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IPERS IMPROVEMENT ASSOCIATION

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I serve as Treasurer on the IPERS Improvement Association, and at our meeting on June 22, we were given a presentation from IPERS. We had requested Donna Mueller, the CEO of IPERS, but Ms. Mueller was unable to attend. She did send someone from her office, but the presentation was lacking some “official” content. The person speaking did remind us that IPERS only implements the fund, it is the Legislature that makes changes to benefits or contribution rates.

I thought I might try and recap a couple of things the person did talk about. First, changes need to be made to the IPERS system, as investment results are way down, and the fund is paying out more in benefits than currently taking in with contributions and investment results. We know the contribution rate will increase by .5 for the next several years, as the Legislature has passed that increase thru 2011, and in 2012, it will be based on an actuarial amount, which unless things change will be greater than the current contribution rate.

Many people have asked me about the FED (favorable experience dividend). The FED is from money the Legislature set aside back in the ‘90s when investments were good. It has to be paid in benefit checks to those that already are retired. It cannot be put back into the fund. In most cases, if the Legislature passes a benefit, like the FED, they cannot take it away in future years. Thus, the FED will be paid out until the money is gone, and that should only be about two to three years.

As for your benefit in the future. The presenter stated that the current plan could not be changed, and that the years of service you had on this plan would be calculated into the benefit upon retirement. That was hard for me to understand, but I guess the best way to explain would be as follows. I currently have 16 years of service at the maximum benefit of 60%. If the plan would change today to a maximum benefit of 55%, when I retire, I would then have 14 years of service at the 55% max. Thus, my retirement benefit would be calculated as .5333 (16/30) times .6 and .4667 (14/30) times .55, so my maximum benefit would be .5766 of my highest three years.

As there are several changes that have been proposed, such as maximum benefit reduction, total of highest years changed from three to five, and even changing the “Rule of 88” back to “92”, it will become a “tiered plan”, where you will have so much at one level and so much at a second level. Again, at this point, these are only suggestions that would make a change in what the fund is paying out. The Legislature has not discussed, recommended, or proposed any of these to actually take effect. It took them several years to make the change to the contribution rate, so it may be several years before they would attempt to change the benefit structure. At this point, we do not know.

Some people have asked about buying time into the plan. Again, I did not ask specifically, but would assume if you bought the time before a change would be made, it would be at the current benefit level. That is something you might want to check with IPERS directly. That could make the purchasing of time even more beneficial.

Overall, the IPERS system is not unable to currently pay the benefits, nor does it appear that would be the case in the near future. Hopefully the investments will return to a better rate, and some of these issues will take care of themselves. Until that time, contribution rates will increase, and the Legislature will look at how the system could be changed to better serve the members. I would suggest contacting your Legislator with your concerns.

There was no specific written information given at the presentation, so this is all from my notes. The important thing is that you are aware to changes may be in the works.

John Lawson