I emailed Lisa Underhill a couple more questions and asked her to read over this post for accuracy. The items in red were clarified by Lisa and updated. The questions in red at the end of the post are new questions.
As I previously wrote about last August in my post, Big Change in Correctional Pension, The members in the Correctional Pension must choose to stay in Social Security or opt out.
There are major ramifications for Corrections Officers/Detention Deputies if they opt out.
Jeremy Zajicek and Lisa Underhill from Hennepin County’s Benefits
Division were here today to answer questions. I asked a few and these
were their answers.
Q. If the CO's opt out of Social Security what happens to previous contributions?
A. The money and credits stay in Social Security but future contributions stop.
Q. If one requests a refund does it go back only three years (member contribution only, not employer portion)?
A. Yes, requests for refunds can only go back 3 years (2011-2014) which is what the Social Security Administration’s statute of limitation is set at. You will lose Social Security credit for any years that are refunded and Hennepin County also receives a refund of its contributions for those years.
Q. What about survivor benefits for spouses or children? Will they be able to collect if we opt out?
A. It depends on how much was paid in before you opt out. You have to have paid in enough quarters and it will be greatly reduced.
Q. What about Social Security disability?
A. If you get hurt outside of work, currently SSI Disability pays more than PERA Disability. You might not get anything, it will depend on how much you paid in and if you had enough quarters to qualify.
Q. How do us older employees who don't have to vote know we are still going to be participating in Social Security?
A. Historically Social Security has grandfathered those in. : Those employees who are in the non-voting group had their Social Security participation approved by the Social Security Administration on 7/1/1999 when they were moved from PERA’s Coordinated Plan into the Correctional Plan. Their Social Security participation continues regardless of the outcome of the vote.
Someone asked why we were being asked to vote to be in Social Security now.
Lisa answered, There is no guarantee government employees participate in Social Security. There must be a 218 Agreement to be in it. Sometimes it's voted on, sometimes it's legislated. The PERA Coordinated Pension voted to be in, in the 60's. Police and Fire were legislated out. The Correctional Pension should have voted in 1999, but it was assumed they were still in like the Coordinated Pension, but Social Security says they must decide.
The way the vote goes will be County by County. For example, the CO's in Hennepin could vote to be in, CO's in other counties can vote to be out.
You must vote Yes to be in Social Security. If you don't return a ballot it counts as a NO vote. If a Majority Vote of 50% plus 1 is not reached everyone's vote counts as NO and you will be out of Social Security.
Some things to consider:
You will get an increase in your take home pay equivalent to your employee contribution (6.2%). It will be taxed, and you will NOT get the employer portion. Hennepin County will keep it. If you think you can invest that 6.2% increase in your take home and do better than Social Security remember this: You will have to make a 100% return on your investment just to make up for the lost employer contribution! Plus if you live to be 95 your investment might run out, whereas Social Security will still be paying you.
Also, when you retire whatever reduced Social Security benefits you do qualify for will be further reduced by the WEP tax (windfall profit). You see, if you opted out of Social Security because of another pension it is considered a windfall profit. That pension is supposed to be your main retirement. The Police and Fire pension pays twice as much as our Correctional Pension, and they contribute twice as much to it. Ours was designed with the idea that we'd also have Social Security in addition to it.
No, PERA is not going to double our pension!
I hope this helps. Even though this doesn't affect me, it will affect your future retirement and your spouse's and children's survivor benefits and possibly your future disability payment, or lack thereof.
Choose wisely this January.
Responses to Your
Questions:
1. Will this affect detention deputies who have left? If so, will they be voting?
- No,
this does not affect detention deputies who have left employment with the
county and they will not be voting. To be able to vote, you must be
an active employee participating in the Correctional Plan as of 10/30/2014
and as of 1/30/2015; hired/rehired into a position that participates
in the Correctional Plan after 7/1 1999; and/or had a break in
Correctional Plan service after 7/1/1999 .
2. Why doesn't the County have ING or other deferred comp plans talk to us about alternatiive investments?
- Unfortunately,
Wade, due to the 10/30/14 deadline to distribute the referendum
information we were unable to have our deferred compensation plan
representatives at these meetings. During the 90 day period between
the distribution deadline and the last day of the voting period (1/30/15)
employees can call one of our vendors (Fidelity, MNDCP or VOYA) and talk
directly to one of their representatives. Here are their phone
numbers:
We are currently working out details with one of our vendors for
use of their brand new, simple retirement calculator tool which uses Social
Security in the calculation. I’m hopeful we can do a demonstration of the
tool at the meetings on Tuesday.
14 comments:
Social Security as retirement income is lacking one huge factor called compounding interest:
Compound interest allows you to earn interest on your interest.
If you invested the extra 6.2% and invested it into a pre-tax deferred comp. account it would make you a butt load more that SS would. For example: If you invest $3000 per year, from age 35 to 65, and your mutual funds average 12%, you will have $873,000 at age 65. You would have invested $90,000 (30 years x 3,000); the rest is growth. Will the SS fund even be around when most of us are 65? Who knows.
Also, another consideration to consider opting out of SS:
"The more you make, the less you get back."
It's common to think of Social Security as an individual account of sorts -- what you pay in, you get back, more or less. That's far from accurate. By design, the Social Security Administration says, the system is tilted in favor of lower-income workers who have fewer resources to save for retirement. In practice, that means that the more money you make, the less you get back, at least as a percentage of your salary. For example, a single, 66-year-old man who earned $50,000 per year on average and retired in 2011 would get an annual benefit payment of about $22,800, or about 45% of his annual salary. If he had earned $150,000 per year, he would get annual benefits of about $30,670 -- just 20% of his annual salary. "People act like the percentage of benefits of your salary you get is the same for everyone and it really isn't," says Jo Anne Barnhart, former Social Security Commissioner.
VOTE NO Anyone with an investment plan can do better than a regressive Social Security fund.
As far as making a 100% return on the 6.2% increase in your take home, using compounding interest, you can EASILY make up for the lost employer contribution. See the last post.
Remember, money in your IRA is controlled by YOU and not bureaucrats. YOU decide how much you will take in distributions.
Money in the SS fund is shared with millions of other people, and Congress decides how much YOU will get in annual distributions. Want to increase your SS distribution? It's easy, just continue to work until you are 70!
If you take, for instance, an annual salary of $50,000-an employee contributing 6.2% of his income to Social Insecurity would contribute approximately $3100 per year. With the employer match, it would be $6200.
Let's take that $6200 and multiply it by 20 years. It would come out to $124,000. Nice amount of money, right?
Now, if the vote goes to opt-out, rather than paying into SS, an employee can now take their $3100 and invest it in a pre-tax IRA.
All financial experts agree that the stock market has grown an average of 10% over the last 50 years.
Using compounding interest, $3100 invested annually for 20 years could potentially grow into $195,307.77, or a 121% return.
How does that sound? This would be great for younger workers (35 and younger), but it would be a reduction in benefits for older employees.
Granted, the market will rise and fall from year to year. Some years it may only gain 5-10%. Other years it may gain up to 10-18%.(all which has happened in the past) It may lose like it did in 2008. If this scares you, vote YES. If not, vote NO.
If you believe what has been said about SS being insolvent and possibly being depleted within the next few decades. The only way to keep the fund going would be to raise the SS tax or reduce benefits. If you think this scenario will happen vote NO.
Also, keep in mind that SS will not be your only source of income when you retire, which means SS distributions will be taxed as income. If being taxed on a tax sounds ridiculous to you, vote NO.
If you don't think you can absorb losing several years of contributions to SS and only getting refunded up to 3 years back after taxes, Vote YES.
If you think you can manage your money better than the Washington bureaucrats, vote NO.
Remember, SS is a regressive fund, the more you have earned while you work, the less percentage of your working income you will get after you retire because it is meant to favor lower-income workers. The more you make, the less you get back. It is opposite of the progressive income tax where the more you make, the more you pay in!
Social Security is important for the majority of correctional officers. Don't fall for the you can do better without it. It is short sighted and will have ever lasting financial consequences. People should supplement their retirement and invest some money. Not everyone is into the stock market and may not do that. Social security is there to supplement peoples pensions without needing to rely on personal investing in which may or may not produce ones expectations. I am THANKFUL I hae social security, a pension and deferred comp in my portfolio. Some have a military pension which is great, some have a prior job pension. The majority will still rely on our pension and social security. ENSURE IT IS THERE FOR YOU. SAY YES TO SOCIAL SECURITY. THE GOVERNMENT is making it difficult for those who want it by saying a blank vote is a no vote so it is vital for those who want it to GET OUT THEIR AND VOTE.
The bottom line is, the Social Security fund is troubled. If you don't think so, do the research. The SSA Trustees annual report is very easy to find.
It is an egregious Pyramid Scheme. Those at the top of the pyramid (senior workers) are funded by those at the bottom. (These schemes are illegal for private citizens)
As the fund continues to be depleted through the decades, Congress will have to raise the SS tax to 8%, 10% or even higher in the future just to pay future retirees 75% of what is due to them.
Remember, those of us who were born after 1960 will have to retire when we are 67 to receive full benefits! Benefits that are based on an average of 35 years of your annual income. People retiring today can expect anywhere from 40-45% of their averaged lifetime gross income.
Also, those of you who look at the 6.2% employer match as a benefit remember this, it is a TAX, not a benefit! The County has no obligation to refund a tax that was paid by the County. That was never the employee's money to begin with!
The senior employees will receive what is due to them, which they should. (Those like Carol Orcutt who were with the county before 1999 who this does not affect whatsoever).
Those of us who have another 20-30 years to work need to think about the fact that younger generations will be paying to fund our SS income just like we will be paying for those looking to retire in the next few years.
Congress will meddle with the fund and your benefits, that is a GUARANTEE!
So those of you who are senior workers, Your Welcome, in advance. Take yours, you deserve it! But please, don't preach the benefits of this program to someone who is going to receive less than you will from it!
Dark Times Are Ahead
Here at home, Social Security is expected to be broke by 2036. That means it will only be able to pay out in benefits what it takes in through taxes, forcing an immediate 25% cut in benefits.
Today, 14 million seniors rely on Social Security to keep them out of poverty. Even with Social Security, 10% of seniors live below the poverty line. For future retirees in a similar situation, any changes to these benefits could be devastating.
Knowing all of this, why do we continue to rely on broken government systems to support us in retirement? The average yearly Social Security payout is $14,000. Is that your idea of a comfortable retirement?
The Solution is Up to You
If it isn’t, then you have to take action. Right now. Take responsibility for your own retirement, and you can have the kind of future we all envision—live with dignity, leave a legacy for your family, and remain independent of decisions made in Washington D.C.
According to HSBC’s 2011 global report on the future of retirement, folks who make a retirement savings plan (and follow through with it) have 245% more in retirement funds than “non-planners.” You read that right: 245% more!
When those “planners” built their plans with the advice of a professional investment advisor, their retirement assets were 357% more than those of “non-planners.”
Overwhelming numbers of current retirees say they would have saved more for retirement if they had it to do over again. Take their advice and find an investing professional you trust to help you start your retirement savings plan.
Social Security is a relic of Franklin Roosevelt s New Deal and the cornerstone of the welfare state. It is also the third rail of American politics--touch it and you die, so to speak, politically. But since I am not a politician, and am not seeking office, votes, or contributions, I can tell the truth about Social Security. Social Security--the most expensive item in the federal budget--is not an insurance program, a savings account, a safety net, a pension plan, an investment account, or a retirement program. The Social Security trust fund is an accounting fiction. Payroll taxes collected are immediately spent to provide current Social Security benefits; that is, money is simply taken from those who work and given to those who don t. The taking of money from someone in order to give it to someone else, whether the government takes it or a thief takes it, whether the taker has a good motive or evil intentions, or whether the recipient needs or just wants the money, is immoral. Therefore, since Social Security is based on coercion, funded by theft, and maintained by threats of violence, it is not just unconstitutional and unsustainable it is an intergenerational, income-transfer, wealth-redistribution welfare program
Verdict: Social Security, Solvent or Not?
Each year, Social Security’s Office of the Chief Actuary issues a report on the financial status of Social Security and Medicare. In its most recent release we read,
“Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers.”
In the past, when inflows exceed outflows, the surplus was used to fund other government programs. However, beginning in 2010, deficits have been the rule. The deficits in the past few years were as follows: $49 billion in 2010; $45 billion in 2011; and $55 billion in 2012. The Trustees expect the deficit to average $75 billion each fiscal year from 2013 to 2018 before rising sharply. Congress must continue to issue more debt just to meet Social Security’s current obligations. This is very significant as expenditures for Social Security and Medicare accounted for 38% of the federal budget in fiscal year 2012. The actuaries report goes on to say,
“Both programs (i.e.; Social Security and Medicare) will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment…”
Vote NO placing 6.2% of your money in a cookie jar from now on would be smarter than paying into this fiasco!
From the SS fund Trustee's Report:
A MESSAGE TO THE PUBLIC:
Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes the 2014 Annual Reports.
Neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.
Social Security’s Disability Insurance (DI) program satisfies neither the Trustees’ long-range test of close actuarial balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds. DI Trust Fund reserves expressed as a percent of annual cost (the trust fund ratio) declined to 62 percent at the beginning of 2014, and the Trustees project trust fund depletion late in 2016, the same year projected in the last Trustees Report. DI costs have exceeded non-interest income since 2005 and the trust fund ratio has declined in every year since peaking in 2003. While legislation is needed to address all of Social Security’s financial imbalances, the need has become most urgent with respect to the program’s disability insurance component. Lawmakers need to act soon to avoid automatic reductions in payments to DI beneficiaries in late 2016.
For those of you concerned about a reduction of disability income or the death benefits from SS, remember this.
The County is increasing the Basic Life Insurance plan for all employees from $25,000 to $30,000. Also, if a person wants even more than that they can buy a a term policy that pays out up to $500,000 for a little over $30 per month through the County.
Employees can also get Long Term Disability through the County for under $15 per month that pays up to 60% of lost income.
Contact Benefits and set this up, with or without SS, everyone needs to be covered to ensure their dependents won't be screwed if something happens to you!
This is from Teamsters website, it sheds further light:
What should an employee consider in deciding how to vote?
PERA views this as a “technical correction” because we were not advised of the correct action to take when we made our initial inquiries at the time the Legislature made PERA the State Social Security Administrator (SSSA), so the referendum is a formality needed to sanction the coverage members have already earned and will have going forward, had the referendum been conducted when the plan was created in 1999.
Social Security uses an average of a person’s highest 35 years of earnings – not consecutive, but actual highest earnings – to calculate the retirement benefit. Less than 35 years of earnings means the average on which the benefit is determined will be lower, resulting in lower benefits, because the total years of earnings are averaged over 35 years whether or not you actually have 35 years or more of earnings in your Social Security record. So the more years a person has contributed to Social Security, the greater the average earnings will be for determining benefits from that program. See key terms on page 3 for additional definition of average earnings.
Social Security benefits are calculated to produce a lesser benefit for government employees who retire from a retirement system for which they have not contributed to Social Security – this SSA calculation procedure for government employees is called the Windfall Elimination Provision (WEP) The full effect of the reduced calculation (WEP) does not apply if you have more than 20 years of substantial earnings reported to Social Security – and does not apply at all to individuals who have 30 or more years of substantial earnings covered by Social Security. The more years you have on your Social Security record, the better your benefit will be.
Social Security benefit coverage may be better for the surviving spouse and dependent children of a Correctional Plan member than the PERA plan alone provides. (See link below for where you can find more information.)
Nothing changes with respect to your PERA Correctional Plan benefits. The PERA Correctional Plan will continue to provide the current benefits of the plan whether you have Social Security coverage or not. The benefits of the Correctional Plan were intended to ‘coordinate’ with Social Security coverage.
State Correctional Plan members are covered by Social Security, thus any movement between state and local government correctional service would result in inconsistent coverage in the Social Security program.
Financial security in retirement has long been based on the concept of the three-legged stool; that is, Social Security, retirement plan, personal savings. Retaining Social Security coverage as a correctional employee ensures the three legs remain in place to support your retirement, with an estimated 35 to 40 percent of your future retirement income coming from Social Security, depending on whether you retire as early as age 62 or wait to draw at your full retirement age of 66 to 67.
For information about your PERA Correctional Plan benefits, go to www.mnpera.org and on the left side of the Home Page, click on Members, then Correctional Plan. There you will find information on your retirement, disability, and survivor benefit coverage available through your participation in this PERA plan. While you are on the web site, if not already registered, register in My PERA to access your own account for estimates of retirement, disability, survivor benefits, refundable balance plus interest or to check the personal data maintained in your PERA account (such as your beneficiaries).
Social Security has an excellent web site explaining benefits and a calculator you can use to estimate your future SSA benefit. Go to www.ssa.gov.
Go to Investor.gov and use the Compound Interest Calculator to see how much more your money could grow if it weren't going to SS tax.
Even using a conservative 6% return, it is one helluva lot more than donating it to SS!
Think about the opportunity that is at stake here....Opting out of a Socialist Pyramid Scheme would free up a few thousand dollars annually of your best wealth-building asset, your income!
Even if you choose to use the income to pay off debt sooner, the interest you would save would be worth it alone. Who wants to go into retirement still in debt?
The faster you can get out of debt, the faster you can use your income to build wealth by investing and saving!
Social Insecurity
Most of us have a pretty near-sighted view of retirement. The further away we are, the fuzzier it appears. The details don’t come into focus until it’s almost too late to change the picture.
For those of us who would like a clearer idea of what retirement could look like in 30 or more years, let’s take a look at one part of the picture: Social Security.
A Glimpse of Your Future?
According to socialsecurity.gov, a 30-year-old who makes $40,000 today can expect a monthly benefit equivalent to $1,320 in today’s dollars at age 65. That gives your retirement picture a little more clarity, doesn’t it? How well could you make it on $1,300 a month?
Before you answer, consider this: As the website points out, by 2033 the taxes collected to pay Social Security will only cover about 77% of scheduled benefits. That would reduce your monthly benefit to $1,016. As tough as you thought it would be to cover your expenses with $1,300 a month, now imagine living on $1,000 a month!
You might be able to stretch that $1,000 far enough to cover basic living expenses like food, shelter and transportation. But you can forget about trips to visit the grandkids or relaxing getaways with your spouse. And don’t forget about medical bills and prescription medications. What happens if you need nursing home care?
That’s the situation facing 10% of today’s seniors who live in poverty on an average monthly benefit of $1,164. You can be pretty sure that most of them never expected to end up living below the poverty line in their golden years.
You Can Change the Future!
Here’s the good news: With 30 years until retirement, you can change this picture altogether! By committing to long-term retirement investing plan, the same 30-year-old above could have a million-dollar nest egg by the time he’s 65, easily providing an income that triples what Social Security could pay.
Even if you have less than 30 years until retirement, you can still improve your retirement prospects. The key is to take action now. If you’re in debt, get gazelle intense about paying it off so you can get a move on your future.
Make It Happen With Professional Advice
The next step is to start investing, Open a Roth IRA that will boost your retirement savings with its tax benefits. Work with an experienced investing advisor who can show you how investing in growth stock mutual funds in these accounts can give you the retirement you want!
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