Q: Can I contribute more to my retirement so I can retire sooner?
A: Contributions to your ERB retirement are condition of employment for anyone working at more than .25 of a full time equivalent for their job. Contributions for the 2006-2007 school year are 7.75% of your salary. You cannot contribute more or less than the amount determined by state law.
You CAN contribute to you own, voluntary, retirement plan. These plans are called 403(b)’s for educational employees. You may also have the option to contribute to 457 plans through some employers. Theses plans are commonly called Tax-sheltered Savings Accounts or TSA’s. These plans allow you to contribute part of your salary, before you pay taxes, to your retirement savings. Contact your employer to find out more about such savings plans.
I am quitting my job. What is the best thing to do with my retirement contributions?
Many more educational employees quit their jobs than stay long enough to earn a pension. If you are terminating your employment you have 3 main choices concerning your contributions to retirement.
The obvious first choice is to get a refund of your contributions. In order to request a refund you must go through your employer as they will have to certify that you have terminated your employment. It will take ERB approximately 30 days after we receive the application to complete your refund process. We are required by the IRS to send them 20% of the refund amount to help cover the taxes. You will need to pay any state taxes that may be due as well as any additional federal tax. You will probably be assessed a penalty of 10% by IRS if you are under age 59 ½. Finally, you will lose all the service time represented by your contributions if you take a refund of those contributions.
If you need the money you will choose to refund your contributions. You will not have any service time with ERB when you refund your contributions.
A second choice is to roll over your contributions and interest to an Individual Retirement Account (IRA). By doing this you avoid paying taxes or penalties on your contributions until you withdraw the money from the IRA. You choose which company or fund for your IRA and give ERB the account number on your application. You will lose the service time represented by your contributions if you roll over those contributions to an IRA.
You might choose to roll over your money to an IRA if you are sure you will not return to employment with ERB and if you would like more control over how your money is invested.
The last choice is to do nothing and leave your money with ERB. The contributions will continue to earn the interest determined by ERB. That interest is currently 3.72%. You continue to have the service credit toward retirement.
Leaving your contributions in your ERB account is the best choice if you do not have immediate need of the money and believe that you may return to employment with an ERB employer in the future. When you return to employment you just add on to your service until you qualify to retire.
Q: When do 1099’s go out?
A: 1099’-R’s, the equivalent of a W-2 form for retirees will be mailed on January 31 each year. By IRS rule 1099’s go out by January 31st. If you do not receive your 1099 by February 15 you may call our Santa Fe office and request a duplicate 1099. Please wait until February 15 to request a duplicate 1099-R.
If you did not receive the 1099-R because you moved in the last year please send us a change of address notice with the new address, your social security number, and be sure to note that you want your 1099-R sent to the new address. And don’t forget to sign the letter.
Q: Can I make my estate my beneficiary for my retirement?
A: Before you retire:
Yes, but it is a little complicated. When you begin employment you complete a “Form 42” for ERB. In that document you designate a person as your beneficiary in case you die before you are able to retire. If you name more than one person or your estate as your beneficiary the only choice available if you die is for the named beneficiary to receive a lump sum of your contributions plus interest determined by ERB. An individual would have the choice of a possible lifetime benefit as well as the lump sum benefit.
A: After you retire
Yes, but it is complicated. You may name your estate, one, or several individuals as beneficiaries only if you choose the Normal retirement option. Under the Normal option the only benefit to a beneficiary is the lump sum of your contributions plus interest determined by ERB less the money paid to you through your benefits. Typically, the member uses all of their contributions and interest within the first 2 to 3 years of retirement. After that time the only benefit paid to a beneficiary is the retirement check for the month that the retiree dies.
If you choose a B or C option the beneficiary must be one individual. The B and C options allow for a lifetime benefit for the beneficiary if the retired member dies first.
Q: When should I turn in my retirement application?
A: If you are working for an ERB employer you must turn in your retirement application to your employer. The employer will fill out the bottom of the application and provide us with your earnings for the last 2 quarters of your employment.
ERB processes about 1,800 retirement applications each year. In order to be sure that we can process your application in a timely fashion it would be wise to turn in the application to your employer 2 to 3 months before your retirement date. This is especially true if you are retiring on July 1st. We process about 1,200 retirements on that date and retirements are our first priority. A late application would go on the bottom of our work assignment pile. We cannot guarantee that we could process a late retirement application, especially for a July 1 retirement date, so that you would get your first retirement check on time.
Applications turned in to ERB from your employer after the retirement date will automatically have the effective date of retirement changed to the next month.
Q: I am moving. Do I need to let you know that I have changed my address?
A: Yes. We need your address so that we can send you your quarterly newsletter and any other information we need to share with you. All we need to change your address is a written note, signed by you, with the new address. Be sure to include your Social Security number as we keep all our records by Social Security number.
Q: I just got my annual statement at my worksite. Can you tell me more about this statement?
A: Specific information about your retirement benefits are provided in 4 categories.
In the first category you are provided information about the contributions you made to your ERB account during fiscal year 2006, from July 1, 2005 to June 30, 2006. Your employer, as required by state law, took 7.675% of your earnings and forwarded them to your ERB account last year. The statement indicated that you contributed 9.4% last year. 9.4% was the amount contributed last your to the ERB retirement fund by your employer. The employer contribution does not go into your account. Only the money that you contribute goes into your account.
Your total service credit is also reported in your statement. The credit reported includes earned and allowed service credit as of June 30, 2006.
In the second category is a report of your retirement benefit. If you qualified for a retirement benefit as of July 1, 2006 the estimated monthly retirement benefit is reported. This is not an exact amount as your account is not audited each year. When you request an estimate of your retirement benefit or if you apply to retire your account will be audited. Auditing your account means that an ERB employee will carefully review your work history to be sure that the service credit and earnings are accurate.
In the third category is an indication of your disability benefits if you had at least 10 years of earned service as of June 30, 2006. To qualify as disabled you must be 100% disabled and not be able to perform your work. If you qualified for a retirement benefit the disability benefit is not calculated.
In the last category is a report of your account balance; the amount that you have contributed toward your retirement over the years. This amount does not include any interest.
Prior to 2004 ERB reported interest rates in addition to contributions. Interest rates went up and down following the previous board policy that reflected a 5 year average of ERB earnings. While everyone was happy when interest amounts increased many members were worried when in some years their accounts seemed to lose value. In 2003 the Board decided to change the way interest was determined so that it was more consistent. The interest rate in effect the last 2 years has been 3.72%.
Another reason that interest is not reported is that your ERB pension benefit does not rely on your interest earnings. As a defined benefit pension plan your benefit is determined by your final average salary of the highest consecutive five years, your number of years of service and a multiplier of 2.35%. The typical ERB retiree gets back what they contributed in 2 to 3 years after retirement but continues to receive benefits as long as they live.
If you would like to know the interest amount due if you terminated your employment and refunded your contributions please make a written request for a statement and we will be glad to provide you with that information.
You can expect your annual statement sometime between November and February each year. This year’s statements were mailed in the second week of February. With the implementation of a new Integrated Retirement Information System statements took a little longer to produce this year.
What about buying time?
Q: I am getting close to retirement and would like to buy some time so I can retire sooner. How do I do this?
A: When an ERB employee is working more than .25 of Full Time Equivalent (FTE) they earn time toward retirement. Other than working for an ERB employer there are two other options for buying time. Those options include buying active military service or buying allowed service in educational institutions not covered by ERB.
Military service (active military service) must be purchased within the first three years of employment and the cost is 10.5% of the average earnings while an ERB employee. If a member goes on active duty while an employee and then returns, that time in the active military is counted as earned time with NMERB without contributions from either the member or employer.
Allowed service is time worked in licensed K-college institutions in other states, licensed private school service in New Mexico, BIA school service in New Mexico, or Dept. of Defense schools.
Allowed service can be purchased at any time and the cost is an actuarial figure. Practically speaking, actuarial means that the purchase price of the allowed time will benefit about half the people who purchase the time - those who benefit live beyond the normal expected life span of age 78. This actuarial cost means that the purchase price is fair to both members who earn their time and those who buy the allowed time. The purchase of allowed time can be very expensive.
Using the Rule of 75 a member can retire when their age plus EARNED years of service add up to 75. Allowed time does not help a member to retire sooner under the Rule of 75. Only earned time is counted with age to equal the number 75. The allowed time does provide for a larger benefit once the Rule of 75 has been satisfied.
The 25 and out provision allows a member to retire at any age with a combined 25 or more years of service. Under the 25 and out provision if the allowed time plus earned time equals 25 then the allowed time does allow a member to retire sooner.
A third option is available to those members who terminated their employment and refunded their NMERB retirement contributions. The cost to purchase those refunded contributions, and the time that they represent, is the original refund amount plus 8% interest compounded quarterly over the years since the withdrawal. Once purchased, the time is again earned time and can help a member to qualify to retire.
