -2003 TRS CHANGES
- Provides for the DROP program, allowing faculty to lock their retirement, continue working past their expected retirement age (for up to 5 additional years) and accrue an amount in excess of the standard TRS annuity, which is made available to the member upon final retirement. While there is no actuarial reduction in the DROP, those considering starting DROP will usually find the PLSO more beneficial.
- In the event the TRS member is deceased after retirement, both DROP and PLSO will have provided funds early which would have otherwise been lost upon the death of the member.
- The regulations regarding the ability to "buy back" years of service are less stringent, effective January, 2002. For example, most members with 7 or more years can buy up to 3 more years and out of state years can be bought easily. Also allows transfer of a 403(b) account to TRS to "buy back" certain years.
- Provides a lump sum death benefit of $160,000 for an active TRS member employed by a school district who dies from physical assault during the performance of regular duties.
- Health care programs (TRS-Active Care) are available and long term care benefit programs are offered to those covered by TRS and their families.
- Authorizes certain retirees to return to work full-time in acute shortage areas without reduction of the TRS annuity provided there has been a 12 month break in service since retirement.
- Retire/Rehire - Also allows many educators to return to work full-time with at least 6 TRS monthly annuity payments per year. (Contact TRS, your district or our office at 800.950.1829 for details)
DEATH and SURVIVORS BENEFITS for ACTIVE TRS MEMBERS
Active TRS members are covered by TRS death benefits the first day of TRS-covered employment. Upon death of a TRS member, the beneficiary may select one of the following plans:
1. An amount equal to twice the annual rate of compensation for the school year in which the death of the TRS-covered member occurred or the year immediately preceding, up to a total of $80,000.
2. Sixty monthly payments equal to the standard annuity without reduction for age. This payment plan is available to beneficiaries of active TRS members with 5 or more years of TRS service.
3. A lifetime annuity equal to an Option 1 retirement plan, calculated as if the TRS member retired the month prior to death. This plan is available only to beneficiaries of active TRS members who had five or more years of TRS service but is not available to joint beneficiaries.
4. An amount equal to accumulated contributions in the account of the decreased TRS member.
5. A lump sum payment of $2,500 to a beneficiary spouse plus $200 per month for life, when the beneficiary spouse reaches the age of 65.
DEATH and SURVIVORS BENEFITS for RETIRED TRS MEMBERS
Usually beneficiaries choose to receive $10,000, although in some cases other alternatives may be more favorable. The TRS member must designate the beneficiary on a form prescribed by and received by TRS prior to the death of the TRS member. It is not necessary that the beneficiary designated be the same beneficiary designated to receive an optional form of annuity.
EARLY RETIREMENT
Early age retirement is allowed to those at least 55 with 5 or more years of TRS service or below the age of 50 with 30 or more years of TRS service. Suffice it to say that there are various "reduced" formulas for those not meeting regular retirement requirements but who are eligible for early retirement, with at least age 55 and 20 years of service being the least penalized. Otherwise, you are entitled to the return of your TRS contributions
CHANGING A BENEFICIARY AFTER RETIREMENT
Changing the beneficiary when a member has retired under Option One, Option Two or Option Five Retirement Plans
Once a TRS member has named a beneficiary for a joint and survivor annuity and retired, changes in that beneficiary may be made as long as all of the following conditions are met:
The beneficiary designation may be changed only one time. TRS will pay a joint and survivor annuity to the new beneficiary for the shorter of: (a) the remaining life expectancy of the original beneficiary or (b) the remainder of the new beneficiary's life.
Please note, it is possible that no annuity payments will be paid to the new beneficiary if the TRS retiree lives longer than the remaining life expectancy of the original beneficiary. When changing beneficiaries, it is not possible to guarantee payment to the new beneficiary for life.
If the previous beneficiary is a spouse or former spouse, consent of that beneficiary or a certified copy of an order by the court with jurisdiction over the marriage ordering a change of beneficiary is required. If the previous beneficiary is not the spouse or former spouse, simply complete the change of beneficiary for a continuing annuity and submit to TRS. For the change to be effective, it must be filed with TRS before the death of the retiree. The designation of a new beneficiary for death and survivor benefits will not change the beneficiary of a joint and survivor annuity.
Changing the beneficiary when a member has retired under Option Three or Option Four Retirement Plans
Members who elect the Option Three or Four retirement plan may name either single or multiple beneficiaries. Retirees may change the beneficiaries at any time during the guaranteed period.
TRS-Care
TRS-Care offers comprehensive health coverage at a reasonable cost for retired members of participating school districts for most retirees and for the disabled. Some of the more frequent new eligibility requirements for those who retire after September 1, 2004 follow.
A retiree cannot be eligible for ERS, UT or A&M System health benefit coverage. Service retirees must meet one of four standards to be eligible. The three standards which apply most often are outlined below:
1.
- be at least age 65 and
- have taken a TRS service retirement and have at least 10 years of service credit in the system, which may include up to 5 years of military service credit but which may not include any other special service purchased.
2.
- have taken a TRS service retirement and have at least 10 years of service credit in the system, which may include up to 5 years of military service credit but which may not include any other special service purchased and meet the TRS- Care Rule of 80.
3.
- purchase service credit that was credited by August 31, 2003 (excludes all withdrawn, unreported, substitute and transferred ERS service credit) and
- have the sum of age, plus service credit for actual service in Texas public schools or higher education (including all purchased withdrawn, unreported and substitute service credit and transferred ERS service credit), plus any other purchased service credit that was created by August 31, 2003, equal or exceed 80 and
- at the time of retirement, have at least 10 years of Texas public school or higher education service credit, 5 of which can be out-of-state service credit, so long as the out-of-state service was credited by August 31, 2003 and
- take a normal age service retirement, as determined by the TRS pension law, by August 31, 2009 (early retirement does not meet this requirement).
Service retirees who retire after September 1, 2004 under either number 1 or 2 and who participated in the Deferred Retirement Option Program (DROP) may use any years of service credit that they would have received had they not participated in DROP.
Expenses include charges for medically necessary hospital services, physician's care, diagnostic and laboratory procedures, durable medical equipment and prescriptions.
There are three tiers of coverage, depending on deductible and co-pay amounts. Dependent benefits, in some cases, may be added later, and there is coordination with Medicare, which brings lower costs, if and when you are eligible at age 65. This is an abridged TRS-Care description - see the TRS handbook, the TRS-Care handbook or the TRS website for more information.
PURCHASE OF SPECIAL SERVICE CREDIT
In addition to earning service credit while employed by and performing service for a TRS-covered employer, TRS members may purchase service credit for other specified types of service. The following list encompasses most of these:
Credit for sick or personal leave
Military service
Substitute service
Withdrawn service
ERS (Texas State Retirement)
Out-of-state service
Unreported service
Work experience credit
Special credit must be purchased prior to entry into the DROP program.
Out-of-state service, military service, ERS service and developmental leave is evaluated for credit based on a school year of September 1 through August 31.
Fees for purchasing special service may vary according to the type of service. TRS will provide estimates at your request.
In the interest of space, this is not an exhaustive study of TRS. Further details are available by contacting our consultants at 800.950.1829 or through TRS for additional materials and information.
The TRS Website is www.trs.state.tx.us or call toll-free 800.223.8778.
Please note, TRS refers members to "financial professionals" such as EFS for advice on retirement choices and financial planning.