Author Topic: What happens to PERS retirement funds if you leave public service?  (Read 6296 times)

Stachetastic

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What happens to PERS retirement funds if you leave public service?
« on: September 10, 2015, 07:07:22 AM »
As I've mentioned in previous posts (I apologize for dwelling on this), my husband has been laid off after 14 years in government work. He has been job hunting for almost 18 months, and has an interview next week with a company in the private sector. He was initially interested in staying in PERS, but we're getting to the "beggars can't be choosers" stage of job hunting. What happens to his PERS funds? If he works 15 years in the private sector, he will draw social security, no? Also, he does have a small amount in deferred comp (<15k) that will hopefully grow, but he is obviously no longer contributing.

What happens when people have half of their career in public retirement and half in private funds??

beltim

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #1 on: September 10, 2015, 07:47:09 AM »
The details of the state pension depends on your state; since you didn't list it I won't try to guess, but I am going to assume that your husband is vested and will receive a pension from PERS at normal retirement age.

Did your husband pay into Social Security during his government work?  If so, his PERS pension and Social Security will not affect each other at all.  If he did not pay into Social Security, then he would have to become eligible for benefits based on future income, and his pension would likely affect his Social Security benefits due to the Windfall Elimination Provision (http://www.ssa.gov/planners/retire/wep.html).  Briefly, the WEP changes the calculation of Social Security benefits in order to make it fairer when taking into account a pension earned in a job that did not pay into Social Security.  The maximum that your Social Security benefit can be reduced, though, is the lower of: $413/month or one-half of the government pension (http://www.socialsecurity.gov/planners/retire/wep-chart.html)

There is a similar provision for reducing spousal Social Security benefits when receiving a government pension earned in a job that did not pay into Social Security; this program is called the Government Pension Offset, and more details are available at: http://www.ssa.gov/planners/retire/gpo.html

Stachetastic

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #2 on: September 10, 2015, 07:57:39 AM »
Wow, thanks for all the info! I'll take a look at the links you provided. We are in Ohio and I do not believe he paid anything into Social Security.

beltim

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #3 on: September 10, 2015, 08:04:35 AM »
Wow, thanks for all the info! I'll take a look at the links you provided. We are in Ohio and I do not believe he paid anything into Social Security.

No problem - and if you have any more questions, I'm happy to answer them.

Most Ohio PERS participants do not pay into Social Security, so my previous post will be an accurate guide for your husband.

desertadapted

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #4 on: February 18, 2016, 08:21:25 AM »
Beltim, we're in the FIRE planning stages right now, aiming for "early" retirement at 50.  There's not much that I can find about the WEP.  If you know, I was hoping to ask:  if you (a) have sufficient private sector credits to reach your 10 year/40 credit SS eligibility, but (b) spend the next 15 years in the public sector in a position where you're not paying into SS, (c) do the public sector wages get included in the calculation of your average month earnings (the 35 year calculation), even though you don't pay SS on them?    Are there any publications on this?  The WEP SSN Publication No. 05-10045 doesn't directly answer the question, as far as I can tell.   Thanks in advance for your time.   

desertadapted

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #5 on: February 18, 2016, 09:19:40 AM »
Spartana - Thanks so much for the insight.  I am crushed by the terrible truth of your answer.  Particularly galling because my "pension" is a dinky 401(a) match, so the WEP is adding insult to injury.

randymarsh

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #6 on: February 18, 2016, 10:46:36 AM »
I was a PERS member for about 2 years so I may be able to help as well.

I don't know which options were available 14 years ago, but when I started in 2011 I had 3 retirement options through PERS: traditional pension, self-directed (basically had funds to put my money into like a 401k), and combination (reduced pension, but the remainder was put into 401k type funds).

I'm guessing he picked or only had the option of the traditional defined benefit pension. This page will let you guys get an estimate of what kind of benefit to expect: https://www.opers.org/members/traditional/estimator.shtml While this page: https://www.opers.org/members/traditional/benefits/eligibility.shtml will let you figure out when he could receive full benefits.

As others have mentioned, if he qualifies for SS, he'll likely see a reduction in benefits. I have a family member who will experience this. Worked throughout their 20s and 30s in private sector, then became a teacher.

You have the option of rolling over PERS contributions but I do not recommend it. Pensions are rare these days and PERS is in decent shape.

I believe only years that you were paying SS tax are the years they use for their calculation.

Wilson Hall

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #7 on: February 18, 2016, 12:03:31 PM »
This is the weirdest system ever. Why should people who have worked in both the public and private sectors be penalized this way?

From what I've read, some of the states with the most generous public pension plans are also the ones that do not require employees to pay into Social Security. I work in the public sector and do pay into SS, but will only get about half of my final salary plus SS if I work 30 years in state retirement plan. For every year one takes the pension early, that is, before 30 years or age 62, the pension payout gets cut by 5%. Unless I get stuck here for the next 15 years, I plan to leave the pension alone until retirement age and take it simultaneously with (early) SS.

Laddering is a great strategy for those of us who want to retire a little early but have pensions that can't be accessed until our 60s. Tap the 457 upon separation from service, then the 403b and/or Roth IRA starting at 59.5.

Cassie

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #8 on: February 18, 2016, 12:21:55 PM »
I also face this since I retired from a state that did not pay in.  If he has to take a job in the private sector I would try to get back into a PERS position as soon as he can. Otherwise your retirement $ is going to be a lot less. Many states give preference to employees getting laid off in open state jobs. Are they not doing that?

beltim

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #9 on: February 18, 2016, 04:08:33 PM »
Beltim, we're in the FIRE planning stages right now, aiming for "early" retirement at 50.  There's not much that I can find about the WEP.  If you know, I was hoping to ask:  if you (a) have sufficient private sector credits to reach your 10 year/40 credit SS eligibility, but (b) spend the next 15 years in the public sector in a position where you're not paying into SS, (c) do the public sector wages get included in the calculation of your average month earnings (the 35 year calculation), even though you don't pay SS on them?    Are there any publications on this?  The WEP SSN Publication No. 05-10045 doesn't directly answer the question, as far as I can tell.   Thanks in advance for your time.
No, the public sector years you worked and didn't contribute to SS are not counted toward determining your future SS benefit amount. Your annual SS statement will show zero contributions for those years.

Spartana is correct on this.

Quote
I am in a similar situation with a job paying into SS for the first 12 years and then a job paying into PERS but not SS for another 10 years before I FIREd once age 42. So any SS benefit I get will be reduced by the WEP. Sadly, because my 12 years paying into SS where low paying base salary as enlisted military and no other earnings count toward SS so I will get very little SS after the WEP. Even though my government pension CalPERS is small ($1000/month)  it will still likely cut SS by half as I believe I'll get around $600 - $800/ month and the WEP will cut it down to $300 -$400/month.

Your math doesn't make sense, or I'm missing something.  The max the WEP can reduce your Social Security benefit is the smaller of: 1/2 your government pension or $428/month (in 2016).

It looks like you're reducing your pension twice, and WEP only reduces your pension once, and never by more than $428/month

beltim

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #10 on: February 18, 2016, 04:15:08 PM »
I also have a couple of questions for Beltime - do you know if the WEP is applied the same if you take SS at 62 instead of your full benefit age of 66 or whatever?  Also if you base your benefit on an ex spouse (married over 10 years and never remarried) does that effect it?

I believe it does.  However, it's worth going into the calculation for how WEP is calculated.  You may be familiar with how your Social Security benefit is calculated, but I'll quickly review.
1) Your earnings are indexed to account for changes in inflation (for this purpose, use only earnings on which you paid Social Security taxes)..
2) Using your 35 highest-earning years, find your average monthly indexed earnings.
3) Your Social Security benefit is calculated as:
90% of the first $856 monthly earnings
32% of the monthly earnings between $856 and $5157
15% of the monthy earnings above $5157
4) If you retire earlier or later than full retirement age, reduce or increase your benefit accordingly.

Now, the only step WEP changes is 3.  And WEP only affects the first bend point.  So, to calculate the Social Security benefits if you are subject to WEP, it is:
45% of the first $856 monthly earnings
32% of the monthly earnings between $856 and $5157
15% of the monthy earnings above $5157

Only the bolded part changed.

beltim

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #11 on: February 18, 2016, 04:25:23 PM »
This is the weirdest system ever. Why should people who have worked in both the public and private sectors be penalized this way?

From what I've read, some of the states with the most generous public pension plans are also the ones that do not require employees to pay into Social Security. I work in the public sector and do pay into SS, but will only get about half of my final salary plus SS if I work 30 years in state retirement plan. For every year one takes the pension early, that is, before 30 years or age 62, the pension payout gets cut by 5%. Unless I get stuck here for the next 15 years, I plan to leave the pension alone until retirement age and take it simultaneously with (early) SS.

Laddering is a great strategy for those of us who want to retire a little early but have pensions that can't be accessed until our 60s. Tap the 457 upon separation from service, then the 403b and/or Roth IRA starting at 59.5.
Yeah I think this is ridiculous too. They should allow you to get whatever SS you are entitled to for the years you contributed (12 plus any teenage jobs in my case) and then a separate public pension based just on the years you contributed into that. They don't need to count your public job earnings towards your SS benefit since you didn't pay in during those years but I don't understand why the feel the need to reduce your SS benefit. If I had did my full 20 years in the military and got a pension at age 38 I still would have gotten full SS benefit for those years too.

It's worth mentioning the purpose of the WEP.  Briefly, Social Security benefits are unbelievably progressive (see the benefit calculation I wrote above).  Put another way, high earners subsidize the Social Security benefits of low earners.  Americans generally believe this is a good idea, because one of the goals of Social Security was to reduce or eliminate poverty among the elderly.

However, for people who have other pensions, and thus did not pay into Social Security, this incredibly progressive calculation of benefits is not necessary to stave off elderly poverty.  So the benefit calculation for Social Security is reduced to be somewhat less progressive.  This results in benefits that are more proportional to earnings than they would be otherwise.

Also, the WEP calculation I gave above is only for people with "substantial" earnings subject to Social Security taxes for 20 years or fewer.  The WEP reduction is decreased with more years of earnings, until it is completely eliminated if you have 30 years of substantial earnings.

Does my explanation make sense?

Stachetastic

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #12 on: February 18, 2016, 06:10:59 PM »
I also face this since I retired from a state that did not pay in.  If he has to take a job in the private sector I would try to get back into a PERS position as soon as he can. Otherwise your retirement $ is going to be a lot less. Many states give preference to employees getting laid off in open state jobs. Are they not doing that?

No, the state system he was in (corrections) has not given preference. He applied for dozens of state positions and got nowhere. He has accepted a position in the private sector for now, and we'll see what the future holds. Its disheartening to spend so much time out of the public system, but for now it's time to move forward with the options on the table.

beltim

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #13 on: February 18, 2016, 10:29:43 PM »
Beltim, we're in the FIRE planning stages right now, aiming for "early" retirement at 50.  There's not much that I can find about the WEP.  If you know, I was hoping to ask:  if you (a) have sufficient private sector credits to reach your 10 year/40 credit SS eligibility, but (b) spend the next 15 years in the public sector in a position where you're not paying into SS, (c) do the public sector wages get included in the calculation of your average month earnings (the 35 year calculation), even though you don't pay SS on them?    Are there any publications on this?  The WEP SSN Publication No. 05-10045 doesn't directly answer the question, as far as I can tell.   Thanks in advance for your time.
No, the public sector years you worked and didn't contribute to SS are not counted toward determining your future SS benefit amount. Your annual SS statement will show zero contributions for those years.

Spartana is correct on this.

Quote
I am in a similar situation with a job paying into SS for the first 12 years and then a job paying into PERS but not SS for another 10 years before I FIREd once age 42. So any SS benefit I get will be reduced by the WEP. Sadly, because my 12 years paying into SS where low paying base salary as enlisted military and no other earnings count toward SS so I will get very little SS after the WEP. Even though my government pension CalPERS is small ($1000/month)  it will still likely cut SS by half as I believe I'll get around $600 - $800/ month and the WEP will cut it down to $300 -$400/month.

Your math doesn't make sense, or I'm missing something.  The max the WEP can reduce your Social Security benefit is the smaller of: 1/2 your government pension or $428/month (in 2016).

It looks like you're reducing your pension twice, and WEP only reduces your pension once, and never by more than $428/month
First off thanks for supplying all the great info in this and the other posts. Very helpful.

Second, as to my ( probably flawed) calculations it appears the max amount of SS I can get will be somewhere between $600/month to $800/month depending on if I take it early or not.  So I figured that if my CalPERS pension is approx $1000/month then my SS would be reduced by the lessor of either half my pension ($500/month) or smaller amount in the wep chart ($428 in today's dollars so probably higher by the time I'm old enough to get SS).  So if that was today rather than a decade or so away my SS would be $800 - $428 = $372 I'd get per month. If I were to take it early then it would be $600 - $428 = $172/ month I would get. So yeah kind of sucks even though I do understand why the wep was put in place.

ETA: I have more than 10 years of service credit in PERS because I bought back some of my military time so my pension is higher than what it would have been without buying that extra service credit. The 10 years where just what I worked and made co tributions to the pension. But I don't think that effects the wep in any way.

The bolded part is the max the Social Security can be reduced.  Per the formula I showed above, your Social Security benefit also can't be reduced more than half.  (put another way, under WEP your benefit on the first $770/month is halved, and the rest remains unchanged)

If your unreduced, regular age benefit would be $800 per month then you paid Social Security taxes on a total of just under $400k in 2016 dollars.  That corresponds to about $25k in Social Security taxes.  If you didn't have WEP, the $800/month would be $9600 per year.  With WEP, you'll get about $400 per month $4800 per year. 
« Last Edit: February 19, 2016, 06:38:17 AM by beltim »

Cassie

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Re: What happens to PERS retirement funds if you leave public service?
« Reply #14 on: February 19, 2016, 11:27:22 AM »
If you spend 30 years in the public sector you usually do better by not paying into SS. The problem is for the people that only spend a small amount of time in PERS because they have a small pension and then lose much of their SS.