INTER FACULTY ORGANIZATION

2007 WORKSHOP MATERIALS

ON

RETIREMENT ISSUES

FOR

FACULTY NEARING RETIREMENT

Presented By:

Russ Stanton, Director of Government Relations

Inter Faculty Organization

Disclaimer:  This workshop is being conducted by the Inter Faculty Organization (IFO), the exclusive representative of the faculty at the Minnesota state universities, as a service to its members.  The views expressed either verbally or in writing are those of the representative of the IFO not the Minnesota State Colleges and Universities (MnSCU) or any of its affiliated institutions.  The IFO and its representatives do not sell or endorse any investment product or service and do not receive any fees, commissions or financial reimbursement from any vendor of investment products or services.  This workshop is designed to familiarize faculty with options available to them under their retirement plans and collective bargaining contract-it is not to be constructed as financial planning.  The IFO encourages all members to seek financial advice from a licensed financial planner.

Table of Contents

What’s New in 2007?
Final Year Two-Step Increase
Early Separation Incentive
Notice of Intent to Retire Sample Letter
$500 Paid-Up Death Benefit
Paid-Up Life Insurance
Severance Pay
Supplemental Retirement
Individual Retirement Account Plan
TRA Formula – Tier 1
TRA Formula – Tier 2
Optional Retirement Annuities
Effect of TRA/Post Fund Adjustments
Phased Retirement and the Annuitant Employment Program
Phased Retirement (Article 15)
Annuitant Employment Statute
Phased Retirement Sample Letter
Annuitant Employment Sample Letter
Retiree Health Care Insurance
2007 Monthly Rates
Paying for Retiree Health Care
Life Insurance Benefit for Beneficiary
HCSP Beneficiary Designation Form
MnSCU HRA COBRA Alternatives Chart
Voluntary Tax Sheltering
MNDCP Investment Options
Retirement Guide and Checklist
Important Numbers and Websites

WHAT’S NEW IN 2007?

Roth TSA Option Added
The 403(b) Tax Shelter Annuity (TSA) program was modified in July to add the option of a Roth Tax Sheltered Annuity for faculty to invest in.   A faculty member can invest in a traditional TSA, a Roth TSA, or both.   However, the maximum allowable contribution to either or both the traditional TSA and/or the Roth TSA is $15,500 for those under age 50, or $20,500 for those over age 50.   Under a traditional TSA, money is contributed on a pre-tax basis, and the principle and interest are taxed at normal rates when distributions are taken.   Under the Roth TSA, contributions are contributed on an after-tax basis, but neither the principle nor the interest earnings are taxed upon distribution.

The TRA Post-Retirement Adjustment will be 2.5%
The annual benefit increase for retirees will be 2.5% for the year starting January 1, 2008.    The annual increases for retirees are based on an inflation adjustment of up to 2.5% each year, plus an additional investment performance adjustment if returns exceed an 8.5% threshold.   However, the Post-Retirement Fund has a $4.1 billion deficit that needs to be paid off.   It is expected that post-retirement adjustments will not exceed the 2.5% inflation adjustment for a couple decades.

TRA Allows Acceleration to Social Security Normal Retirement Age
Under previous law, early retirees under the TRA program could accelerate their retirement benefits to either age 62 or 65, after which the benefits would drop.   Now that the age for “normal” retirement under Social Security is gradually rising, the law has been changed to allow acceleration to age 62, 65, or an individual’s normal Social Security age.   This allows coordination of TRA benefits with Social Security benefits.   

TSA Contribution Maximum Raised by $500/Year
The Tax Sheltered Annuity annual contribution maximums were raised to $15,500 per year and the maximum contributions for persons 50 and older increased to $20,500.

Deferred Compensation Contribution Maximum Raised $500/Year
The Deferred Compensation annual contribution maximums were raised to $15,500 per year and the maximum contributions for persons 50 and older increased to $20,500.

Career Steps in the Contract Expired on June 30, 2007
Career steps already received remain in effect, but no new career steps will be granted unless the IFO/MnSCU contract is changed.

Special Early Retirement Incentive Changed
Previously, faculty members who reached 15 years of service after age 55 years of age had to apply for the benefit within 180 days of reaching 15 years of service, and retire within 181 days of applying in order to receive the full benefit.   This complex rule has now been changed so that a faculty member must now give notice by October 1st prior to retiring and must retire by the end of the full academic year following the date he/she reaches 15 years of service.   This change greatly simplifies the special early separation incentive and will allow members of this special class of retirees to work up until 16 years and still receive the full early separation incentive.

$500 Retiree Death Benefit Likely to Change
The IFO/MnSCU contract, like most state employee contracts, contains a $500 death benefit for persons eligible to receive a retirement benefit under a state retirement program.   This benefit was only claimed by about half of the people entitled to it.   Therefore, in coalition bargaining with the state, the employee unions agreed to replace the $500 death benefit with a $250 contribution to the tax-free health care savings plan. 

Final Year Two-Step Increase

Article 11, Section C, of the proposed 2005-2007 IFO/MnSCU Agreement reads:
Section C.  Faculty Who Provide Early Notice of Retirement.  Faculty members who elect to retire with at least fifteen (15) years of service in the Minnesota State Universities and who are at least age fifty-five (55) shall have his/her salary placement increased by two additional steps on the salary schedule(s) established in this Agreement in the final two semesters of employment. To receive this benefit the affected faculty member must submit a written letter of retirement by October 1 if retirement will occur no earlier than the end of the following spring semester and no later than the day prior to the beginning of the subsequent fall semester or by January 15 if retirement will occur at the end of the subsequent fall semester.  Faculty who cannot receive the early notification of retirement steps provided for in this Section because they are at step 49 of the salary schedule shall receive a one-time payment of $4,800 (pro-rated by FTE) in lieu of the step increase provided for in this Section.

Important Points:

• The notice date for retirement effective prior to the next fall semester is October 1.  If you wish to leave at the end of fall semester, you must give your notice by the previous January 15, to be eligible for this special two-step salary increase.
• The two-step increase is in addition to other steps and across-the-board increases you would otherwise be eligible for during the year.  The increase amounts to a 4.85% increase in base salary for the final year of employment.
• Since both severance pay and the early separation incentive are based on the final year of employment, the two additional steps also result in a 4.85% increase in these benefits.   However, the $4800 one-time payment to faculty at step 49 will not count in base salary for computing severance and the early separation incentive.
• The two additional steps (or the $4800 payment for faculty at step 48) will not be counted in your salary for purposes of computing your “high-5 average salary” for TRA pension benefits.
• The two-step increase is paid throughout the final year of employment.  

Early Separation Incentive

Article 16, Section D of the proposed 2005-2007 IFO/MnSCU Agreement reads:

Section D. Separation Incentive.

Subd. 1.  Eligibility   In addition to the above a faculty member who has served at least fifteen (15) years in the Minnesota State Universities and is at least fifty-five (55) years of age shall be eligible for early separation.

Subd. 2.  Sunset.  Faculty members hired after June 30, 1996 shall not be eligible for this early separation incentive.

Subd. 3.  Individual Eligibility.

a.  An eligible faculty member who elects early separation through resignation or early retirement by October 1, to be effective the beginning of the subsequent academic year, or a date mutually agreed upon by the faculty member and the Administration, except those faculty qualifying under paragraph b. below, shall receive compensation equal to his/her base salary minus ten percent (10%) of his/her base salary for each year beyond age fifty-five (55). The faculty member shall receive the compensation in two (2) equal annual payments, the first at the beginning of the ensuing fiscal year and the second in the following fiscal year. If the separation payment is less than ten thousand dollars ($10,000), it will be paid to the faculty member in a lump sum.  In no circumstance shall a faculty member eligible for an early separation payment receive such payment in any one fiscal year which would result in compensation in excess of one hundred percent (100%) of total salary, exclusive of overload and summer sessions.  In the event a faculty member who is otherwise eligible for the separation incentive described in this Section, and has provided the advanced notice of his/her intention to retire as provided in this Section, dies before his/her separation date, the incentive payment shall be made to his/her estate.

b. If a faculty member is older than age fifty-five (55) when s/he completes the fifteen (15) years of service requirement, the faculty member shall receive the full benefit of one year’s base salary if s/he: 1) applies within one hundred and eighty (180) days of meeting the age and service requirement, and 2) the separation will occur no later than one hundred and eighty-one (181) days following the date of application for the benefit. Any faculty member eligible under this subdivision who does not elect early retirement during this window but chooses to apply later will be compensated under the schedule set forth in paragraph a.
 
Subd. 4.  Institutional Designation.  After meeting and conferring with the Association, the President may designate departments or programs in which faculty members choosing the incentive shall receive compensation equal to their full base salary.  The President’s designation will be based on reasons that are in the best interest of the university.  Payments will be made in a manner consistent with Subdivision 3.
Subd. 5.  Maintenance of Benefits   The separated faculty member shall have an amount equivalent to the employer contribution for one year’s health insurance premiums deposited in his/her postretirement health care expense account at the time of separation.
Subd. 6.  Persons choosing early separation shall have eligibility for early retirement payments determined in accordance with appropriate statutes and regulations. 

Important Points:

• You must notify your employer by October 1st for retirement effective the beginning of the following fall semester.  If you retire at the end of fall semester, it has been MnSCU's practice to require notification by the previous January 15th in order to qualify for the incentive.  You can give your notice for the separation incentive in the same letter as the notice for the final year two-step increase (see form letter that follows).
• The contract provides that the separation incentive is paid out in two equal installments, the first half in the first paycheck in July following retirement and the second half one year later. 
• You may be able to tax shelter the first installment of your separation incentive, depending on how much you have already contributed to tax sheltered annuities for the current and past years.  If you are interested in doing this, contract your HR Office or call TIAA-CREF at 1-800-682-8969. 
• It is possible to tax shelter an additional amount through the State Deferred Compensation program.  The State Deferred Compensation program does not have the pre-age 59½ withdrawal penalty that applies in the case of TSAs.  Contact your HR department or the State Deferred Compensation program for details call David Ochs at 612-247-6597.
• It takes time to set this up properly, so start soon.
• Under the current contract, the employer will contribute the equivalent of a years worth of health insurance premium in cash to the post-retirement health care savings plan.   This amount (approximately $5,188 if you have individual coverage, and $13,746 if you have dependent coverage, can be used to purchase health care through the state health plan or elsewhere, or if it is not needed for immediate health insurance costs (for instance, if a faculty member already has health coverage through a spouse or with a new employer) the money can be used for other immediate health related expenses (dental, eyewear, long-term care premiums) or saved to pay for health related expenses later in retirement (Medicare Part-B, Part D, and Medicare supplement premiums).
• Due to a recent Letter of Understanding between MnSCU and the IFO, persons who reach 15 years of service after they reach age 55 can retire by the end of the first full academic year after reaching eligibility, and receive a full year of salary, unreduced for age.  Please contact Russ Stanton of the IFO if you have questions about this change.
• Some faculty members have service before the June 30, 1996 sunset date for the early separation incentive had a break in service, and then returned to service at some time after the sunset date.   MnSCU and IFO reached agreement on a Letter of Understanding further defining who is eligible for the early separation incentive under such circumstances.   If you are a person in these circumstances, please contact Russ Stanton to see if you are eligible.  

Sample Notice of Intent to Retire
Early Separation Incentive and the Final Year Two-Step Increase

Date

President
University
Address 

Dear President: 

I am hereby giving notice, pursuant to Article 11 and Article 16 of the IFO/MnSCU Agreement, of my intent to retire on (date).

My decision to retire is based on the understanding that I am entitled to the final year increase of two additional steps for early notice of retirement, as provided in Article 11, and the early separation incentive, as provided in Article 16 of the IFO/MnSCU Agreement.  If for any reason I am ineligible for the benefits referred to above, I reserve the right to rescind this notice prior to my retirement, returning any separation benefits I received, and to continue my employment.

Sincerely,

(Your Name)

$500 PAID-UP DEATH BENEFIT

Article 14, Section F, Subd. 2 (c) reads:

c. Additional Death Benefit.  Faculty members retiring on or after July 1, 1981, shall be entitled to a five hundred dollar ($500) death benefit payable to a beneficiary designated by the faculty member, if at the time of death the faculty member is entitled to an annuity under a State retirement program.  A five hundred dollar ($500) cash death benefit shall also be payable to the designated beneficiary of a faculty member who becomes totally and permanently disabled on or after July 1, 1983, and who at the time of death is receiving a State disability benefit and is eligible for a deferred annuity under a State retirement program.

Important Points:

• Less than half of the eligible retirees collected the $500 death benefit.   The coalition of state unions that negotiate the state employee insurance benefits agreed to changes in the next contract that would eliminate the $500 death benefit and replace it with a $250 contribution to the retiring employees Health Care Savings Plan (HCSP) at the time of retirement.   Although the new IFO/MnSCU contract has not been agreed to yet, it is very likely that new contract will include this change.  The change will only affect faculty members who retire after January 1, 2008.

    
PAID-UP LIFE INSURANCE

    Paid-up Life Policy. At age sixty-five (65) or the date of retirement, an employee who has carried optional employee life insurance for the five consecutive years immediately preceding the date of the employee's retirement or age sixty-five (65), whichever is later, shall receive a post-retirement paid-up life insurance policy in an amount equal to fifteen percent (15%) of the smallest amount of optional employee life insurance in force during that five (5) year period.  The employee's post-retirement death benefit shall be effective as of the date of the employee's retirement or the employee age sixty-five (65), whichever is later.  Employees who retire prior to age sixty-five (65) must be immediately eligible to receive a state retirement annuity and must continue their optional employee life insurance to age sixty-five (65) in order to remain eligible for the employee post-retirement death benefit.

An employee who has carried optional spouse life insurance for five (5) consecutive years immediately preceding the date of the employee's retirement or spouse age sixty-five (65), whichever is later, shall receive a post retirement paid-up life insurance policy in an amount equal to fifteen percent (15%) of the smallest amount of optional spouse life insurance in force during that five (5) year period.  The spouse post-retirement death benefit shall be effective as of the date of the employee's retirement or spouse age sixty-five (65), whichever is later.  The employee must continue the full amount of optional spouse life insurance to the date of the employee's retirement or spouse age sixty-five (65), whichever is later, in order to remain eligible for the spouse post-retirement death benefit.

Each policy remains separate and distinct, and amounts may not be combined for the purpose of increasing the amount of a single policy.

Important Points:

• This paid up life insurance requires the optional life insurance to be in force for five years, so it requires advanced planning.   If you are already in your last five years of employment, there is not much you can do besides maintain the optional coverage you have in effect.

Severance Pay

Any faculty member who has at least 10 years of service, and whose age and years of service equal or exceed 68 shall receive severance pay.

Severance pay is based on accumulated unused sick leave to a maximum of 125 days.  Faculty members with less than 25 years of service receive 40 percent of unused sick leave, or a maximum severance payment equivalent to 50 days of pay (125 x 40% = 50).  Faculty with 25 years or more of service receive 45 percent of unused sick leave, plus an additional one percent for each year of service beyond 25 years. No one can receive more than 50 percent (62.5 days) of unused sick leave.

                        % Unused Sick Leave             Maximum # of
Years of Service               (125 max recognized)           Days of Severance

Less than 25                                    40%                                           50
        25                                            45%                                           56.25
        26                                            46%                                           57.5
        27                                            47%                                           58.75
        28                                            48%                                           60
        29                                            49%                                           61.25
30 or more                                      50%                                           62.5

The daily rate of pay is determined by dividing your 9-month base salary for the final year by 168.

Calculation Example:
For a faculty member with 30 years of service, the maximum accumulated unused sick leave of 125 days, and a salary at the time of separation of $97,715:

• $97,715 (salary)/168 (duty days) = $581.64 (daily rate of pay)
• 125 (maximum accumulated sick days) x 50% = 62.5 (days of severance pay)
• 62.5 (days of severance pay) x $581.64 (daily rate of pay) = $36,352 (severance pay).

 Important Points:

• Since the final year two-step increase raises the final year salary by 4.85 percent, it also raises the severance payment by 4.85 percent.  
• Severance pay is paid into the Post Retirement Health Care Savings Plan the first paycheck after retirement.  It will not be taxed.
• The $4800 one time payment to faculty at step 49 will not be counted in salary for computing severance pay.

SUPPLEMENTAL RETIREMENT

Upon retirement, a faculty member has many options regarding Supplemental Retirement.  The following is a list of options taken from the TIAA-CREF website (the administrative agenda for the Supplemental Retirement Plan) and modified for this workshop:

When it’s time to choose how to take income from your Supplemental Retirement Plan (SRP), you have a variety of options:

Interest Only – You can receive the current interest earned on your TIAA Traditional Account in monthly payments.  Your principal remains intact while you receive the interest. (Note:  These payments are generally available to individuals between the ages of 55 and 69 ½.)

Lifetime Retirement Income
One-life annuity – provides income for as long as you life.
Two-life annuity – provides lifetime income for you and an annuity partner (your spouse or someone else you name) for as long as either of you live.
One- or two-life annuity with guaranteed period – guarantees income for up to 20 years, as long as the period you choose does not exceed your life expectancy.  It ensures that income continues to go to your beneficiaries if you (one-life annuity) or both you and your annuity partners (two-life annuity) die before the end of the guaranteed period.

Lump Sum – You can withdraw all or part of your account in a single cash payment, depending on your plan rules.

Minimum Distribution Option – Generally, you must begin taking minimum withdrawals from your account by April 1 following the year in which you turn age 70 ½ or retire, whichever is later.  This can help you defer the most taxes on your assets while keeping you in compliance with federal regulations.

Retirement Transition Benefit – You can withdraw, in cash, up to 10% of your accumulation that has been converted to lifetime annuity income.  The amount you withdraw will reduce your lifetime annuity income accordingly.

Single-Sum Death Benefit – A set amount your beneficiary(ies) will receive from your retirement account if you die before taking income.

Small-Sum Distribution – Upon separation from service, you can withdraw your entire retirement savings if your TIAA Traditional Account value does not exceed $2,000 and your overall account balance is below a limit set by your employer’s plan (typically $4,000).

Systematic Withdrawals – You can choose to receive regular income payments (minimum $100) on a semi-monthly, monthly, quarterly, semi-annual or annual basis.  You can increase, decrease or suspend the payments at any time.  (Note: These withdrawals are not available from TIAA Traditional Account balances.)

Your supplemental Retirement Plan (SRP) is designed to provide you with income throughout your retirement.  Leaving money in your account may allow the funds to grow on a tax-deferred basis.

How do I set up a Distribution from my Account?
Contact the TIAA-CREF/MnSCU Retirement Center, phone 800-682-8969 between 8:00 a.m. and 5 p.m. M-F.  A team of MnSCU-specific counselors can assist you.  You can also request a one-on-one meeting to discuss all aspects of your personal retirement situation.

INDIVIDUAL RETIREMENT ACCOUNT PLAN (IRAP)
RETIREMENT PLAN INVESTMENTS PERFORMANCE
As of 6/30/2007

The information above on investment fund performance is taken from the TIAA-CREF web page (http://enroll.tiaa-cref.org/Resources/ppc/html/993/?microsite=mnscu).  Please visit this web page and read the complete chart, including footnotes, prior to making any investment decisions.

In addition to the expense ratio (investment fees) charged by the funds, MnSCU charges a $20/person annual administrative fee to cover recordkeeping costs and management of the plan. 

TRA Formula - Tier 1 (Level Benefits) Determine your high-5 salary

 TRA Formula - Tier 2 (Rule of 90) Determine your high-5 salary 

OPTIONAL RETIREMENT ANNUITIES

Percentages of Life Plan A-1

*Life Plans E-1, E-2 and E-3 percents assume the retiree and Optional Joint Annuitant are the same age.  A younger or older Optional Joint Annuitant would decrease or increase these percents respectively in proportion to the number of years difference in age.

EFFECT OF TRA/POST FUND ADJUSTMENTS STARTING IN 1990

The average annual cost of living adjustment since 1981 has been 5.67%.

PHASED RETIREMENT AND THE ANNUITANT EMPLOYMENT PROGRAM

There are two “phased” retirement programs available to state university faculty. The first is the “contractual” phased retirement program provided under Article 15 of the IFO/MnSCU Agreement. The second program is authorized under Minnesota Statutes 136F.48 and 354.445, and is known as the “Annuitant Employment Program (AEP).”  The following is a description of how each program works, plus a discussion of the relative advantages and disadvantages of the two programs.

Contractual Phased Retirement
The contractual phased retirement program can be found in Article 15, Section A of the IFO/MnSCU Agreement.

How the Program Works:
A faculty member can reduce his/her workload to between 1/3 and 2/3 times, but contribute to TRA or IRAP as though he/she was working full-time. The employer also contributes as though the faculty member was working full-time. The benefits of the program are:

For current TRA members:

• The faculty member receives a full year of TRA credit, even though he/she is only working part-time,
• The “high-five’ salary for calculating TRA benefits will be the salary the faculty member would have earned working full-time; and
• The faculty member receives employer paid health insurance and all other rights and benefits as though he/she were working full-time.

For IRAP members:

• The faculty member receives an employer contribution to their IRAP account equal to 6% of the salary they would have earned if they were working full time.
• The faculty member receives employer paid health insurance and all other rights and benefits as though he/she were working full-time.

The duration of participation, the specific amount of time to be worked, and the teaching schedule are determined in advance by mutual agreement between the faculty member and the university, and can vary greatly between participants. The faculty member does not draw a TRA or IRAP benefit while working part-time. The faculty member must retire completely at the end of the agreed upon “phased” period. A faculty member’s separation incentive under Article 16 of the IFO/MnSCU Contract is based on the age at which he/she completely retires. The early notice of retirement step increases provided in Article 11, section C of the Agreement will apply in the final year of phased retirement.

Eligibility:
A faculty member must be at least 55 years old and have at least 10 years of service to participate in the program. The faculty member must notify the employer one year in advance of his/her intent to participate in the program.

How to Access the Program:
Submit a letter, a year in advance, to the president of your university, setting forth a proposal to use the phased retirement program. Specify when you plan to start, how much time you plan to work, and what semester(s) you plan to work. Also specify a date for complete retirement. The employer may accept your proposal as presented or may want to negotiate changes. Both the faculty member and the president then sign the final agreement. Russ Stanton, of the IFO office, can assist you in drafting a proposal and/or give you copies of past agreements to use as a template [1-800-325-9644, ext 14, or e-mail: Stanton@ifo.org].  

THE ANNUITANT EMPLOYMENT PROGRAM
Minnesota Statutes 136F.48 and 354.445, created the Annuitant Employment Program, or AEP.

How the Program Works:
Under the AEP, a faculty member actually retires and begins to draw a TRA annuity or an IRAP benefit. However, prior to retiring, the faculty member makes an agreement with the university to return to work between 1/3 and 2/3 time. The benefits of the program are:

• During participation, the faculty member receives a TRA or IRAP benefit in addition to a part-time salary,
• The faculty member receives health and dental benefits as if he/she was working full-time,
• The faculty member does not have to contribute to TRA or IRAP during participation in the program,
• If in TRA, the faculty member avoids the normal TRA annuity reduction penalties for post-retirement earnings; and
• If in TRA, the faculty member begins to earn post-retirement cost-of-living adjustments while still working part-time.

Eligibility:
A faculty member must be eligible for a TRA benefit (age 55) and have at least ten years of service. He/she cannot earn more than $46,000 per year in after retirement income without penalty. AEP participation is not an employee right. Initial participation, duration of participation, and the amount of time worked requires employer/employee agreement. In other words, the employer has veto power.

A faculty member’s separation incentive, under Article 16 of the IFO/MnSCU Contract, is based on the age at which he/she completely ceases employment. The early notice of retirement step increases provided in Article 11, Section C of the Agreement do apply in the final year of phased retirement.

How to Initiate:
To apply for participation in the AEP, a faculty member simply submits a written proposal to the university president through the personnel office. The employer may require up to one year of advanced notice to participate. The final agreement is then negotiated out and signed by the faculty member and a university representative. Again, if you want help or a form letter, OR YOU ARE NOT COMPLETELY CLEAR ABOUT THE DIFFERENCE BETWEEN PHASED RETIREMENT AND THE ANNUITANT EMPLOYMENT PROGRAM, contact Russ Stanton at IFO [1-800-325-9644, ext. 14, or e-mail: Stanton@ifo.org].

Relative Advantages and Disadvantages:
The AEP provides greater cash flow to the faculty member during retirement because he/she gets a TRA annuity or IRAP benefit and earns a part-time salary at the same time. In addition, he/she does not have to contribute to TRA or Supplemental Retirement. However, the faculty member does not earn additional TRA service credit during AEP participation. If a faculty member needs more cash flow than what a part-time salary provides, the AEP will probably best fit their needs.

Contractual phased retirement has the advantage of providing additional TRA service credit, or a full employer contribution to IRAP, during the phased retirement period. This is particularly important if a faculty member is covered by TRA and near achieving the Rule of 90. The disadvantage of the contractual phased retirement program is that a faculty member does not receive a TRA annuity, or have access to IRAP savings, during the phased retirement period, and therefore has less cash flow during those years.  

PHASED RETIREMENT

IFO/MnSCU CONTRACT
ARTICLE 15
Retirement

Section A. Phased Retirement Program.

Subd. 1.  Eligibility.  Pursuant to Minnesota Statutes §§ 354A.094, and 354B.31 and 354.66 regarding part-time employment, faculty members who have twenty (20) or more FTE years of service in the Minnesota State Universities, or who have reached age fifty-five (55) and have fifteen (15) ten (10) or more FTE years of service in the Minnesota State Universities shall be eligible for phased retirement.

Subd. 2.  Implementation.  A faculty member requesting phased retirement shall submit his/her request to the President one (1) year in advance of the year in which phased retirement would take effect by October 1 for a phased retirement that takes effect fall semester of the following academic year, or by January 15 for a phased retirement that takes effect spring semester of the following academic year.  The length of the phased retirement period and the work schedule for the faculty member shall be mutually agreed to by the faculty member and the President.  At the end of the phased retirement period the faculty member must move to full retirement.  In no event shall the length of time for phased retirement exceed the number of years mutually agreed to or the workload of the faculty member be less than point thirty-three (.33) FTE or greater than point sixty-seven (.67) FTE.  Faculty members electing phased retirement shall be entitled to all rights and benefits of full-time faculty members.  

Subd. 3.  Benefits.  The Employer retirement contributions necessary to accrue allowable service credit in the retirement fund during the period of part-time employment shall be paid by the Employer at the same amounts as would have been paid had the faculty member been employed full-time.  Faculty members electing phased retirement shall be eligible for Employer-paid insurance benefits as if the faculty member were employed full-time.  Employee contributions necessary to maintain benefits as if the faculty member were employed full-time shall be the responsibility of the employee.  
 
Upon completion of phased retirement, a faculty member who participates in phased retirement shall be eligible for the separation incentive in Article 16, Section D, if the age and service requirements are met.  Computation of the separation incentive shall be based on the percentage decline contained therein, and the faculty member shall not under any circumstances be eligible for designation at one hundred percent (100%) of salary.    

Subd. 4.  Faculty members participating in phased retirement shall be permitted to withdraw up to twenty-five percent (25%) of their supplemental retirement funds yearly during phased retirement by submitting a written request to the President.  Withdrawal is subject to applicable state and federal laws and to conformity with State Board of Investment or other third-party provider requirements, if applicable.  The faculty member and the IFO agree to indemnify and hold the university and the Employer harmless against any and all claims, suits, orders or judgments brought or issued against the Employer by a faculty member as a result of any action taken in accordance with the withdrawal of supplemental retirement funds.   

Subd. 5. Expectations.  Faculty members participating in the phased retirement program are expected to perform the full range of faculty duties, on a pro rata basis.  They are subject to the professional development plans required under Article 22.    

Section B.  Annuitant Employment Program.
Subd. 1. Eligibility.  Pursuant to Minnesota Statutes § 136F.48 and 354B.445, faculty members who have ten (10) or more years of service in the Minnesota State Universities, or who have reached age fifty-five (55) shall be eligible to participate in the Annuitant Employment Program.

Subd. 2. Implementation.  A faculty member requesting participation in the Annuitant Employment Program shall submit his/her request to the President by October 1 for participation that begins fall semester of the following academic year, or by January 15 for participation that begins spring semester of the following academic year. These notification deadlines may be waived by the President. The length of the annuitant employment period and the work schedule for the faculty member shall be mutually agreed to by the faculty member and the President. In no event shall the length of time for annuitant employment exceed the number of years mutually agreed to or the workload of the faculty member be less than point thirty-three (.33) FTE or greater than point sixty-seven (.67) FTE. Except as otherwise provided for by statute, faculty members electing annuitant employment shall maintain their seniority and shall be entitled to all rights and benefits, including voting rights, of similarly situated part-time faculty members.

Subd. 3. Benefits.  Faculty members electing annuitant employment shall be eligible for Employer-paid health and dental insurance benefits as if the faculty member was employed full-time. Employee contributions necessary to maintain benefits as if the faculty member was employed full-time shall be the responsibility of the employee.
Upon completion of annuitant employment, a faculty member who participates in annuitant employment shall be eligible for the separation incentive in Article 16, Section D, if the age and service requirements are met. Computation of the separation incentive shall be based on the percentage decline contain therein, and the faculty member shall not under any circumstances be eligible for designation at one hundred percent (100%) of salary.

Subd. 4. Expectations.  Faculty members participating in the annuitant employment program are expected to perform the full range of faculty duties, on a pro rata basis. They are subject to the professional development plans required under Article 22.

Important Point:

• Section A. Subd. 4 of the phased retirement section of the IFO MnSCU Contract above says that people in phased retirement can have access to their supplemental retirement funds while participating in the phased retirement program.  MnSCU recently discovered a statute that prevents this, so until we can get the statute repealed you should assume that you will not have access to supplemental retirement during phased retirement. 

Annuitant Employment Statute

     136F.48 Employer-paid health insurance.
 
    (a) This section applies to a person who: 
 
    (1) retires from the Minnesota state colleges and universities system with at least ten years of combined service credit in a system under the jurisdiction of the board of trustees of the Minnesota state colleges and universities;
 
    (2) was employed on a full-time basis immediately preceding retirement as a faculty member or as an unclassified administrator in the Minnesota state colleges and universities system;
 
    (3) begins drawing a retirement benefit from the individual retirement account plan or an annuity from the teachers retirement association, from the general state employees retirement plan or the unclassified state employees retirement program of the Minnesota state retirement system, or from a first class city teacher retirement plan; and
 
    (4) returns to work on not less than a one-third time basis and not more than a two-thirds time basis in the system from which the person retired under an agreement. 
 
    (b) Initial participation, the amount of time worked, and the duration of participation under this section must be mutually agreed upon by the president of the institution where the person returns to work and the employee.  The president may require up to one-year notice of intent to participate in the program as a condition of participation under this section.  The president shall determine the time of year the employee shall work.  The employer or the president may not require a person to waive any rights under a collective bargaining agreement as a condition of participation under this section. 
 
   (c) For a person eligible under paragraphs (a) and (b), the employing board shall make the same employer contribution for hospital, medical, and dental benefits as would be made if the person were employed full time. 
 
    (d) For work under paragraph (a), a person must receive a percentage of the person's salary at the time of retirement that is equal to the percentage of time the person works compared to full-time work. 
 
    (e) If a collective bargaining agreement covering a person provides for an early retirement incentive that is based on age, the incentive provided to the person must be based on the person's age at the time employment under this section ends.  However, the salary used to determine the amount of the incentive must be the salary that would have been paid if the person had been employed full time for the year immediately preceding the time employment under this section ends.
 
    (f) A person who returns to work under this section is a member of the appropriate bargaining unit and is covered by the appropriate collective bargaining contract.  Except as provided in this section, the person's coverage is subject to any part of the contract limiting rights of part-time employees.
 
    354.445 No annuity reduction.
 
    (a) The annuity reduction provisions of section 354.44, subdivision 5, do not apply to a person who:
 
    (1) retires from the Minnesota state colleges and universities system with at least ten years of combined service credit in a system under the jurisdiction of the board of trustees of the Minnesota state colleges and universities;
 
    (2) was employed on a full-time basis immediately preceding retirement as a faculty member or as an unclassified administrator in that system;
 
    (3) begins drawing an annuity from the teachers retirement association; and
 
    (4) returns to work on not less than a one-third time basis and not more than a two-thirds time basis in the system from which the person retired under an agreement in which the person may not earn a salary of more than $46,000 in a calendar year from employment after retirement in the system from which the person retired.
 
    (b) Initial participation, the amount of time worked, and the duration of participation under this section must be mutually agreed upon by the president of the institution where the person returns to work and the employee.  The president may require up to one-year notice of intent to participate in the program as a condition of participation under this section.  The president shall determine the time of year the employee shall work.  The employer or the president may not require a person to waive any rights under a collective bargaining agreement as a condition of participation under this section. 
 
    (c) Notwithstanding any law to the contrary, a person eligible under paragraphs (a) and (b) may not, based on employment to which the waiver in this section applies, earn further service credit in a Minnesota public defined benefit plan and is not eligible to participate in a Minnesota public defined contribution plan, other than a volunteer fire plan governed by chapter 424A.  No employer or employee contribution to any of these plans may be made on behalf of such a person.
 
    (d) For a person eligible under paragraphs (a) and (b) who earns more than $46,000 in a calendar year from employment after retirement due to employment by the Minnesota state colleges and universities system, the annuity reduction provisions of section 354.44, subdivision 5, apply only to income over $46,000.
 
    (e) A person who returns to work under this section is a member of the appropriate bargaining unit and is covered by the appropriate collective bargaining contract.  Except as provided in this section, the person's coverage is subject to any part of the contract limiting rights of part-time employees.

Sample Letter for the Contractual
Phased Retirement Program

Attention!!  Do not use this letter for the Annuitant Employment Program (AEP).  The form letter for the AEP is on the next page.   If you do not understand the difference between the Contractual Phased Retirement Program and the AEP, call Russ Stanton at 1-800-325-9644, extension #14.

Date 

President
University
Address

Dear President:

I am hereby applying to participate in the phased retirement program provided in Article 15 of the IFO/MnSCU Contract.   The following is my proposal for participation: