SHOULD I RETIRE?

Impact of 2009-2015 UHPA/BOR Agreement

IMPORTANT CONTRACT DATES

January 1, 2010—6.667% salary reduction

December 31, 2010 Give notice of intent to retire to eliminate the 6.667%

salary reduction

Any salary reductions taken before notice is given to be returned in a lump sum payment

Notice must be given no later than 30 days prior to the retirement date

Notice can be rescinded up to 24 hours of the retirement date

If you don’t retire, 6.667% reduction will be taken

IMPORTANT CONTRACT DATES PART 2

June 30, 2011 6.667% salary reduction ends

August 1, 2012, 25% of salary reduction paid

back in lump sum

July 1, 2013 salaries increased by 3%

August 1, 2013, 25% of salary reduction paid

back in lump sum

July 1, 2014 salaries increased by 3%

August 1, 2014, final lump sum pay back 50%

SALARY ARTICLE REOPENER

October 15, 2010 negotiations over the

provisions of salary article begin for

consideration by the 2011 Legislature

October 15, 2012 negotiations over the

provisions of salary article begin for

consideration by the 2013 Legislature

Proposals can include retirement incentives

EUTF

UHPA retains the most favored nation clause with respect to employer’s contributions to health

insurance. However,

Premiums will continue to increase

The employer’s 60% contribution has not continued past July 1, 2009

The public employee’s will be paying at least 50% of premiums, even as the premiums increase

EUTF BENEFITS AFTER RETIREMENT

Must not be less than those benefits given to

active public employees

Currently, EUTF prescription drug benefits for

retirees have not been changed despite the

limitations in coverage placed on active public

employees

QUALIFYING FOR EUTF RETIREMENT BENEFITS

For those hired before July 1, 1996

10 years of service = 100%

For those hired after June 30, 1996

10 years of service = 50% of the premium

15 years of service = 75% of the premium

25 years of service = 100% of the premium

INCENTIVE EARLY RETIREMENT

The IRS has determined that the UH can no

longer offer IER packages that;

promised 40% employment after retirement

had no break in service

Allowed the same work to be performed

There is a bill pending that would allow the ERS

to continue pensions for those returning to

public employment after 6-months to one year

AN EXAMPLE

A 63 year old 9-month instructional faculty member at the rank of full Professor with a current monthly salary of $6147 (after the salary reduction in January) with 25 years of service and 3 years as a part-time lecturer, who is married and taking EUTF health, prescription drug, dental, and vision insurance, with 403 days of accumulated sick leave was considering retiring on July 1, 2011. Should she change her mind?

ERS PENSION

Your ERS pension is determined by:

Years of Service

Average Final Compensation

A plan multiplier

Plan formulas:

Non-contributory: 1.25 x Years of Service x AFC

Contributory: 2.00 x Years of Service x AFC

Hybrid: a mixture of the above

FOR OUR EXAMPLE

If she retires on:

31 December 2010

• 1.25 x 27.6 years of service x $6,459.18 = $2,228.41

• 1 July 2011

• 1.25 x 28.1 years of service x $6,366.54 = $2,229.88

How do the factors affecting her retirement

formula change over the length of the contract?

2010 COMPENSATION MILESTONES

2010

January 1, 2010 – Begin

temporary salary

decrease of 6.667%

December 31 – Last day to retire without being subject to temporary

salary decrease

October 2010 – Parties to contract to meet to

consider whether salaries and compensation in

Article XXI shall be increased

2011

CHANGE IN SALARY 2010

Month No Retirement Retirement before 2011

January $6,147.00 $6,586.09

February $6,147.00 $6,586.09

March $6,147.00 $6,586.09

April $6,147.00 $6,586.09

May $6,147.00 $6,586.09

June $6,147.00 $6,586.09

July $6,147.00 $6,586.09

August $6,147.00 $6,586.09

September $6,147.00 $6,586.09

October $6,147.00 $6,586.09

November $6,147.00 $6,586.09

December $6,147.00 $6,586.09

2011 COMPENSATION MILESTONES

2011

January 1, 2011 – Faculty Members who retire after December 31, 2010 are entitled to a one-time lump sum

payment equal to the amount of their pay reduction. Payments are NOT

considered earned wages for pension purposes.

July 1, 2011 –base salaries

subject to temporary

reduction are restored to

December 31, 2009 rate

2012

CHANGE IN SALARY 2011

Month Salary

January $6,147.00

February $6,147.00

March $6,147.00

April $6,147.00

May $6,147.00

June $6,147.00

July – Reduction Ends $6,586.09

August $6,586.09

September $6,586.09

October $6,586.09

November $6,586.09

December $6,586.09

COMPUTING MAXIMUM ALLOWANCE

Month Service Salary AFC Maximum Allowance

December 2010 27.600 $6,147.00 $6,459.18 $2,228.41

January 2011 27.683 $6,147.00 $6,318.75 $2,186.55

February 2011 27.766 $6,147.00 $6,324.68 $2,195.19

March 2011 27.850 $6,147.00 $6,330.62 $2,203.84

April 2011 27.933 $6,147.00 $6,336.55 $2,212.51

May 2011 28.016 $6,147.00 $6,342.48 $2,221.19

June 2011 28.100 $6,147.00 $6,348.41 $2,229.88

AVERAGE FINAL COMPENSATION

This is the average of your monthly earnings for

your highest 3 years excluding any retroactive

pay. (A year is defined as 12 consecutive

credited months, not necessarily a calendar or

fiscal year.)

OVER THE LIFE OF THE CONTRACT

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Jan

-10

Ma

y-1

0

Se

p-1

0

Jan

-11

Ma

y-1

1

Se

p-1

1

Jan

-12

Ma

y-1

2

Se

p-1

2

Jan

-13

Ma

y-1

3

Se

p-1

3

Jan

-14

Ma

y-1

4

Se

p-1

4

Jan

-15

Ma

y-1

5

Salary

AFC

Max Allow

EUTF PREMIUM PAYMENTS

On January 15, 2010, the following deductions were made from her paycheck:

Health Insurance $178.05

Prescription Drugs 38.23

Vision Care 2.21

Adult Dental 13.70

Total $232.19 = $464.38/month = $5,572.56/yr

If she retires, her entire EUTF premium is paid by the State

UHPA DUES

In 2009 she paid $790.32 or $32.93 per

paycheck in union dues. In 2010, with a lower

salary, the dues were reduced to

$30.74/paycheck or $737.76 annually.

If she retires, there are no more dues deductions

SOCIAL SECURITY

Her 2009 report Social Security statement estimates her benefits to be $1329/month if she had retired at age 62. If she waits until her full retirement age of 66, December 2013, it would go to $1830/month

The difference between the Social Security benefit at age 62 versus 66 is $501/month. If you start taking SS benefits at 62, she’ll have received $63,792 before the age of 66. It will take 10 ½ years at the higher benefit payment level to recover the difference

403(B) & ISLAND $AVINGS 457 PLAN

She has accumulated less than $100,000 in a

TDA

WHEN SHOULD SHE RETIRE?

If she retires on December 31, 2010, her max

ERS pension will be $2,228.41/month

If she retires on July 1, 2011

$2,229.80/month

ERS is virtually unchanged, what does

change?

FACTORS THAT CHANGE

Her desire to retire

The length of her retirement

Her Social Security benefit

Her contributions & accumulated TDA funds

Her full time salary > pension

Sick leave continues to accumulate, if not used

ERS pension not subject to state income tax

No Social Security deductions from ERS pension

INCOME REPLACEMENT RATIO

Her take home pay while working Her monthly net income at retirment

Gross minus state & federal taxes Gross Monthly Pension: $2229.80 minus

$222.90 federal taxes with no deductions

for 403 (b) or health insurance

Minus 403 (b) = $1833.32 Net Monthly Pension = $2006.88

Minus health insurance premiums =

$464.38

Gross SS benefit =$1329 minus federal

taxes $159.48

Minus UHPA dues = $61.48 Net SS benefit = $1169.52

Net Monthly Salary = $1981.40 Net Monthly Income = $3176.40

ADDITIONAL QUESTIONS?

Robert Borek, Pacific Wealth Management, LLC

robert.borek@lpl.com

Securities Offered Through LPL Financial, Member FINRA/SIPC

State of Hawaii Employee Retirement System

www4.hawaii.gov\ers

US Social Security Administration

www.ssa.gov

UH HUMAN RESOURCE PRE-RETIREMENT

Date: Tuesday, March 16, 2010

Topic: Employees’ Retirement System (pension benefits)

Time: Hybrid Plan: 8:15 am – 9:45 am

Non-Contributory: 10:15 am – 11:45 am

Contributory: 1:00 pm – 2:30 pm

Place: Kuykendall Auditorium

Registration deadline March, 9, 2010

Date: Wednesday, March 17, 2010

Topic: Hawai‘i - Employer Union Trust Fund (health benefits)

Time: 9:00 am – 10:30 am

Place: Kuykendall Auditorium

Registration deadline March, 9, 2010

Date: Tuesday, April 6, 2010

Topic: Social Security

Time: 9:00 am – 10:15 am

Place: Kuykendall Auditorium

Registration deadline March, 29, 2010