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OpenPensions.Org: What Does This Mean To Me

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OpenPensions.Org: What Does This Mean To Me

  1. 1. The Six Most Common Retirement Scenarios inWHAT DOES THIS MEAN FOR ME? Cook County & Proposed Changes Bridget Gainer Cook County Commissioner – Tenth District 118 North Clark Street, Room 567 Chicago, IL 60614 1
  2. 2. PURPOSEWithout any changes the Cook County Pension Fund actuar y estimatesthe pension fund will be insolvent by 2038. As changes are beingdiscussed it is impor tant to remember the impact these changes willhave on an employee.This presentation shows examples of how changes to the Cook Countypension system would af fect sample employees across the age andser vice spectrum.For the purposes of this evaluation, an illustration of an employee’ssalar y, age and year s of ser vice are compared against three options:  No Changes: The existing pension system  Option 1: Solvency is reached with changes to Pension Benefits only, no coordination with healthcare  Option II: Solvency is reached with changes to Pension Benefits coordinated with cost savings in healthcare.The valuations illustrate annual payout and the lifetime value ofthe pension . 2
  3. 3. Current Benefits SystemT i e r 1 A c t i v e E m p l oy e e s – H i r e d B e fo r e J a n . 1 , 2 01 1 Re t i r e m e n t A g e  Full Benefit  Age 60 with 10 years or Age 50 with 30 years  Reduced Benefit  Between Age 50-60 with less than 30 years annuity is reduced by a ½% for ever y month before age 60 or 30 years B e n e f i t Fo r m u l a : ( Ye a r s o f S e r v i c e ) x 2 . 4 % x ( F i n a l Av e r a g e S a l a r y ) = I n i t i a l Pe n s i o n P ay m e n t F i n a l Av e r a g e S a l a r y : H i g h e s t c o n s e c u t i v e 4 ye a r s i n t h e l a s t 10 ye a r s o f s e r v i c e E m p l oye e C o n t r i b u t i o n : 8 . 5 % o f a n n u a l s a l a r yT i e r 2 A c t i v e E m p l oy e e s – H i r e d A f te r J a n . 1 , 2 01 1 Re t i r e m e n t A g e : 6 7 fo r Fu l l b e n e fi t . C a n r e t i r e a f te r a g e 6 2 fo r r e d u c e d b e n e f i t , ½ % p e r m o n t h b e fo r e 6 7. B e n e f i t Fo r m u l a : ( Ye a r s o f S e r v i c e ) x 2 . 4 % x ( F i n a l Av e r a g e S a l a r y ) = I n i t i a l Pe n s i o n P ay m e n t F i n a l Av e r a g e S a l a r y : H i g h e s t c o n s e c u t i v e 8 ye a r s i n t h e l a s t 10 ye a r s o f s e r v i c e E m p l oye e C o n t r i b u t i o n : 8 . 5 % o f a n n u a l s a l a r y S a l a r y f o r t h e p u r p o s e o f b e n e fi t s a n d c o n t r i b u t i o n s i s c a p p e d a t $ 10 6 , 8 0 0 i n 2 01 1 . T h e c a p i n c r e a s e s a t 3 % o r ½ o f C P I w h i c h e v e r i s l owe r.Retirees Tier 1 COLA: Compounding 3% T i e r 2 C O L A : S i m p l e 3 % o r ½ C P I , w h i c h e v e r i s l owe r
  4. 4. Option I: Changes to Pension Benefits OnlyT i e r 1 A c t i ve E m p loye e s I n c r e a s e Ret i r em e n t A g e E l i g i b il i t y b y 5 Ye a r s  Full Benefit  Age 65 with 10 years  Age 55 with 30 years  Reduced Benefit  Between Age 55-65 with less than 30 years  With less than 30 years, annuity is reduced by a ½% for every month before age 65 Re d u c e b e n e f i t m u l t i p li e r f r o m 2 . 4 % to 2 . 2 % ( A p p l i e d o n l y f o r f u t ur e s e r v i c e . P a s t s e r v i c e i s ke p t a t 2 . 4 % m u l t ip l e ) I n c r e a s e F i n a l Av e r a g e S a l a r y f r o m h i g h e s t c o n s e c ut i ve 4 ye a r s i n t h e l a s t 1 0 ye a r s o f s e r v i c e to t h e h i g h e s t c o n s ec ut i v e 8 ye a r s i n t h e l a s t 1 0 ye a r s o f s e r v i c e I n c r e a s e E m p l oye e C o n t r i b ut i o n s b y 1 % Re d u c e C o s t o f L i v i n g A d j u s t me n t to 3 % o r ½ t h e C o n s um e r P r i c e I n d ex , s i m p l e , w h i c h ev e r i s l o w e rR et i r e e s Re d u c e C o s t o f L i v i n g A d j u s t me n t to s i m p l e 3 % o f ½ t h e C o n s um e r P r i c e I n d ex , w h i c h ev e r i s l o w e r Fr e e z e C O L A b e n e f i t s w h e n f u n d e d s t a t us i s b e l ow 8 0 % a n d g r a n t a 3 % c o m p o un d i n g C O L A ev e r y f i f t h c o n s ec ut i v e ye a r w h i l e f r o z e n 4
  5. 5. Option II: Changes to Pension Benefit & Healthcare Spend Tier I Active Employees  Retirement Age Increased by 5 years over a 10 year period, starting in 2013  1% employee contribution increase  COLA reduced to Simple 3% or half of CPI, whichever is lower  Healthcare paid through the County Retirees  Reduce Cost of Living Adjustment to simple 3% or ½ the Consumer Price Index, whichever is lower  Healthcare paid through the County
  6. 6. JOSEPHINE SMITH 3 0 Y E A R O L D E M P L OY E E – T I E R 1 3 YEARS OF SERVICE S A L A R Y: $ 5 5 , 0 0 0 Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment PaymentCurrent 57 2039 10 years $137,616 $6,045,588 3% 8.5% of Compounding annual salaryOption I: 57 2039 5 years $107,428 $3,724,545 Simple 3% or 9.5% ofBenefits Only ½ CPI Annual SalaryOption II: 57 2039 10 years $137,616 $4,771,139 Simple 3% or 9.5% ofBenefits and ½ CPI Annual SalaryHealthcareJosephine can retire at the same time under all scenarios because she will reach 30 years of service in2039.Option I reduces Josephine’s initial pension payment because the formula used to calculate thepension benefit has been changed. Only changing the pension benefits scenario results in the lowestlifetime pension payment of all the scenarios.Option II does not impact the pension benefit formula, but does reduce the Cost Of Living Adjustment.This reduction in COLA reduces the overall pension benefit by $1.3 million over Josephine’s lifetime. 6
  7. 7. JOSEPHINE SMITH 3 0 Y E A R O L D E M P L OY E E – T I E R 1 3 YEARS OF SERVICE S A L A R Y: $ 5 5 , 0 0 0$350,000.00 Pension Benefit Without reform the fund will be insolvent in 2038.$300,000.00 Josephine will be 56 and still working .$250,000.00 No Change at Age 57$200,000.00 Fund goes insolvent one Benefits Only at Age 57 year earlier.$150,000.00 Benefits and Healthcare at Age 57$100,000.00 $50,000.00 $0.00 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 Age 7
  8. 8. DANIEL HUFFINGTON 55 YEARS OLD – TIER 1 30 YEARS OF SERVICE S A L A R Y: $ 8 5 , 0 0 0 Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment PaymentCurrent 60 2017 10 years $80,783 $2,547,621 3% 8.5% of Compounding annual salaryOption I: 60 2017 5 years $71,487 $1,828,643 Simple 3% or 9.5% ofBenefits Only ½ CPI annual salaryOption II: 60 2017 10 years $80,783 $2,137,909 Simple 3% or 9.5% ofBenefits and ½ CPI annual salaryHealthcareDaniel can retire now under all the scenarios, but chooses to work another 5 years until age 60.Option I reduces Daniel’s initial pension payment because the formula used to calculate the pensionbenefit has been changed. Only changing the pension benefits scenario results in the lowest lifetimepension payment of all the scenarios.Option II does not impact the pension benefit formula, but does reduce the Cost Of Living Adjustment.This reduction in COLA reduces the overall pension benefit by $410,000 over Daniel’s lifetime. 8
  9. 9. DANIEL HUFFINGTON 55 YEARS OLD – TIER 1 30 YEARS OF SERVICE S A L A R Y: $ 8 5 , 0 0 0Pension Benefit Without reform the fund will be insolvent in 2038. Daniel will be 81. Fund Insolvency Age 9
  10. 10. RAPHAEL GARZA 50 YEARS OLD – TIER 1 2 YEARS OF SERVICE S A L A R Y: $ 6 0 , 0 0 0 Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment PaymentCurrent 60 2022 10 years $26,200 $826,259 3% 8.5% of Compounding annual salaryOption I: 65 2027 5 years $37,798 $757,477 Simple 3% or 9.5% ofBenefits Only ½ CPI annual salaryOption II: 65 2027 10 years $47,371 $949,315 Simple 3% or 9.5% ofBenefits and ½ CPI annual salaryHealthcareRaphael can retire in 2022 under the current system, but the retirement age increase under option I andoption II prevent Raphael from retiring until 2027.Option I reduces Raphael’s initial pension payment because the formula used to calculate the pensionbenefit has been changed. Only changing the pension benefits scenario results in the lowest lifetimepension payment of all the scenarios.Raphael’s initial pension payment and lifetime payout are larger under option II than the current systembecause Raphael has to work an additional five years during which he accrues more service andreceives salary increases. Option II does not impact the pension benefit formula, but does reduce the 10Cost Of Living Adjustment.
  11. 11. RAPHAEL GARZA 50 YEARS OLD – TIER 1 2 YEARS OF SERVICE S A L A R Y: $ 6 0 , 0 0 0 Pension Benefit$80,000.00 Without reform by 2038 the fund will be insolvent$70,000.00 Raphael will be 76. Fund Insolvency$60,000.00 No Changes at Age 60$50,000.00 No Changes at Age 65$40,000.00 Benefits Only at Age 65$30,000.00 Benefits and Healthcare at Age 65$20,000.00$10,000.00 $0.00 Age 60 62 64 66 68 70 72 74 76 78 80 82 11
  12. 12. AMY KIM 27 Y E A R S O L D – T I E R 2 1 YEAR OF SERVICE S A L A R Y: $ 4 5 , 0 0 0 Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment Payment Current 67 2052 10 years $158,012 $3,364,866 Simple 3% or 8.5% of ½ CPI annual salary Option I and 67 2052 5 years under $158,012 $3,364,866 Simple 3% or 9.5% of Option II Option I. 10 ½ CPI annual salary Years under Option II.Amy was hired after Jan. 1, 2011 and is currently participating in the Tier 2 defined benefit system. Amy won’t be eligible toretire until age 67 in the year 2052. The Cook County pension fund is estimated to be insolvent and default on retiree paymentsin 2038 when Amy is 53 and still working.Option I Benefits Only and Option II Benefits and Healthcare won’t change Amy’s benefit structure because she is already a TierII participant. Either set of changes will ensure that the County Pension Fund does not become insolvent and will be financiallyviable when Amy retires. 12
  13. 13. AMY KIM 27 Y E A R S O L D – T I E R 2 1 YEAR OF SERVICE S A L A R Y: $ 4 5 , 0 0 0 Pension Benefit Without reform by 2038 the fund will be insolvent. Amy will be 53 and still working . FundInsolvency Age 13
  14. 14. DR. ANGELA JACKSON 50 YEARS OLD – TIER 1 10 YEARS OF SERVICE $150,000 SALARY Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment PaymentCurrent 60 2022 10 years $109,166 $4,089,279 3% 8.5% of Compounding annual salaryOption I: 65 2027 5 years $123,296 $2,940,601 Simple 3% or 9.5% ofBenefits Only ½ CPI annual salaryOption II: 65 2027 10 years $174,158 $4,153,674 Simple 3% or 9.5% ofBenefits and ½ CPI annual salaryHealthcareDr. Jackson can retire in 2022 under the current system, but the retirement age increase under option Iand option II prevent her from retiring until 2027.Option I reduces Dr. Jackson’s initial pension payment because the formula used to calculate thepension benefit has been changed. Only changing the pension benefits scenario results in the lowestlifetime pension payment of all the scenarios.Dr. Jackson’s initial pension payment is larger under option II than the current system because she hasto work an additional five years. Option II does not impact the pension benefit formula, but does reducethe Cost Of Living Adjustment. 14
  15. 15. DR. ANGELA JACKSON 50 YEARS OLD – TIER 1 10 YEARS OF SERVICE $150,000 SALARY$350,000.00 Pension Benefit Without reform by 2038 the fund will be insolvent.$300,000.00 Angela will be 76.$250,000.00 No Changes at Age 60 Fund Insolvency No Changes at Age 65$200,000.00 Benefits Only at Age 65$150,000.00 Benefits and Healthcare at Age 65$100,000.00 $50,000.00 $0.00 60 62 64 66 68 70 72 74 76 78 80 82 84 Age 15
  16. 16. SAM CLEMENS 47 Y E A R S O L D – T I E R 1 13 YEARS OF SERVICE $67,000 SALARY Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment PaymentCurrent 60 2025 10 years $73,381 $2,314,193 3% 8.5% of Compounding annual salaryOption I: 64 2029 5 years $69,625 $1,482,655 Simple 3% or 9.5% ofBenefits Only ½ CPI annual salaryOption II: 64 2029 10 years $102,917 $2,191,619 Simple 3% or 9.5% ofBenefits and ½ CPI annual salaryHealthcareSam can retire in 2025 under the current system, but the retirement age increase under option I andoption II prevent him from retiring until 2029 when he will have 30 years or service.Option I reduces Sam’s initial pension payment because the formula used to calculate the pensionbenefit has been changed. Only changing the pension benefits scenario results in the lowest lifetimepension payment of all the scenarios.Sam’s initial pension payment is larger under option II than the current system because he has to workan additional five years. Option II does not impact the pension benefit formula, but does reduce theCost Of Living Adjustment. 16
  17. 17. SAM CLEMENS 47 Y E A R S O L D – T I E R 1 13 YEARS OF SERVICE $67,000 SALARY$180,000.00 Pension Benefit Without reform by 2038 the$160,000.00 fund will be insolvent. Fund Insolvency Sam will be 73.$140,000.00$120,000.00 No Changes at Age 60 No Changes at Age 64$100,000.00 Benefits Only at Ae 64 $80,000.00 Benefits and Healthcare at Age $60,000.00 64 $40,000.00 $20,000.00 $0.00 60 62 64 66 68 70 72 74 76 78 80 82 Age 17
  18. 18. JAMES CONNOR 58 YEARS OLD – TIER 1 20 YEARS OF SERVICE $60,000 SALARY Retirement Retirement Vesting Initial Lifetime COLA Employee Age Year Pension Pension Contribution Payment PaymentCurrent 60 2014 10 years $32,888 $1,037,175 3% 8.5% of Compounding annual salaryOption I 65 2019 5 years $42,541 $842,955 Simple 3% or 9.5% ofBenefits Only half of CPI annual salaryOption II 61 2015 10 years $35,688 $897,549 Simple 3% or 9.5% ofBenefits and ½ CPI annual salaryHealthcareJames can retire in 2014 under the current system. Option I prevents James from retiring until year 2019 andoption II prevents him from retiring until 2015.Under Option I the initial pension payment is the larger than the other scenarios because James has to workthe longest accruing more years of service and receiving more salary increases. Even though the Option Iinitial payment is the largest, the lifetime pension payout is the smallest of all scenarios. James’ pension isfrozen until year 2024, receiving a 3% compound increase in 2017, because the pension funded status isbelow 80%.Under Option II James’ initial pension payment is larger than the current system because he has to work anadditional year. Option II has a lower lifetime pension payout than the current system because the COLA has 18been reduced.
  19. 19. JAMES CONNOR 58 YEARS OLD – TIER 1 20 YEARS OF SERVICE $60,000 SALARY$70,000.00$60,000.00$50,000.00 No Changes at age 60$40,000.00 Benefits Only at Age 65$30,000.00 Benefits and Healthcare at age 61$20,000.00$10,000.00 $0.00 60 62 64 66 68 70 72 74 76 78 80 82
  20. 20. Calculation Information Salary: The salary listed at the top of the page is the current salary of the employee. Salaries increase at the actuarially assumed rate of 5% compounding annually. The proposed changes are ef fective Jan. 1 , 2013 for the purposes of scenario valuations and actuary analysis. Life expectancy is 82 for males and 85 for females in accordance with actuarial experience studies. For calculation information requests and questions please contact our of fice at 312 -603-4210.

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