Retirees in Indiana will receive less money per month from their pension following a change to an Indiana Public Retirement System policy. The annuity rate for retirees in Indiana has gone down from 8-10 percent to 3-4 percent, which is the market rate.
INPRS representative George Shields came to campus to explain the policy changes to Ball State faculty Monday in the L.A. Pittenger Student Center Forum.
An annual annuity rate is the percentage of an individual’s pension that they receive per month when a person converts their pension to a monthly income, according to a report by the Indiana Public Retirement System.
These changes will go into effect Oct. 1, 2014. Anyone who retires before that point and anyone who does not plan on annuitizing money with INPRS will not be affected by this change.
In the current policy, retirees can choose from two plans. One is a traditional pension plan, which is known as a defined benefit plan.
This means a faculty member will earn a benefit for life based on an individual’s ending salary and number of years of service.
The other plan is called an annuity savings account.
This is an addition to the defined benefit plan where 3 percent of the faculty member’s salary is added to the annuity savings account yearly. The individual can then invest that 3 percent where they wish.
“So when somebody retires, we calculate first what pension benefit they might get, that’s that defined benefit, that pension for life,” Shields said. “Then they have to decide in addition to that, what do they want to do with the money they have in their savings account.”
The plan was changed because they were using 30-year-old factors to decide their annuity rate. Also, considering individuals tend to have a longer life, pensions have been used for longer than they previously were and in order to compensate for that, annuity rates had to go down, Shields said.
“INPRS actuaries estimate the [current] system has taken on a potential $181 million loss for annuities already converted,” a INPRS report said. “They forecast an additional $343 million loss if there were no change.”
Jane Adams, Ball State’s academic adviser, said people nearing retirement are definitely affected by the change.
“[People] need to do more research and come to an educated decision on it,” she said.
??? Hutson said if retirees plan to annuitize, it’s always a good idea to talk to a financial adviser and ask what the best options are for an annuity savings account.
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