July 11--Among the flurry of recent resignations by city employees, Bloomington is also losing a handful of employees as a result of retirement fund changes.
As of Oct. 1, the Indiana Public Retirement System will use a different rate to calculate annuities for employees, which can result in some people receiving more than $100 less than expected every month.
The change affects the Public Employee Retirement Fund and the Teacher Retirement Fund, which both include an Annuity Savings Account that requires at least a 3 percent contribution by either the employee or the employer. When employees retire, they have several options about what to do with that fund -- annuitize either with the state or a private company, take the money in a lump sum or roll the funds into another retirement plan.
Jeff Hutson, spokesman for the state's retirement system, said about half of their members choose to annuitize, and these are the employees affected by the change that takes effect this fall. To avoid the new regulations, employees must retire by Aug. 31.
The interest rate used to calculate those annuities is the part of the plan that is changing. Now, the annuities are calculated at a rate of 7.5 percent. Under the new system, rates will slowly decline, starting with dropping to 5.75 percent as of Oct. 1. Then on Oct. 1, 2015, the rates go to either 4.5 percent or the current market rate, whichever is higher. After Dec. 31, 2016, the state has the option to use an outside company for the rates.
For example, Hutson said, an employee who had $60,000 in the Annuity Savings Account, at the 7.5 percent rate, would receive about $550 per month.
Under the new rate of 5.75 percent, that would drop to about $430 per month, he said.
But depending on various retirement plan options the employee could choose, along with his or her age, the new rates could have varying impacts.
David Gray, assistant GIS coordinator for City of Bloomington Utilities, was planning to retire at the beginning of 2015. He said he'll receive $170 more per month by retiring Aug. 29 instead of waiting.
"If you were thinking of retiring, this made you do a rethink," Gray said.
City Human Resources Director Doris Sims said the city has 11 employees retiring within the next couple of months to avoid being affected by the new rates, which is higher than the total number of retirements the city had last year.
Peggy Chambers, assistant superintendent at Monroe County Community School Corp., said the school district was expecting a rush of retirements this year due to the lower rate for annuities, but the rush never came.
"As it turned out, this spring, we didn't have the number of employees who indicated their intent to retire as expected," she said.
Ryan Belcher, a financial consultant at Comprehensive Financial Consultants, who advises MCCSC teachers considering retirement, said fewer than 10 educators have opted for early retirement.
"It has made a difference for some of them to retire now and take the annuity payout versus waiting another year and getting a lower annuity payment for life," Belcher said.
Hutson said statewide, the state is expecting 9,700 retirements among public employees and teachers. In 2013, the state had 8,130 retirements associated with the funds.
Sims said the change is mostly pushing employees who were already considering retirement within the next year or two to bump up their dates. Those who are four or five years away from retirement don't seem to be leaving, according to Sims.
"You have to look at what's the difference now versus what's the difference if you come out two to three years from now," Sims said. "I think a lot of them were thinking about retiring regardless."
She said the city also saw an increase in the number of people attending retirement information sessions, and Hutson said there's been about a 30 percent increase in attendance statewide.
"We know that we've got a lot of people," Hutson said.
The city department hit the hardest by the change is City of Bloomington Utilities, according to Sims.
CBU is losing its Monroe Water Treatment Plant superintendent and Dillman Wastewater Treatment Plant superintendent, along with several others.
"I think this is the first time we've had so many upper management positions," Sims said, adding that Deputy Chief of Police Janelle Benedict also retired this year.
The Indiana Legislature approved the percentages last session, but a reduction had previously been approved by the state retirement system's board of trustees that would have dropped the rate to market level by Oct. 1.
The plan approved by state lawmakers lowers the rate to that level over a three-year period.
Hutson said the change was made to protect the financial health of the retirement system. He said predictions show the state could incur a $343 million unfunded liability if rates stayed the same.
"An unfunded liability would ultimately come from the taxpayer," Hutson said. "You've got tension between the rate that was being used and the rate that could be offered without a loss."
Reporter Mary Keck contributed to this report.
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