Planning for Retirement

1. Planning for Retirement Presented by: Nicole Zimm Benefit Policy Analyst - UW System Administration Revised 4/11

2. Planning for Your Retirement • It’s never too early to start planning for retirement • Review the Roadmap to Retirement • Use your benefits wisely while employed • Review your benefits at least on an annual basis • Ask yourself the following questions: • Am I financially able to retire? • Am I psychologically ready to retire? • Fully understand the impact of recent benefit changes on your future retirement benefits

3. Finances in Retirement • Understand your retirement income sources • For a career public employee who retires at normal retirement age, the WRS and Social Security will replace 50% – 85% of pre-retirement gross income • Tax-Sheltered Annuity and/or Wisconsin Deferred Compensation account(s) • Individual Retirement Accounts (IRA) • Retirement plans from other employers • Post-retirement employment • Understand the cost of retiree health insurance and how long your sick leave credits used to pay for retiree health insurance will be expected to last in retirement.

4. Sick Leave Credits and Retiree Health Insurance

5. Health Insurance in Retirement • Must pay total monthly health insurance premium for coverage in retirement • Sick leave balance at retirement is converted to a dollar amount to pay for State Group Health Insurance premiums only. • Once sick leave account is exhausted, premiums can be deducted from annuity. If annuity is not large enough, premium can be paid directly to carrier.

6. Sick Leave Conversion Credit Program • Two Sick Leave Conversion Programs • Accumulated Sick Leave Conversion Credit (ASLCC) Program • Provided for in state statute – would have to pass legislation to change program (no legislation introduced to date) • Supplemental Health Insurance Conversion Credit (SHICC) Program • Provided for in compensation plans and collective bargaining agreements – per OSER and DOA, this program will continue through at least June 30, 2011 for everyone. • Study of program due by June 30, 2012. DOA has indicated that if there any changes to the program, there will be ample notice given so employees can prepare accordingly.

7. Sick Leave Conversion Credit Program Accumulated Sick Leave Conversion Credit (ASLCC) Program Sick leave balance at retirement is multiplied by highest hourly rate while in state or UW service and converted to a dollar amount to pay for State Group Health Insurance premiums in retirement. If unclassified, can determine hourly rate by dividing your highest base salary by either 9 or 12 months (depending on your employment contract) and then dividing by 174 hours. Example: $75,000 ÷ 12 months ÷ 174 hours = $35.92/hour

8. Sick Leave Conversion Credit Program • Supplemental Health Insurance Conversion Credit (SHICC) Program • Must have at least 15 years of continuous UW/state service. These supplemental credits are multiplied by your highest hourly rate and added to your credits under the ASLCC program. • Earn 52 hours per year for years 1 – 24 • Earn 104 hours per year for year 25 and beyond • Not available to those represented by Trades • Protective employees earn credits at a different rate • Your total supplemental credits cannot exceed your total sick leave balance at retirement

9. Sample Sick Leave Credit Calculation Highest Hourly Rate = $38.314 Sick Leave Balance at Term: 2,000 hours Years of Continuous Service: 26 Note: Total hours of supplemental sick leave credits granted can NEVER exceed actual sick leave balance at time of retirement.

10. Online Sick Leave Credit Estimator • Project the value of your sick leave credits using UWSA’s online estimator: http://www.uwsa.edu/hr/benefits/sickLeaveEst/ • You will need the following information before you can use the estimator: • Your estimated retirement date • Your current sick leave balance • Your seniority/continuous service date • If classified, your current and/or expected highest hourly wage rate • If unclassified, you current and/or expected highest annual salary (this is your annual base salary and does not include overloads, summer pay or any additional pay) • The name of your current health plan and/or the name of the health plan that you expect to have in retirement

11. Transfer to Retiree Health Insurance • At retirement, your sick leave credits are calculated by UWSA payroll staff and sent to ETF. • ETF will move you to retiree coverage under the State Group Health Insurance plan (you will receive new ID cards with new group number) – do not need to submit a new health insurance application. • ETF will track your sick leave credit usage and send you a statement each December. • If you have comparable health insurance elsewhere during retirement, can escrow (save) sick leave credits for future use.

12. Medicare and Retirement • If retired and covered under State Group Health Insurance as a retiree, must enroll in Medicare at age 65 • Part A (hospital) • Part B (medical) • Do NOT enroll in Part D (Rx coverage) – your Navitus Rx benefit continues under retiree health insurance • State Group Health Insurance will become your Medicare supplemental and the premium will decrease • Not required to enroll in Medicare Part B if you and/or your spouse/domestic partner are covered under a group policy through active employment. • More information: http://www.medicare.gov

13. Retiree Health Insurance Premiums • 2011 Median Monthly Premium for HMO coverage (under age 65 & non-Medicare eligible) • Single: $724.70 • Family: $1,807.90 • 2011 Median Monthly Premium for HMO coverage (Medicare eligible) • Single: $446.55 • Family coverage;1 person w/ Medicare: $1,161.40 • Family coverage with all under Medicare: $890.50 • 2011 Medicare Part B premium $96.40/month for most • Plan specific premiums on ETF’s website

14. Dane County 2011 Retiree Health Insurance Premiums

15. If I retire before I’m Medicare eligible, how much will health insurance cost?

16. If I retire when Medicare eligible, how much will health insurance cost?

17. How can I maximize my sick leave credits at retirement? Minimize your sick leave usage - you are not required to use sick leave for an illness, doctor’s appt….you can substitute other paid leave. Maximize your base pay rate - if you know there is an upcoming raise, wait to retire until you receive the raise. Work longer - the longer you work, the more sick leave you accrue. If you wait until age 65 to retire, your health insurance premiums will be lower due to Medicare eligibility so your sick leave credits will last longer. (more next slide)

18. How can I maximize my sick leave credits at retirement? Carry a family health insurance policy if married to/in a domestic partnership with another state/UW employee who earns sick leave - when state/UW employees are married/in a domestic partnership retire AND carry a family health insurance policy, can use both sick leave credit accounts to pay for retiree health insurance. If one dies, the other will have access to the spouse’s/partner’s credits to pay own health insurance premiums as long as a family policy was in effect at the time of death.

19. I’m concerned about changes to the Sick Leave Credit Program – what can I do? • Everyone needs to look at individual situation and ask themselves the following questions: • Where you planning to retire in 2011 anyway? • If not, can you afford to retire earlier than expected? • Is the loss (or potential loss) of some sick leave credits worth retiring earlier than you wanted? • Lost income • Reduced annuity • Younger when you start using sick leave credits • Sick leave credits may not carry you to Medicare age • Do you know the value of your supplemental sick leave credits? • You should understand the value of your credits before you make a decision.

20. The Wisconsin Retirement System and Your Annuity

21. What is the WRS? • Created to provide retirement income to retired public employees. • WRS is solvent, well-funded, has a diversified investment portfolio, is focused on long-term investing and will provide promised benefits. State statute guarantees payment of benefits. • Administered by the Department of Employee Trust Funds (ETF) • Investments managed by the State of Wisconsin Investment Board (SWIB) • 9th largest public pension fund in U.S. and 30th largest fund in the world • Immediately vested

22. WRS Contribution Rates • For most, 11.6% of gross wages, up to IRS maximum, contributed to WRS to fund future benefits (13.3% for executives). Most employees currently pay 0.2% of earnings to WRS. • Per 2011 Wisconsin Act 10 (Budget Repair Bill) employees will pay half the total WRS contribution • 5.8% for those covered by Teacher and General WRS categories • 6.65% for those covered by Elected/Executive WRS category • Total contribution rate actuarially determined on an annual basis • UW contributes 1.2% of gross wages to fund retiree health insurance.

23. Possible Changes to the WRS • The current administration plans to study the WRS over the next few years • Legislation will have to be passed in order to make any changes to the WRS • WI Act 10 (Budget Repair Bill) • Changed the employee-required contribution rate for all employees (half of total contribution) • Effect – dollar value of account will actually increase because of this change • Prospectively changed the formula factor for employees in the Elected/Executive WRS Category from 2% to 1.6% (will have same formula factor as General/Teacher employees) • Historically, any changes to the WRS have been prospective and accrued benefits were not affected.

24. The Core Fund • Core Fund is well-diversified • 55% in stocks • 29% fixed income • 16% private equity, real estate, multi-asset • All contributions invested in Core Fund unless you elect to participate in the Variable Fund. • Interest credited once per year – based on 12/31 investment returns • Market gains/losses recognized over a five year period so interest crediting, contribution rates and annuity dividends more stable.

25. The Variable Fund • Variable Fund is composed wholly of stocks • 69% domestic stocks • 30% international stocks • 1% multi-asset category • If enrolled in Variable Fund, ½ of contributions credited to Variable Fund and ½ to Core Fund. • Interest is credited once per year, and investment returns are fully recognized each year (no smoothing mechanism)

26. Definitions • WRS Annuity: monthly check that you will receive in retirement for the rest of your life. • Minimum Retirement Age: earliest age that you can receive a WRS retirement benefit; age 55 (general/teacher) or age 50 (protective) • Years of Creditable Service: amount of WRS service based on number of hours worked in a year. • Classified employees: service reported on calendar year basis (1 year = 1904 hours) • Unclassified employees: service reported on fiscal year basis (1 year = 1320 hours)

27. Definitions • Seniority/Continuous Service Date: date you began state/UW employment (adjusted for breaks in service); used to determine value of sick leave credits. • Formula vs Money Purchase Calculations: 2 methods used to calculate retirement annuity. • Age Reduction Factor: factor used to reduce formula calculation if you retire before “normal retirement age” of 65. There is no age reduction factor if you retire at 65 or later or if you are age 57 or later with 30 years of creditable WRS service.

28. Two Types of Retirement Calculations • At retirement, annuity is calculated under two methods – you receive the higher • Formula calculation based on: • Final Average Earnings (FAE) • FAE = Total of highest 3 yrs of earnings ÷ Total WRS service during those 3 years ÷ 12 • Years of creditable WRS service • Formula factors based on employment category • Age reduction factor based on age at retirement and years of service • Formula benefits capped at 70% of FAE • Formula calculation method • Years of Service x FAE x Formula Factor(s) x Age Reduction Factor

29. Two Types of Retirement Calculations • Money Purchase Calculation based on: • Total $$ amount of WRS account at retirement • “Employee” + matching employer contributions + interest • Money purchase factor based on age at retirement • Money Purchase Calculation Method • M. P. Balance at Retirement x M. P. Factor • You can see which calculation type is currently higher for you if you look at the bottom of the last page of your ETF Annual Statement of Benefits.

30. Sample retirement annuity estimate

31. Sample Retirement Annuity Estimate & Annuity Options

32. How do I select an annuity option? • When selecting an annuity option, you should consider the following: • How much money do you need to maintain your standard of living – is the annuity sufficient or do you have other income sources? • Are you single or married/in a domestic partnership? • Is there a large age difference between you and your spouse/domestic partner? • Do you want to ensure your spouse/partner is guaranteed an annuity upon your death? • Do you want to make sure the full value of your WRS account is paid out, no matter how long you live? • Do you want to maximize your annuity today (not concerned with death benefits payable)? • Do you plan to start Social Security at age 62? • Resources: • Review the ETF brochure Choosing an Annuity Option • Use ETF’s Accelerated Payment Calculator to see if choosing an accelerated option is a good choice for you.

33. Annuity Adjustments • Final annuity calculation – once ETF receives all final earnings information, ETF will finalize your annuity payment and any back payments will be paid on the first annuity check based on the final annuity calculation. • Annual adjustment – your annuity may change on an annual basis due to an annuity adjustment based on the performance of the WRS. Any changes will be reflected on your May 1st check. History of changes: http://www.etf.wi.gov/retirees/dividends.htm • You do not receive a monthly annuity statement from ETF – you only receive a statement if something changes the amount you receive (final calculation, change tax withholding, annual annuity adjustment…)

34. Taxes and Your Annuity • Your WRS annuity is taxable income for state and federal tax purposes. • Can change your tax withholding at any time with ETF. • ETF will send you a 1099R tax statement every January. • Your annuity is not “earned” income so there are no Social Security or Medicare taxes withheld.

35. Choosing Your Retirement Date • If your annuity is higher under money purchase calculation, maximize interest crediting. • If you term on or before December 30th, will receive a prorated percentage of 5% interest on account for that year. • If you term December 31st or later, will receive the effective interest rate(s) for the prior year. • If you are paid on a fiscal year basis and annuity is higher under formula calculation, consider retiring just after the end of the fiscal year to maximize final average earnings. • If you retire on or after official seniority/continuous service date, you may be eligible for additional sick leave credits to fund retiree health insurance. • Usually the longer you wait to retire, the better  due to increased service, earnings, contributions, lower age reduction factor and higher money purchase factor.

36. How do I know the value of my annuity/how do I order a retirement application? • There is an online retirement calculator on ETF’s website: etf.wi.gov/calculators/disclaimer.htm • Use the information from your ETF Statement of Benefits to help you complete the information needed for the calculator • You must project future service and earnings yourself – calculator does not project future interest, service or earnings. • You can request an official estimate/application from ETF once per year for a retirement date of no more than one year in the future. • Can contact ETF at 1-877-533-5020 to request an estimate/application

37. Retiring on Short Notice • Given upcoming WRS and health insurance changes, some employees are choosing to retire within the next few months. Before retiring “quickly”, you should: • Review ETF’s document Retiring on Short Notice • Request a retirement application from ETF (there is currently a 10-12 week backlog at ETF) • You can use an old retirement application if you have one (it will be updated upon entry) • If you do not receive your application before your termination date, you have up to 90 days after your termination date to submit your retirement application to ETF (annuity will begin day after your termination date). • Can submit an Annuity Option Change Form instead of a retirement application if you do not receive your application timely

38. Retiring on Short Notice • (continued from previous page) • If you have any accumulated leave (vacation, sabbatical/ALRA, personal holiday) at the time of termination, determine how you want to receive payout • If you take a lump sum payment • Payout directly to you (fully taxable) • Defer to TSA and/or WDC accounts (defer all taxes except Social Security) • Payout is NOT reportable to WRS (no WRS contributions due on payout and you will receive no WRS credit for these earnings) • If you remain on payroll past last physical day of employment • Receive regular paycheck • All earnings/service reportable to WRS (increase WRS annuity) • Continue to accrue leave (increase sick leave credits) • Continue all benefits like an active employee (continue to receive employer contribution towards all benefits)

39. What happens to my other benefits at retirement? • State Group Life Insurance • Automatically continues (if eligible) • Premiums taken from annuity until age 65; no premium due once you turn 65. • Coverage is reduced to 75% of basic at age 65 and 50% at age 66. • Spouse and Dependent coverage ends at retirement – can convert to an individual policy at a higher premium • Income Continuation Insurance • Ends at retirement

40. What happens to my other benefits at retirement? • VSP Vision, Dental Wisconsin, Anthem DentalBlue, EPIC Benefits+, UIA Life Insurance, AD&D Life Insurance • Can continue indefinitely in retirement through direct payment to carrier • Individual and Family Life, UW Employees Inc. Life • Can be converted to an individual policy but premiums are much higher • CAUTION: All continuation/conversion applications must be submitted on a timely basis or the right to continue/convert coverage will be lost. • Evaluate the level of life insurance you need as you age.

41. What happens to my other benefits at retirement? • Employee Reimbursement Account (ERA) • Medical Account: • Can contribute remainder of election either as a tax-free lump sum on your final paycheck(s) or as a personal after-tax payment • Will be able incur eligible expenses through end of plan year • If you do not contribute annual election, can incur eligible expenses until the end of the month that last check is payable. • Dependent Care Account: contributions end on last paycheck (cannot contribute remainder of election); can incur expenses through end of plan year.

42. Resources UWSA Benefits Page: http://www.uwsa.edu/hr/benefits/ UWSA Retirement Page: http://www.uwsa.edu/hr/benefits/retsav/index.htm Benefits at Retirement: http://www.uwsa.edu/hr/benefits/lifevent/uws73.pdf UWSA TSA Page: http://www.uwsa.edu/hr/benefits/retsav/tsa.htm Budget Repair Bill Page: http://www.uwsa.edu/hr/benefits/budgetbill.htm ETF’s Main Page: etf.wi.gov/index.htm ETF’s Calculators Page: http://www.etf.wi.gov/calculator.htm ETF’s Video Library: http://www.etf.wi.gov/webcasts.htm SWIB’s main page (review investment earnings): www.swib.state.wi.us/

43. Thinking of Retiring? Contact Demi Wiemann (dwiemann@uwsa.edu) or Nicole Zimm (nzimm@uwsa.edu) for counseling & continuation forms