OPTIONAL FORMS OF PAYMENT. . .

 

When a LAGERS member makes application for retirement, he or she must decide which optional payment form best fits his or her retirement needs. This election of an optional form of payment is made immediately prior to the receipt of the first retirement check and once made, is irrevocable. The options are as follows:

LIFE OPTION

ALL LAGERS benefits are payable for the lifetime of the retirant. If we again assume a $3,000 final average salary with 25 years of service and the L-7 (1.50%) benefit program, the Life Option benefit is calculated as follows:

 

1.50% x $3,000 x 25 years = $1,125

 

This $1125 is the amount payable to the retirant for his or her lifetime. Upon the death of the retirant, monthly payments cease. If he or she has not withdrawn at least his or her accumulated contributions before death, a refund of the balance of the account is made to the beneficiary of record.

 

 

OPTION A

If we take the same salary and service assumptions as above and assume there is no difference in ages between the retirant and his spouse*, the benefit under Option A would be calculated as follows

Life Allowance x 85% = Retirant Benefit $1,125 x 85% = $956.25

This $956.25 is payable monthly to the retirant until his or her death, at which time his or her spouse will begin to receive the following:

Retirant Benefit x 75% = Spouse Benefit

$956.25 x 75% = $717.19

The $717.19 is then payable monthly to the surviving spouse until his or her death. At such time, continuing payments will cease, but with the same guarantee that the employee and spouse will receive at least what the employee had contributed. If they did not receive at least that amount, a refund of the retirant's account balance is made to the retirant's contingent beneficiary.

 

OPTION B

Option B operates essentially like Option A, only the percentages are changed. With this option and the same assumptions, the retirant will receive a slightly higher amount with the spouse receiving slightly less.

Life Allowance x 90% = Retirant Benefit

$1,125 x 90% = $1,012.50

Upon the death of the retirant, his or her spouse would then receive the following benefit:

Retirant Benefit x 50% = Spouse Benefit $1,012.50 x 50% = $506.25



Upon the death of the spouse, monthly payments would cease but with the same guarantee that the retirant, spouse or beneficiaries will receive at least what the retirant had contributed to LAGERS.

*Individuals who have a retirement effective date on or after September 1, 1992, and elect Options A or B at retirement, are covered by a "pop-up" provision. The pop-up provision results in the monthly payment reverting to the life option allowance, upon notification to the system, should the primary beneficiary predecease the member. Under both Options A and B, there is a slight adjustment when there is a difference in age of the retirant and spouse.

 

OPTION C

This option provides for a reduced monthly allowance payable for your lifetime, regardless of how long you live; with the added provision that if you should die before receiving 120 monthly payments, your designated primary beneficiary will receive the same monthly allowance until a total of 120 monthly payments have been made. If you live more than ten years following your retirement, you will continue to receive monthly benefit payments until your death, but your beneficiary would receive no benefits.

The reduced allowance payable under Option C is 95% of the life allowance. For example, if your life allowance would be $1,125 per month, the benefit payable to you under option C would be $1,068.75 per month (95% of $1,125). If you were to die before receiving 120 monthly benefit payments, your beneficiary would receive the same amount until the balance of 120 monthly benefit payments have been made.

Unlike Options A and B, you can change your beneficiary designation under Option C at any time, even after you are retired.

Under Option C, should you and your primary beneficiary die before 120 monthly benefit payments have been made, the remaining payments will be made to the primary beneficiary's estate, unless you have designated a contingent beneficiary. If the contingent beneficiary is living at the time of the primary beneficiary's death, the remainder of the 120 monthly benefit payments will be paid to the contingent beneficiary.

If no beneficiaries are living at the time of your death within the 120-month period, the remaining payments will be paid in a lump sum to the personal representative of your estate.

 

 

OPTION D

Option D is a complete lump sum cash payment to retirees when the reserve value of their allowance at the time of retirement is less than $10,000. Retirees with a reserve value greater than $10,000 are NOT eligible for Option D. If a retiree chooses Option D, a monthly allowance is forfeited.

 

(PLUS) PARTIAL LUMP SUM FEATURE 

This feature provides the option to elect a partial lump sum distribution of the monthly returement benefit, coupled with a reduced future monthly benefit. The lump sum distribution would be equal to 24 monthly payments of the life
allowance amount (does not include any temporary allowance payable under a Life and Temporary plan) at time of retirement. The lump sum payment would result in a reduction (approximately 16 percent) ofthe retiree's future monthly benefit, adjusted for age. For example, a retiree age 60 could elect the regular Life allowance of $1,125 per month, with no lump sum payment; or the retiree could elect the Life Plus option, and receive $27,000 lump sum (24 x $1,125) and a monthly benefit of $945 per month ($1,125 x 84%).

 

All the current options (Life, Option A, Option B and Option C) still apply and may be elected with or without the partial lump sum feature. Please note: The lump sum payment will be subject to all applicable taxes, unless the retiree elects to roll over the taxable distribution to another eligible retirement account. LAGERS is required by law to withhold 20% of the taxable distribution, which is forwarded to the IRS. You may also be subject to early distribution penalties, if you receive the payment before attaining age 55 if you are a general employee and age 50 if you are a public safety employee. As LAGERS staff cannot provide you with tax advice, we urge you to contact a licensed tax preparer.

 

Note: Lump-sum payments made under the PLUS option will be paid no sooner than ninety (90) days after the effective date of retirement, and no later than one-hundred fifty (150) days after the effective date of retirement. Deferral of the lump-sum payment to the next calendar year is not permitted unless the deferred payment falls within the 90-150 day period. In the event a retiree dies before receiving the partial lump sum payment, the lump sum will be paid to the retiree's estate.

 

Learn more about LAGERS retirement . . .