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Indiana Public Retirement System

Indiana Public Retirement System (INPRS) > My Fund > Changes may impact future PERF & TRF retirees' benefits Changes may impact future PERF & TRF retirees' benefits

Future TRF and PERF retirees may be impacted by two changes that will influence the amount of retirement benefits.  Effective Oct. 1, 2014, INPRS will begin providing annuities at a lower rate. In addition, retirement benefits will be calculated using updated actuarial factors.

Benefit estimate calculators using new actuarial factors and annuitization rates are now online. To use the calculators, log on to your account: PERF logon | TRF logon. To determine the effect on you, simply enter different potential retirement dates in the calculator.

If you would like us to email you annuitization updates as soon as they become available, please click here to provide your information.

1. Annuity Savings Account: Annuitization

Beginning Oct. 1, 2014, INPRS will begin using a lower rate to provide annuities. This affects only those members who choose to annuitize their Annuity Savings Account (ASA) funds with INPRS.

Previously, INPRS used a rate that was greater than the system expected to earn with its investments. The board’s decision to end this practice was based solely on the need to protect the financial health of the plan for current and future retirees. INPRS’ actuaries estimate the system has taken on a potential $181 million loss for annuities already converted. They forecast an additional $343 million loss if there were no change.

The new rate of 5.75 percent was established by the Indiana General Assembly with a step down in 2015 as noted below.

  • Oct. 1, 2014 to Sept. 30, 2015: Annuities will be calculated with a 5.75 percent interest rate.
  • Oct. 1, 2015 to Dec. 31, 2016: Annuities will be calculated at the market rate or 4.5 percent, whichever is greater.
  • After Dec. 31, 2016: Whenever the Board enters into an agreement with a third party provider, the interest rate will be market rate.

Remember, your ASA is one part of the two-part PERF or TRF plan. Prior to retirement, you can invest your ASA funds the way you wish. For available options, click here. At retirement, you may choose to annuitize your ASA funds, roll them over to another plan, or take the funds as a lump sum payment. There is no requirement to annuitize ASA funds with INPRS. Half of PERF and TRF retirees do not.

  • Future rates will be lower than rates now provided through INPRS’ annuities, leading to lower monthly annuity amounts for future retirees.
  • This does not affect members who do not convert ASA funds to an annuity from INPRS at retirement.
  • This does not affect current retirees and benefit recipients who have converted their ASA funds to an INPRS annuity.

Why:

The INPRS board reviewed factors including mortality tables and the assumed interest rate that are used to determine the monthly annuity amount for future retirees. Assuming an interest rate greater than what INPRS is likely to achieve can undermine the financial health of the system.

Legislation approved by the General Assembly requires INPRS to keep the annuity program in-house until Jan. 1, 2017. The INPRS board had previously opted to provide annuities in the future through an outside provider. This will allow INPRS to leverage its purchasing power to negotiate more annuity options and the best available rates for members. By using an outside provider, INPRS avoids financial risk to the system’s future stability while providing the best possible market rate for members who wish to annuitize via INPRS.

The annuity change will not impact the amount of the pension portion of a member’s two-part benefit.

2. Pension Calculation: Actuarial Factors

Americans are living longer, and INPRS has set an assumed long-term rate of return for investments at 6.75 percent. Both of these changes are included in the actuarial factors used to calculate PERF and TRF benefit payments. This change will be effective for those with retirement dates of Oct. 1, 2014, and later.

  • This does not affect members who select the normal retirement benefit (Option: 5-Year Certain & Life).
  • This does not affect current retirees and benefit recipients.

Impact to average member defined benefit pension payments:

The impact on your potential benefit could be different than the averages below.

  • PERF: Could range from a decrease of about 1.0 percent, to an increase of about 4.4 percent.
  • TRF: Could range from a decrease of about 0.1 percent, to about 1.1 percent.

How can I learn more about both these changes?

In July, the INPRS board reviewed and approved how the system handles annuities and opted to provide future annuities via an outside provider. Use the online calculators to help you determine the specific impact on your future benefit.

In addition, our customer service center is available, toll-free, at the numbers below.

  • PERF: (888) 526-1687
  • TRF: (888) 286-3544

3. Questions and Answers

Why has INPRS made these changes now?

A review of actuarial factors and investment return assumptions is a routine practice for both public and private pensions. Americans are living longer, and INPRS recently set an assumed long-term rate of return for investments at 6.75 percent. To keep the system in solid financial condition, these changes must be reflected in how pensions and annuities are calculated.

What is an annuity?

An INPRS annuity is a set amount of money paid to you if you choose to convert your ASA account into a monthly benefit payment. Remember, your Annuity Savings Account is one part of your two-part PERF or TRF plan.

Am I required to convert my Annuity Savings Account into an annuity payment when I retire?

No. Converting ASA funds to an annuity from INPRS is one option for retiring members. It is not a requirement. The goal of annuities is to provide a steady stream of income during retirement. Remember, your Annuity Savings Account is one part of your two-part PERF or TRF plan.

If I annuitize my ASA account, how has INPRS calculated the monthly benefit?

Working with our actuary, INPRS considers several factors, including:

  1. How long you and any other beneficiary may live.
  2. How much the annuitized funds are likely to earn when invested by INPRS. The return INPRS predicts it can earn on these funds impacts your monthly benefit. The larger percent we predict we can earn, the larger your monthly benefit.
  3. An outside provider is likely to have a similar approach.

How can I estimate the future value of an annuity?

See Information Regarding Annuities.

What information does INPRS use to account for Americans living longer?

INPRS consults with actuaries and mortality tables that predict how long an individual is likely to live. Factors, including advances in health care, are helping Americans to live longer than previous generations. Mortality tables are updated to reflect these longer life spans.

Where does the 6.75 percent assumed rate of return come from?

In June 2012, the system’s board reduced the rate to 6.75 percent from 7 percent. INPRS is now the lowest among the 126 public systems monitored by the annual Public Fund Survey. It is the only one below 7 percent. Read More

What must my last day worked be if I want to annuitize my ASA under the current INPRS option?

Your last day in pay status is generally the date most people think of as the day they retire. PERF uses an effective date for retirement benefits. Your retirement date is the first of the month following your last day in pay status. The effective date of the new annuitization approach is Oct. 1, 2014.

To annuitize under the current INPRS option, your last day in pay status can be as late as Aug. 31, 2014, resulting in a Sept. 1, 2014 retirement date.

If your last day in pay status is in Sept. 2014, your retirement date will be Oct. 1, 2014, which is the first day of the new annuitization approach.

Month of Last Day in Pay Status Retirement Date
January Feb. 1
February March 1
March April 1
April May 1
May June 1
June July 1
July Aug. 1
August Sept. 1
September Oct. 1*
October Nov. 1
November Dec. 1
December Jan. 1
* New annuity option effective Oct. 1, 2014.

If I annuitize my ASA when I apply for benefits, what rate can I expect? Is there an application deadline?

If your benefit application with annuitization decision is received within six months of your effective retirement date, you will receive the annuitization rate in effect as of that date.

Remember, your retirement date is the first day of the month following your last day in pay. Your last day in pay status is generally the date most people think of as the day they retire, including any specific days you are paid while not at work, such as vacation time.

For example:

  • If your last day in pay is in August 2014 and you apply for pension and ASA benefits by Feb. 28, 2015, your official retirement date is Sept. 1, 2014 and your annuitization rate will be calculated at 7.5 percent.
  • If your last day in pay is in August 2014 and you apply for pension and ASA benefits in March 2015, your official retirement date is Oct. 1, 2014 and your annuitization rate will be calculated at 5.75 percent.

Effective Retirement Date Application due at INPRS
July 1, 2014 December 31, 2014
August 1, 2014 January 31, 2015
September 1, 2014 February 28, 2015
October 1, 2014 March 31, 2015
November 1, 2014 April 30, 2015
December 1, 2014 May 31, 2015
January 1, 2015 June 30, 2015
February 1, 2015 July 31, 2015
March 1, 2015 August 31, 2015
April 1, 2015 September 30, 2015
May 1, 2015 October 31, 2015
June 1, 2015 November 30, 2015

Use this table as your guide for submitting your annuitization application.

If I defer annuitizing my ASA/RSA* until after I have started receiving benefits, what rate can I expect?

If you wait to annuitize your ASA/RSA, you will receive the active rate as of the date your election form is received.

For example:

  • If your election form is received by Sept. 30, 2014, the rate will be calculated at 7.5 percent.
  • If your election form is received between Oct. 1, 2014 and Sept. 30, 2015, the rate will be calculated at 5.75 percent.

To annuitize your ASA funds, complete the Election for Post Retirement Distribution form available on this Web site: PERF | TRF.

*RSA = Rollover Savings Account (money from another plan you have rolled into your PERF or TRF account)

If I roll funds over from a qualified plan and those funds arrive after my annuity payment has started, what annuity rate will I receive?

If your rollover funds arrive after your annuity payment has started, your annuity will be recalculated based on the rate you are already receiving. Your rate will not change due to the additional funds. If you plan to annuitize rollover funds as part of your retirement, you must inform INPRS in writing as part of your retirement application.