Benefit Options

The member, upon retirement, has three options as to how to receive the benefit.

OPTION A – If the member elects OPTION A, there is no reduction to the monthly benefit other than any “Rule of 75” deductions or any community property or child support reductions. There will be no continuing benefit to a beneficiary or estate upon the retiree’s death, except the balance, if any, of contributions. Those contributions are usually exhausted in 2 to 3 years.

 

OPTION B – If the member elects Option B, the monthly benefit is reduced to provide for a 100% survivor’s benefit. The reduced benefit is payable during the life of the member with the provision that, upon the retiree’s death, the same benefit is paid to the beneficiary for his or her lifetime. The named beneficiary may not be changed after the effective date of retirement since the amount of the option is calculated by using both the age of the member and the beneficiary. If the beneficiary predeceases the member, the member’s benefit will be adjusted by returning it to the “Normal Benefit” amount. The IRS prohibits selection of Option B for a non-spouse beneficiary more than ten years younger than the member.

 

OPTION C – If the member elects Option C, the monthly benefit is reduced to provide for a 50% survivor’s benefit. The benefit is payable during the life of the member with the provision that, upon the retiree’s death, one half of the member’s benefit is paid to the beneficiary for his or her lifetime. Here again, the named beneficiary may not be changed after the effective date of retirement. If the beneficiary predeceases the member, the member’s benefit is adjusted by returning it to the “Normal Benefit” amount.

 

Under the provisions of Options B and C coverage, the beneficiary must be a person, and only one beneficiary may be named. In accordance with the ERA, the term beneficiary means a person having an insurable interest in the life of the member.

Additional information and the approximate benefits payable in individual cases may be obtained from the Educational Retirement Board office.

Options Before Retirement

Any member who has accrued at least five years of earned service credit is entitled to the coverage of Option B from that point to the point of actual retirement, provided that the member’s contributions remain in the fund. This coverage provides protection of funds to the beneficiary in the event of the member’s death prior to actual retirement. Under the Option B coverage provided, the member must name one beneficiary; however, that named beneficiary can be changed as often as needed prior to the member’s actual retirement.

If a member who has chosen the Option B coverage should die prior to actual retirement, the deceased member’s retirement benefit would be computed as of the first of the month following the date of death, and the appropriate benefit due the beneficiary may be commenced as of that date. The beneficiary may choose to defer receipt of the deceased member’s benefit to any future date up to the date on which the deceased member would have become age 60, had he or she lived.

If the deceased member was under age 60, and did not have 25 years of service, deferring the benefit to a future date will result in a higher benefit to a beneficiary since the annuity is reduced for the member’s age at death. The surviving beneficiary, in any case, would have the right to withdraw the member’s contributions plus interest in lieu of the monthly benefit.

An example of a death benefit follows: A member dies at age 42 with 15 years of service. An initial benefit of 35% of FAS is calculated. The reduction on the amount is 2.4% for each year under 60 and 7.25 for each year under 55.

2.4% x 5 = 12% and 7.2% x 13 = 93.6% + 12%.

The reduction leaves the beneficiary with no income if they want the benefit immediately. Waiting until the member would have been 50, yields a 48% penalty, age 55 a 12% penalty, and age 60 no penalty.

A member eligible for Option B coverage may reject such coverage by completing the appropriate form. In the event of the death of a member prior to retirement who does not have Option B coverage, the beneficiary or the member’s estate would receive the member’s contributions plus interest.