PSERS is Enacting Approved Actuarial Assumptions
According to section 8502(j) of the Retirement Code, every five years the PSERS� Board has an actuarial investigation and valuation of the system based on the mortality, service, and compensation experience from the preceding five years for PSERS members and beneficiaries.
At its March 2011 meeting, the Board accepted the
June 30, 2010 Five-Year Experience Study (PDF) report prepared by Buck Consultants and adopted the economic and demographic assumptions and option factor changes to be implemented for
actuarial valuation purposes with the June 30, 2011 actuarial valuation and for
benefit calculation purposes July 1, 2013. The decision for delaying implementation of the tables for benefit calculation purposes was to ensure that there would be no unanticipated changes for those members who had already received estimates for retirement dates within the following year or so.
Generally speaking, in terms of the tables and factors related to benefit calculations, mortality has continually been improving over the last decade and it is expected to improve in the future. The mortality table that was in use at the time the study was done was no longer widely used since it was considered out of date. New tables and the option factors derived from them were adopted to better reflect actual experience. Additionally, to better reflect PSERS �reality,� PSERS adopted to move to �unisex� option factors with a blend of 25% male factors and 75% female factors, which closely resembles PSERS population.
It is important to note that PSERS is
not changing the formula that is used to calculate your benefits; a change to the formula is at the discretion of the Pennsylvania legislature
The type and degree of impact is dependent on many factors (see below for more information). The actual outcomes vary based upon each individual�s circumstances such as the age of the member and survivor (if applicable) and, years of service at the time of retirement, withdrawal of contributions and interest, etc.
You can generate your own comparison estimates, one for a date of retirement on or before June 30, 2013, and one for a date of retirement on or after July 1, 2013, by using the
benefits calculator, and do your own analysis of the change depending on your choice of payout options and your age at retirement, and if considering a survivor option, the age of your survivor annuitant at your retirement. Estimates done since August 27, 2012, already reflect the updated option factors for retirement dates of July 1, 2013, and later.
Members considering a decision to retire earlier than planned due to these changes should take into consideration the loss of potential additional service credit and the possible effects on final average salary the earlier retirement may cause. Members contemplating delaying their retirement until after July 1 so that they can retire under the new assumptions should consider the loss of monthly benefit payments that would have been received had they retired months earlier.
If you have flexibility and are trying to decide whether to retire prior to or after July 1, 2013, you are strongly encouraged to contact PSERS for comparison pension benefit estimates and to consult your financial advisor.
The type and degree of impact to the monthly benefit is dependent on many factors.
- Mortality improvement is not uniform for every age, so age at retirement is a factor.
- For some retirement options, such as the option to withdraw your contributions and interest and option 1, based on your age at retirement, your monthly benefit may be the same or greater under the new factors.
- For members who retire on or after normal retirement, elect the maximum option and do not withdraw contributions and interest, there is no difference in the monthly benefit.
- For survivor options, the increased mortality is a factor, for both the member and the survivor.
- For example, if the member is assumed to live longer but the mortality for the survivor remains unchanged, then the cost to the member to elect the survivor option would be less and the monthly benefit greater.
- Conversely, if the mortality improvement is greater for the survivor, the cost to the member increases and the monthly benefit decreases.
- In both cases though, generally speaking, the cost to the monthly benefit is greater under the new tables as they reflect actual experience; males and females are both living longer.
- Again, the age of the member and the age of the survivor annuitant at retirement date impact the degree of difference.
- The impact of moving to unisex option factors depends on the proportion of service pre- and post-July 1983.