Retirement benefits are determined by a formula. The formula includes three component parts: the member’s Final Average Salary (FAS), the number of years of service credit earned and allowed and the .0235 factor.
FAS x service credit x .0235 = Annual benefit
The Final Average Salary is the greater of:
- The member’s average annual earnings in the last *twenty calendar quarters immediately preceding retirement; or
- The member’s average annual earnings in any twenty consecutive calendar quarters in which there are earnings.
*average annual earnings means the annual earnings are annualized by fiscal year. For example, if the quarterly earnings from 6 years ago will be used to round out the 20 calendar quarters the quarterly earnings will be the average for the fiscal year of six years ago. If quarterly earnings are: $10,000, $15,000, $15,000 and $20,000 then the average quarterly earnings will be $15,000.
Even more precisely, if a member retires at a time other than the end of a quarter (July 1, October 1, January 1, or April 1) income from months within a quarter will be borrowed to correctly reflect a quarters’ earnings. If a member retired on September, 2007 the FAS would be FY 2007, FY 2006, FY 2005, FY 2004, the 2 months earnings in July and August 2007, and ten months of the average earnings in 2003.
A reduction of a member’s benefit is applicable when, and only when, the member’s age is under age 60 and has less than 25 years of service credit. The reduction is 2.4% for each of the first five years under age 60, plus 7.2% for each year under age 55. For example, a retiree with 17 years of earned service who retires at age 58 will have a 4.8% ( 2 yrs. x 2.4% = 4.8%) permanent reduction in benefits. A retiree with 22 years of earned service and age 53 would have a 26.4% reduction (5 yrs. x 2.4% = 12% + 2 yrs x 7.2% = 14.4% = 26.4%).
