The Nevada legislature created the Public Employees’ Retirement System (PERS) in 2009 for individuals employed by the state and by local governments. It is intended to give special advantages to those who devote their careers to public service. Thus, if you work for a Nevada public employer, you likely are enrolled in PERS. One of the PERS advantages is the range of options given retirees in deciding how to structure retirement benefits.
PERS is the same for all public employees, except of those in law enforcement and firefighting for whom there are certain differences in the details.
A Word About Plans for Contributing
Although we are focusing, here, on options for taking your PERS benefits when you retire, there also are differences in plans for contributing to PERS that can affect options for receiving your benefits. One chief difference is between an “Employer Pay Contribution Plan,” where the employer pays the total contribution on your behalf, and the “Employer/Employee Contribution Plan,” where you and your employer contribute equally to PERS.
In some circumstances, you can choose to have your contributions refunded to you if you leave public service and do not want to receive the monthly retirement benefit.
Understanding a “Service Credit” Under PERS
Before getting to the options for taking your benefits when you retire, it is important to understand the PERS concept of a “service credit.”
If you are a regular member of PERS, you earn service credit based on the length of time you work. When it comes to calculating what you will receive in retirement, the formula includes that figure for the years, months, and days you worked. Here is an example of the formula and an example offered by PERS:
Formula: service credit x 2.5% x Average Monthly Compensation = Unreduced Monthly Benefit. Example: 25 Years x 2.5% = 62.5% 62.5% x $2,800 = $1,750.
Note that credits are so important in determining your benefits that in some circumstances you are permitted to purchase additional service credit, but you must pay the full costs of the credit and are limited to purchasing five years. You are given a way to consolidate your retirements plans, to some extent, by using funds in other tax-advantaged accounts such as an Individual Retirement Account (IRA) or 401(a), for example, to buy credits in PERS.
Your Options for Taking Your Benefits
There is a “vesting” requirement for PERS that says you must be a contributing member for at least five years to earn a retirement allowance under any option.
The amount of that allowance, if you do qualify, is based on three things:
- Service credit
- Average compensation during you highest 36 consecutive months of salary
- The retirement option you select, plus your age (and the age of your beneficiary if you name one) at the time of retirement
Benefits are paid to you for life, and, after your death, to one person named as your beneficiary on your retirement application. You do not have to choose such as beneficiary. Within these broad parameters, you as a prospective retiree will have seven options.
Option 1 (called the “Unmodified Allowance”)
pays you the full monthly allowance you have earned over your whole public service career, with no beneficiary to pay when you die.
Option 2 (you name a beneficiary) pays you an actuarially reduced allowance during your life, but after you die the same benefit is paid during the life of your beneficiary. So, for example, the amount you received during your retirement years would continue at the same level for your spouse’s lifetime after you die.
Option 3 (your allowance is reduced by half for your beneficiary) pays you an allowance actuarially reduced for your lifetime—but reduced less because your beneficiary will get 50% of the amount you were receiving.
Options 4 and 5 are in effect variations on options 3 and 4, reducing the allowance during your life less because your beneficiary does not start to collect the benefit until age 60. This might be a choice if your beneficiary is considerably younger than you and financially self-sufficient.
Options 6 and 7 are further choices for how you want to divide benefits between yourself and your beneficiary. You can designate a specific amount that will be paid to your beneficiary. Your own allowance will be reduced actuarially depending on your age and the age of your beneficiary at the time of retirement. After your retirement, you cannot change your beneficiary.
If you choose any of options 2-7 as you approach retirement, there are certain conditions under which you can revert to the Unmodified Option (#1). If your beneficiary dies before you do, your benefit will revert automatically to Option 1.
All seven options will be affected if you choose to take early retirement from public service. If you have earned the service credit to receive a retirement benefit, but you retire early, your benefit will be reduced. You may in fact retire at any age, after you have earned enough service credit to qualify for a benefit, but that benefit will be reduced 4% for each full year early you retire.
When it is Time to Retire
It is well to keep current with PERS to understand any changes made in the law that apply to members joining after a certain date.
You can request an estimate of your retirement benefit and ask for a retirement application between three and six months before your retirement date. PERS asks you to include with your request: 1. Your expected retirement date. 2. Your name and the last four digits of your Social Security number. 3. If you have a beneficiary, that person’s name, date of birth, and last four Social Security number digits.
It is essential to confer with a qualified financial advisor to understand all the details–and the consequences in your circumstances–of choosing a certain retirement option.
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