Showing posts with label lump sum payment. Show all posts
Showing posts with label lump sum payment. Show all posts

BackDROP Lump-Sum Payment

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I keep being told that if a person work at least 2 years backdrop pass their normal retirement, they will receive their monthly lifetime benefits, plus whatever their lump sum amount is. Is the second part of this statement true? 
Yes--If you are eligible for and elect BackDROP at retirement, you will get the one-time lump-sum payment plus monthly pension benefit payments for life.

The tradeoff is that, in most cases, your monthly benefit payment will be less than it would have been if you hadn’t elected BackDROP.

The reason most people have a lower monthly benefit when they elect the BackDROP is because any service and any salary earned during your BackDROP period (up to five years) doesn’t count when we calculate your monthly benefit amount. We use your years of service and your final average pay from BEFORE your BackDROP period.

Your BackDROP lump sum will be equal to 90% of what you would have received during your BackDROP period if you had been retired during that time (based on the life income annuity amount).

This BackDROP graphic may help you visualize how it works or you can read the BackDROP brochure for more information. BackDROP can be complicated to understand, so MOSERS benefit counselors are available to help by phone or through an in-person appointment. Call (800) 827-1063 to discuss your options. Counselors can also provide you with benefit estimates with and without the BackDROP so you can compare.

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BackDROP & Survivor Benefit?

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If I have completed my five year backdrop period and continue working in my state position, would my spouse receive the backdrop lump sum payment if I died while still working?
For example, if I completed the five year backdrop period on 8-1-2018, continued working, planned on retiring on 6-1-2019, but died on 3-1-2019 - would my spouse receive the lump sum back drop as well as the monthly survivor pension benefit, or would she just receive the monthly survivor pension benefit?
If you pass away before your retirement date, any elections you made about retirement are null and void, including any elections about BackDROP. If  you were still working and had not yet reached your retirement date, you are considered an “active member” and we must pay your eligible survivor. Your spouse’s monthly survivor benefit would be based on the Joint & 100% benefit payment option and calculated using your final average pay and credited service as of your date of death. Your spouse would not receive the BackDROP lump-sum payment if you died prior to your retirement date. In calculating your spouse’s monthly benefit, we would count the time in what would have been your BackDROP period – your total years and months of creditable service. For more information regarding survivor benefits, please visit the Survivor section of our website. 
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BackDROP Decisions

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I was eligible for retirement on 06/01/2017 on the 80 and out. I am just getting one year of backdrop in. Do I need to submit any paperwork advising of my intentions of working on the backdrop? 
The answer is no. You just keep working. You don’t need to notify MOSERS of any decisions about BackDROP until you retire. If you retire online, you may make your BackDROP election when you choose your benefit payment option. 

However, you must work at least two years beyond when you are first eligible for normal retirement to be eligible for BackDROP. BackDROP provides a lump-sum payment in addition to your ongoing monthly benefit payment in retirement. MOSERS has many different resources to find out more about BackDROP.* Besides the member handbook, there is a BackDROP page with links to many resources on our website, including the BackDROP brochure.

* Note: The BackDROP is available only to general state employees in the MSEP and the MSEP 2000.

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Social Security

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If a past employee opts to withdraw MOSERS funds all at once upon early retirement age, will that effect their monthly social security amount down the road, after reaching eligible age for such?
MOSERS does not offer a lump-sum withdrawal option of your monthly retirement/pension benefit if you take early retirement.

We recently discussed the scenarios in which a lump-sum option is available through MOSERS in this Rumor Central question.

As far as Social Security retirement benefits are concerned, your MOSERS benefit is a “public” pension and, therefore, is not considered a salary or wage so it does not count towards the annual earnings limit for Social Security. Earnings while in a MOSERS-covered position were also covered by Social Security, so there is no reduction in your Social Security benefit due to your MOSERS benefit. (See the information from Social Security on the “Windfall Elimination Provision” at https://www.ssa.gov/pubs/EN-05-10045.pdf for more information.) We encourage you speak to a tax professional or financial advisor for advice specific to your situation. For more information about Social Security, the Social Security Administration website is www.ssa.gov or call them toll-free at (800) 772-1213.

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Lump-Sum Payment Options

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If I resign before my retirement date and am vested is there an option to take a lump sum payment? To either rollover into a personal IRA or cash out. If so how do I figure that amount?
No, there is currently no lump-sum option in the scenario you described. If you are vested with MOSERS (you have at least 5 years of service) and then leave state employment prior to reaching the age to qualify for retirement eligibility, you would be considered a “terminated-vested” member. You will become eligible to begin drawing your lifetime monthly benefit payments once you also meet the age requirement (and all other legal requirements) and retire under a MOSERS defined benefit pension plan. 

The scenarios in which a lump-sum option are available through MOSERS are the following:

1. BackDROP – Work in a MOSERS benefit-eligible positon at least two years beyond normal retirement eligibility and then you can elect a lump-sum payment at retirement in addition to your lifetime monthly benefit payments.

2. Refund of Member Contributions – If you are a member of the MSEP 2011 or Judicial Plan 2011 (first employed in a MOSERS benefit-eligible position on or after 1/1/2011 and contribute 4% of our pay to MOSERS) and you leave state employment prior to reaching normal retirement eligibility, you may request a refund of your member contributions.

3. If you meet the qualifications for the Cash Out program (available only to vested members of MSEP who left state employment between 10/1/1984 and 9/1/2002) or a “Buyout” program authorized by the legislature (among other eligibility criteria, you must not have worked in a MOSERS or MPERS benefit-eligible positon at any time since 6/30/2017), you may be eligible for a lump-sum payment. However, no one currently employed in a MOSERS benefit-eligible position is eligible for either the Cash Out or Buyout lump-sum program.

Keep in mind that any of the following may affect your retirement eligibility: Your retirement plan (MSEP, MSEP 2011, etc.), age, service, and if you retire directly from active employment versus leaving state government and waiting to retire. Contact a MOSERS benefit counselor to discuss your specific situation. You may also contact a MOSERS benefit counselor to request benefit estimates for various scenarios (including a scenario of leaving employment prior to retirement eligibility).

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BackDROP Overview

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What is BackDROP?
BackDROP, or the Deferred Retirement Option Provision, gives you the option of receiving a lump-sum payment, in addition to your lifetime monthly benefit payments, at retirement. It is a benefit payment option available for general state employees in the MSEP or MSEP 2000 who work at least 2 years (or more) beyond their first normal retirement eligibility date.

The BackDROP lump-sum is 90% of the amount that you would have been eligible to receive during your BackDROP period if you had been retired during that time. If eligible, you will select your BackDROP period during the retirement process. The maximum BackDROP period is 5 years. The length of the BackDROP period you select will determine the amount of your lump-sum payment. Generally speaking, if you elect a longer BackDROP period, your lump-sum payment will be more, but your monthly payments will be less.

You are not required to take BackDROP, and you don’t have to notify MOSERS of any decisions about BackDROP until you retire. This graphic may help explain the big picture, or you can read the BackDROP brochure on our website for more information. More information about payment options is available on the BackDROP page on our website.

BackDROP can be complicated to understand, so MOSERS benefit counselors are available to help by phone or in person by appointment. Call (800) 827-1063 to discuss your options. Counselor can also provide you with benefit estimates, with and without the BackDROP included, so you can compare.

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5-Year BackDROP

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A co-worker said they had read that if you stay past your 5 year backdrop period that your backdrop is negatively affected. Is this true?
The amount of a BackDROP lump sum could decrease if you were eligible to retire before age 62 but worked beyond age 62 and retired under MSEP 2000. This is due to a provision in MSEP 2000 called the Temporary Benefit. The Temporary Benefit is an amount paid to you in addition to your Base Benefit but the Temporary Benefit ends at age 62.
 
Since your BackDROP lump-sum amount is 90% of what you would have received if you had been retired during the BackDROP period, it maxes out at age 62 and can decrease (under the above scenario) if you work beyond age 62 under MSEP 2000.

Since there is no Temporary Benefit in MSEP, if you retire under MSEP and elect BackDROP, the amount of your lump sum will not decrease if you work past age 62. 

We have a helpful Comparison Calculator on our website where you can compare the long-term impact of electing MSEP versus MSEP 2000, different BackDROP periods under the different plans, and various other options. Or, you can ask a MOSERS benefit counselor to provide you with various benefit estimates and Comparison Calculator results.

You are not required to take BackDROP, regardless of how long you work beyond normal retirement eligibility, and you don’t have to notify MOSERS of any decisions about BackDROP until you retire.

The BackDROP is simply a benefit payment option that is available to eligible members.  Members who are or may become eligible for BackDROP are encouraged to attend a PreRetirement Planning Seminar and/or make an appointment with a MOSERS benefit counselor for further explanation.

*BackDROP is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility


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Buyout Program

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So why is MOSERS trying to buy former employee's retirements from them? I know it to be true, one such employee I worked with now works with my spouse and showed him.
Senate Bill 62, passed during the 2017 regular legislative session, authorizes the MOSERS Board of Trustees to establish a voluntary pension buyout program. This program allows certain former state employees who are vested for a pension to cash out their future monthly retirement benefit in exchange for a one-time lump-sum payment now. The Buyout Program is NOT available to current state employees or members who are already retired.

The Buyout Program is completely voluntary and we encourage each eligible former state employee to discuss their individual situation with a financial advisor before making a decision.

We provided eligible former state employees with letters and a newsletter in September that outlined their options so that they may make an educated decision. If they do not elect the buyout, we will contact them prior to their retirement eligibility.

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System Funding

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We have received some questions about MOSERS' funding related to the Buyout Program: 
I just read an article in the St Joseph News Press that states the Missouri pension system " is struggling " It then talks of the pension buyout program. Financially is the system struggling?
I saw in the editorials from the Kansas City and St Louis newspaper that MOSERS is funded only at 69%. What does this mean for the long term future of MOSERS
 As of June 30, 2016 (the close of the most recent fiscal year), MOSERS is 69.6% funded. That means that we have 69.6% of assets necessary to pay all accrued liability over the long term. Because we operate on a very long-term horizon (already analyzing and anticipating funding needs 30-50 years into the future). We will send a summary annual financial report for fiscal year 2017 to all members in December.

The MOSERS board has taken several actions to keep the retirement system solid and secure into the future. The board approved a proposal to reduce the system’s long-term liability by offering a voluntary lump-sum payment (rather than a monthly pension) to former state employees who will be eligible for a pension benefit at some point in the future. This is the Buyout Program the articles are referring to.

Also, unlike in other states, the Missouri General Assembly has consistently appropriated the full employer contribution to MOSERS as recommended by the plan’s actuary. The Governor signed House Bill 5 on June 30, 2017, which resulted in full funding of MOSERS at the contribution rate as certified by MOSERS Board of Trustees in September 2016.

You can find more information on Rumor Central about other related Board decisions and MOSERS' appropriation as well as additional details regarding MOSERS' funded status.


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Buyout Program

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Concerned about the retirement buyout coming up. I don't understand how its figured out, will they take in consideration how many years you will be actually in retirement, help with taxes if you cash out, financial advice. Also, when can we expect more of the information to come out. Thank you!
We are currently finalizing the list of members who are eligible for the Buyout Program and verifying all their information. We cannot yet answer any questions about eligibility or individual lump-sum amounts until we have mailed your letter. We will send letters about the Buyout Program to all eligible members by the end of September. This voluntary program will be offered to eligible former state employees who are vested in a MOSERS retirement plan.

Not Eligible: You are not eligible for the buyout if you are actively employed in a MOSERS or MPERS-covered position, already retired and receiving a MOSERS benefit, have applied for early retirement or will reach normal retirement eligibility with MOSERS prior to 12/1/2017. (See our Rumor Central post “Lump-Sum Payout?” for other reasons vested former state employees may not be eligible.)

If you are eligible, we will send you a personalized letter which will contain both the estimate of your one-time lump-sum amount (if you choose to elect the buyout) and also your future estimated normal retirement annuity/monthly benefit amount. If you do not choose to participate in the Buyout Program, we will contact you prior to retirement eligibility and provide information about the retirement application process.

The amount of the lump-sum payment will be 60% of the present value of your future normal retirement annuity. In order to estimate how long a member might live in retirement, we will use unisex mortality tables. The discount rate used to calculate the present value of your future normal retirement annuity is 7.50% (this is the amount we assume we will earn each year through our investments). All lump-sum payment amounts will be calculated as of October 1, 2017.

With regard to taxes,

If eligible, you should read the Special Tax Notice and consider discussing it with a qualified tax advisor to ensure you fully understand the tax implications of electing the buyout payment.
If eligible, you may take the lump-sum buyout payment as a cash payment, as a rollover to a qualified retirement plan, or as a combination cash and rollover distribution.
Any distribution not directly rolled over to a qualified retirement plan will be reported as taxable income in the year of payment. MOSERS is required to withhold 20% of the taxable portion of a cash distribution for federal income tax. If you are younger than age 59 1/2, an additional 10% early distribution federal tax penalty may apply.

To give members a heads-up so they will be watching for their letter, we will send a newsletter (by email and to home mailing addresses that we have on file) to eligible members with more information about the Buyout Program.

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Lump-Sum Payout?

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I have heard rumors of letters going out in September offering current retires a lump sum pay out on their retirement. Is this true?
No. Members who are already retired are not eligible for the Buyout Program. The Buyout Program is voluntary and allows vested former state employees (who meet all eligibility requirements) to elect to cash out their future monthly retirement benefit in exchange for a lump-sum payment now. We will mail a letter and application to eligible members during the month of September.

You are NOT eligible to participate in the Buyout Program if:

You have been employed by the State of Missouri at any time after June 30, 2017 in any position covered by MOSERS or MPERS.
You would have reached normal retirement age and are eligible to receive a normal retirement annuity from MOSERS before December 1, 2017 (this includes all current retirees).
You have applied for or you are receiving early retirement benefits from MOSERS.
You are a member of the Missouri State Employee Plan 2011 and are eligible for a refund of your employee contributions under section 104.1091, RSMo, and the amount of the refund would be greater than the amount of the buyout payment otherwise payable under the Buyout Program.
You left state employment between October 1, 1984 and September 1, 2002 and are eligible for a cash out of your future retirement annuity under section 104.335.6, RSMo.
You are subject to a Division of Benefit Order ("DBO") issued by a court under sections 104.312 or 104.1051, RSMo, during a divorce proceeding.

The Buyout Program was authorized under Senate Bill 62, which was enacted in 2017.

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Update on SB 62

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Can you give me an update on the possible lump sum payment to former state employees? I believe the state legislature passed the bill and now it's up to Mosers. Any idea when a decision will be reached? I'm really interested in learning details of the proposal.
The Governor has until July 14th  to take action on the bill (sign it, veto it, or allow it to become law without his signature).

The legislation gives the MOSERS Board the authority to establish and offer a lump-sum payment program to terminated-vested members in lieu of retirement annuity benefits otherwise payable – but it does NOT require the board to do so. We do not know if or when the board will choose to establish such a program. If you would like additional information, please see the legislative update on our website summarizing SB 62.

We will contact affected members if the lump-sum program is established. Please ensure that both your email and mailing address are up to date with MOSERS so that you will receive important information from us if you are affected by any new legislation.

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BackDROP & Monthly Pension Benefit

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A question about the backdrop: does it in any way effect your pension? Is your pension reduced? Where does the backdrop money come from?
Yes, if you elect the BackDROP* at retirement, it will likely affect the amount of your monthly pension benefit. With the BackDROP, your monthly benefit will be calculated using your final average pay and creditable service as of the BackDROP date that you choose, rather than as of your actual retirement date. This typically results in a lower monthly payment (compared to what it will be if you do not elect the BackDROP). However, as a tradeoff for a lower monthly payment, you also get a lump-sum payment. The BackDROP is simply a benefit payment option that is available to qualified members.

For additional information, you can: View this BackDROP graphic, read the BackDROP brochure and a variety of Rumor Central questions on the topic, discuss your options with a MOSERS benefit counselor, and use our online Comparison Calculator to see which option might be most advantageous to you over the long-term. This short Comparison Calculator video provides an overview of how the calculator can be helpful in comparing various benefit payment options. MOSERS benefit counselors are available by phone at (800) 827-1063 or you may make an appointment to meet with a counselor in person M-F, 7:30 a.m. - 4:30 p.m., by selecting Option 1 from the main menu.

Regarding your question of where the money comes from for the BackDROP, it all comes from the MOSERS trust fund. In its simplest terms, the BackDROP provides the option to “take more money now and less later” or  “take less money now and more later”. You can see an example of the calculations in the BackDROP brochure. According to our actuaries, it is cost-neutral to the system.

*BackDROP is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility.  

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BackDROP Period

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Please explain backdrop. When looking a retirement date it may state 2 yrs and 2 months then another category will state 2 yrs, another 1 year.
The BackDROP is an option available to eligible members of MSEP or MSEP 2000 which provides a way for you to receive a lump-sum payment at retirement in addition to your ongoing monthly benefit. To be eligible for the BackDROP, you must work at least 2 years beyond your first normal retirement date but you may work longer.  Once you have worked at least 2 years or longer past your first normal retirement date you will have options for the BackDROP period including 1 year, 2 years, or more, depending on how long past your first normal retirement date you worked and the plan you elect (if applicable). The maximum BackDROP period is 5 years.  Generally speaking, if you elect a longer BackDROP period, your lump sum will be more, but your monthly payment will be less. You are not required to take BackDROP, and you don’t have to notify MOSERS of any decisions about BackDROP until you retire.
This graphic may help explain the big picture, or you can read the BackDROP brochure on our website for more information. We have also answered a variety of Rumor Central questions on the topic.
BackDROP is one of the benefits addressed in our PreRetirement Planning seminars, which are conducted around the state for members of the MSEP and MSEP 2000. Most members find that an in-person presentation and discussion of this topic is very helpful! View the 2016 schedule, and log in to register for a location in your area. You will also receive a benefit estimate by attending a PreRetirement seminar, and you can specify when you register that you would like the estimates to include BackDROP.
Remember, MOSERS benefit counselors are available by phone at (800) 827-1063 or in person M-F, 7:30 a.m. - 4:30 p.m., if you would like to discuss your options.  We understand that retirement is a big decision.

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Do you have to pay federal taxes on a BackDROP distribution before you roll it into an IRA?

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Do you have to pay federal taxes on a BackDROP distribution before you roll it into an IRA?
If you elect the direct rollover option to receive your BackDROP distribution, your payment will not be taxed in the year of the rollover and no income tax will be withheld. By electing the direct rollover option, the distribution is paid directly from MOSERS to a traditional IRA or an eligible employer plan that will accept rollovers.
The taxable portion of your payment will be taxed when you take it out of the traditional IRA or eligible employer plan. For a detailed explanation of the payment methods and tax consequences, please review our Special Tax Notice brochure, which is available on our website or by contacting MOSERS. Print Friendly and PDF

Is it possible to have state taxes withheld when requesting a portion of your backdrop but electing to rollover the remaining amount to Deferred Comp?

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Is it possible to have state taxes withheld when requesting a portion of your backdrop but electing to rollover the remaining amount to Deferred Comp?
Yes, starting in February retirees that elect to receive their BackDROP as cash or in combination cash/rollover may request a portion of their cash distribution be withheld for Missouri state income tax purposes. Print Friendly and PDF

In September 2008 I will reach my 5 year backdrop but since I will only be 54 I plan to work until January 1, 2009 in order to retire in the calendar

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In September 2008 I will reach my 5 year backdrop but since I will only be 54 I plan to work until January 1, 2009 in order to retire in the calendar year in which I turn 55. If I retired September 1, 2008 could I roll the backdrop over into my deferred compensation account and wait until January 1, 2009 to withdraw the money without having to pay the 10% IRS penalty? In order to avoid the 10% IRS penalty do you have to retire during the calendar year in which you turn 55 or do you only have to wait until the calendar year in which you turn 55 to withdraw the money?
In order to avoid the additional 10% tax penalty, you must both separate from service and receive the BackDROP distribution (from MOSERS) during or after the year you reach age 55 (age 50 for qualified public safety employees). As long as you will be at least age 55 in the calendar year in which you separate from service you will not be subject to the 10% tax penalty, even if you are only 54 at the time of your separation from service. However, if you are 54 or younger at the end of the year in which you separate from service you will be subject to the 10% penalty if you take the distribution any time before the year in which you reach age 59 ½. For that reason, many people who will not be at least age 55 by the end of the year they separate from service will roll their BackDROP distribution to an IRA and delay receipt until the year in which they are going to be age 59 ½.
General information regarding the tax consequences associated with receiving a BackDROP distribution may be found in our Special Tax Notice brochure. For answers to more specific questions, we recommend you contact a professional tax advisor. A CitiStreet participant service representative can answer your questions regarding the tax consequences of withdrawing funds from your deferred compensation account. CitiStreet’s phone number is (800) 392-0925. Print Friendly and PDF

If an individual retires under the 2000 Plan and takes the BackDROP, does the COLA calculation BackDROP as well?

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If an individual retires under the 2000 Plan and takes the BackDROP, does the COLA calculation BackDROP as well?
Yes, a COLA is applied to your benefit during the BackDROP period under either plan (MSEP 2000 or the MSEP). For example, if you were eligible and chose to take the BackDROP, we would determine your benefit as of the BackDROP date. The lump sum amount would be 90% of the benefits that would have been paid between that BackDROP date and your actual retirement date including COLAs that would have been earned during the period. You can find a more detailed example on page 23 of the General Employees’ Retirement Handbook. Print Friendly and PDF

If a state employee is vested and they resign their position before they are eligible for retirement, can they draw a lump sum payment

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If a state employee is vested and they resign their position before they are eligible for retirement, can they draw a lump sum payment on their retirement at the time they resign or do they have to wait until eligible to receive retirement and then receive monthly payments?
There are no lump sum payments available. If you are vested and leave state employment, you will receive a lifetime monthly benefit upon reaching retirement age and applying for retirement. Print Friendly and PDF

Please tell me how long is the turn around to get your BackDROP, from the date of retirement?

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Please tell me how long is the turn around to get your BackDROP, from the date of retirement?
Assuming you have completed all necessary paperwork, including your BackDROP Distribution form, your BackDROP payment (either cash or rollover) will be paid on the last working day of the month your retirement is effective, along with your first retirement benefit payment. If you have chosen three annual cash installments, your second and third payments will be received on the last working day on the anniversary month of your retirement date in each of the next two years. Print Friendly and PDF