Defined Benefit (DB) Benefits are defined e.g. 1% of Final Salary times Years of Service Contributions to fund benefits are not defined Defined Contribution (DC) Contributions to fund benefits are defined Benefits upon retirement are not defined Function of contribution, investment earnings, management fees, etc.
Employee contributions are common Can’t reduce future DB accruals for current employees Often provide subsidized early retirement benefits Service caps are common Most provide automatic or ad hoc COLAs Longer vesting schedules Some allow members to purchase service credits Some not subject to Social Security Less stringent regulations PLOP DROP
Partial Lump-Sum Option Plan Designed as an extra benefit to retirees How it works Allows participants to take an amount equal to “x” times the monthly single life annuity benefit in a lump sum at retirement Monthly benefits still begin at retirement date and are payable for life, but are reduced to reflect the amount taken in a lump sum
www.strsoh.org www.strsoh.org Publications Under “Brochure Series,” find PLOP Complete worksheet on p.5 of 11, assuming: Kindergarten teacher Mrs. Taylor started teaching immediately after obtaining her masters degree in child education and will retire upon reaching 30 years of service at age 55. Final average salary for Mrs. Taylor is $75,000. She incurred a 80% replacement ratio so her final annual retirement benefit is $60,000. Mrs. Taylor fell in love with a foreclosure home on a golf resort in Florida costing only $189,500. Mrs. Taylor wants to pay for this house in full using as much as possible from her PLOP. Mrs. Taylor wants to receive remaining retirement benefits in the form of a single life annuity to help pay for green fees and monthly resort fees.
Deferred Retirement Option Plan Designed to keep experienced employees who are eligible to retire early How it works Benefit frozen on elected DROP date Payments accumulate in a tax-qualified fund accumulating interest Member receives LS balance on their actual retirement date Member doesn’t continue to accrue benefits while on DROP
www.op-f.org www.op-f.org Members DROP Information Member’s Guide to DROP Calculate Fireman Taylor’s DROP benefit chart, assuming: Mr. Taylor became a fireman right out of high school at age 18 and will retire with unreduced benefits at age 48. Mr. Taylor’s final average annual salary immediately before DROP election is $45,000 and will incur a 2.5% annual salary growth during the 8 years he will be in DROP.