Chapters

00:00 Introduction to Option 4A

00:41 Option 4A Joint and Survivor Annuity Concept

01:37 Calculating Monthly Benefits for Option 4A

02:26 Beneficiary Provisions Under Option 4A

03:21 Ability to Change Option Under Option 4A

04:13 Partial Lump Sum Option Availability and IRC Limits Under Option 4A

04:53 Who Should Consider Option 4A?

05:29 Action Items for Option 4A

06:20 Preview of Next Video

07:11 Disclaimer

Transcript

Hi everyone, I'm Ryan Early, vested PERS member, former school finance officer, and host of the PERS Pro YouTube channel. If you want to protect a survivor, but need to keep your own monthly retirement check as high as possible, option 4A might be the sweet spot 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 last few videos, we covered options 2, 3, and 4. Today, we are focusing on option 4a, the 50 % joint and survivor annuity with pop-up provision. Like the options we've already discussed in this category, option 4a is a joint and survivor annuity. This means the benefit is calculated to cover two lifetimes, yours and your name beneficiaries. There are two key concepts to this joint and survivor annuity option. Reduced monthly benefit - to provide for a survivor, you accept a monthly check that is smaller than the maximum retirement allowance option. Survivor protection: in exchange, when you pass away under option 4A, your named beneficiary will continue to receive 50 % of that monthly benefit for the rest of their life. If you are comparing joint and survivor annuity options with one beneficiary, option 4A provides the highest monthly benefit to a retiree because you are only providing a 50 % benefit to your beneficiary.

How is the monthly benefit amount for option 4A actually determined? The formula starts with your maximum retirement allowance. As we've discussed earlier in the retirement series, this is based on your average compensation, highest four years, and your service credit factor, a percentage based on your total years of service. With option 4A, 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 50 % benefit to your survivor rather than 75 % or 100%, the actual reduction to your check under option 4A is less than it would be under option 2 or option 4.

The beneficiary provisions contained within option 4a are very similar to option 4. How many beneficiaries can you have under option 4a? You must name exactly one beneficiary for the survivor portion. Who can be named as a beneficiary under option 4a? Only a natural person, not in a state or trust, and note that your beneficiary does not have to be your spouse. What does your beneficiary get under option 4a when you pass? 50 % of the retirees monthly benefit for the rest of the beneficiary's life. Can you make changes to your beneficiary under option 4A? 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 4A requires one human being because their life expectancy determines the actual reduction.

A common question is, if I pick option 4A 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 the survivor protection. Fortunately, option 4A 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 an 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 4A? PLSO Availability If you are eligible, you can combine Option 4A with a partial lump sum option. Just keep in mind this will result in a double reduction. One actuarial reduction for the survivor protection and one actuarial reduction for the cash taken upfront. IRC Limits One major benefit of Option 4A is that internal revenue code limitations will not come into play under any circumstance for younger non-spouse beneficiaries since the survivor benefit is only 50%.

So who should consider option 4A? Here are examples of situations where a retiree should consider option 4A. Retiree with mostly independent spouse. If your spouse has a strong pension or social security of their own, but still needs a small top off to maintain their lifestyle after you pass, option 4A is a great middle ground. Single retiree with grandchild beneficiary. If you want to leave a survivor benefit to a grandchild, Option 4A allows you to do so without the IRC penalties that might trigger under Option 2 or even Option 4.

If you are considering Option 4A, here are your action items for today. 1. 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 4A, and make sure that amount fits within your retirement spending plan for both you and your beneficiary's lifetime. 2. Talk to your beneficiary: Ensure they understand that the benefit under option 4A is for both your and their lifetime, although their benefit is 50 % of yours, and that the benefit available under option 4A to you will be less than what is available under the single life annuity options. 3. Review your beneficiary: Ensure your beneficiary information is current. Remember, you can only select one under option 4A, and if updates are needed, file Form 1B with PERS.

In our next video, we'll provide an overview of PERS Option 4B 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, you can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a follow-up 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, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.