Chapters

00:00 Introduction to PERS Option 4

00:38 PERS Option 4 as a Joint and Survivor Annuity

01:42 Monthly Benefit Calculation Under PERS Option 4

02:26 Beneficiary Provisions Under PERS Option 4

03:21 Ability to Change Benefit Option Under PERS Option 4

04:13 Partial Lump Sum Option and Internal Revenue Code Limits Under PERS Option 4

04:43 Who Should Consider PERS Option 4

05:23 PERS Option 4 Action Items

06:16 Next Video Preview

Transcript

Hi everyone, I'm Ryan Early, vested PERS member, former school finance officer, and host of the PERS Pro YouTube Channel.

If you're looking to maximize a survivor benefit for a younger non-spouse beneficiary, PERS option 4 might be what you're looking for. We'll discuss what it is, how it's calculated, and most importantly, who should consider it. Let's get started.

In our previous videos, we've covered the maximum option, option 1, and the 100 % survivor protection of options 2 and 3. Today, we are exploring option 4, the 75 % joint and survivor annuity with pop-up provision. Like option 2, which we covered in video number 37, option 4 is a joint and survivor annuity. This means the plan is designed to provide a monthly benefit for two lifetimes, yours and your beneficiaries.

There are two key concepts to this Joint and Survivor Annuity option. Reduced monthly benefit. You accept a monthly check that is smaller than the maximum retirement allowance option. Survivor protection. In exchange, when you pass away, your named beneficiary will continue to receive 75 % of your monthly benefit for the rest of their life. If you are comparing Joint and Survivor Annuity options that require one beneficiary, option four, provides a higher monthly benefit to you while you are alive compared to option two but it offers a slightly less amount to your survivor than option two.

How is the monthly benefit amount for option 4 actually determined? The formula starts with your maximum retirement allowance. As we've discussed in the series, this is based on your average compensation, or highest 4 years, and your service credit factor, a percentage based on your total years of service. For option 4, PERS applies an actuarial reduction to that maximum retirement allowance amount. This reduction is calculated based on the ages of both you and your beneficiary at the time you retire. Because you are only providing a 75 % benefit to your survivor instead of 100%, the reduction to your check under option 4 is generally less severe than it would be under option 2.

The beneficiary provisions contained within option 4 are very similar to option 2. How many beneficiaries can you have under option 4? You must name exactly one beneficiary for the survivor portion. Who can be named as a beneficiary under option 4? Only a natural person, not in a state or trust. And note that your beneficiary does not have to be your What does your beneficiary get under option 4 when you pass?

75 % of the retirees monthly benefit for the rest of the beneficiaries life. Can you make changes to your beneficiary under option four? Generally, this is not allowed after retirement unless a pop-up event occurs. Unlike the maximum retirement allowance option in option one, where you can name a trust in multiple beneficiaries, option four requires one human being because their life expectancy determines the actuarial reduction.

A common question is, if I pick option 4 now, am I stuck with it forever? This is a very relevant question in the case of your beneficiary, such as a spouse passing away before you and you no longer needing that survivor protection. Fortunately, option 4 comes with a pop-up feature. If your name beneficiary dies before you, or if you get divorced and the court awards you the full benefit, your monthly benefit can pop up to the higher maximum retirement allowance option.

You must apply and the timing of applying for the pop-up is important because in the event your beneficiary dies and you file late, the recalculation of your benefits can be retroactively applied for only up to three months. Also remember that if you pop up to the maximum retirement allowance option, you still have to name a beneficiary.

What about Partial Lump Sum option and Internal Revenue Code limitations with option 4? If you are eligible, you can combine option 4 with a Partial Lump Sum option. Just keep in mind, this will result in a double reduction. One Actual Rail Reduction for Survivor Protection and one Actual Rail Reduction for the cash taken upfront.

IRC limits. One benefit of option four is that internal revenue code limitations generally will not come into play for younger non-spouse beneficiaries. So who should consider option four? Here are examples of situations where a retiree should consider option four. Retirees with a semi-dependent spouse. If your spouse has their own retirement or Social Security and doesn't need 100 % of your check to survive, but they do need a significant supplement, option four is a great middle ground. Single retiree with a dependent child. If you have a special needs child depending on your income and their needs will not change over time, option four allows you to avoid IRC limits otherwise applicable under option two and maximize your annuity and the child survivor benefit.

If you are considering option four, here are your action items for today. One, request an estimate of benefits. Request your estimate of benefits from PERS and once you receive your estimate, identify what the monthly benefit amount would be if you selected option four and make sure that amount fits within your retirement spending plan for both you and your beneficiary's life. Two, talk to your beneficiary. Ensure they understand that the benefit under option four is for both your and their lifetime, although their benefit is 75 % of yours, and that the benefit available under option 4 will be less than what is available under the single life annuity or option 2. 3. Review your beneficiary. Ensure your beneficiary information is current. Remember, can only select one under option 4, and if updates are needed, file form 1B with PERS.

In our next video, we'll provide an overview of PERS option 4A and who should consider it. Please make sure you subscribe so you don't miss this and other videos in our new retirement series. If you found this video helpful, can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a question about PERS or anything else related to personal finance, please visit our website at perspro.ms and submit your question or topic for a future episode. Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

Disclaimer. This video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with and or spied or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.