Chapters

00:00 Introduction to PERS Option 4B and its Purpose

00:58 Key Concepts of Option 4B: Life Benefit, Guaranteed Period, Survivor Impact

01:34 Calculating the Monthly Benefit and Actuarial Reductions

02:23 Beneficiary Options and Flexibility in Option 4B

02:59 Limitations: No Pop-up or Pop-down Provision

03:56 Partial Lump Sum and IRS Limitations

04:37 Who Should Consider Option 4B? Practical Scenarios

05:14 Action Items: Comparing Guaranteed Periods and Updating Beneficiaries

05:56 Previewing Next Video

06:49 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 are looking to provide benefits to a survivor for a certain period of time post-retirement, option 4B might be the sweet spot you're looking for. In this video, we'll break down what option 4B is, how its guaranteed period works, and who should consider it. Let's get started.

In our previous videos, we've explored options 2, 3, 4, and 4A, which are all joint and survivor annuities. Today, we are looking at option 4B, guaranteed payment periods fixed. Unlike the joint and survivor annuity options that cover two full lifetimes, option 4B is technically a single life annuity with a guaranteed payment period. There are three key concepts to this option. 1. Benefit for your life: You are guaranteed to receive a monthly benefit for as long as you live, no matter how long that is. 2. Guaranteed certain period: When you retire, you choose a period of 10, 15, or 20 years. 3. Survivor impact: If you pass away before that chosen period ends, your beneficiaries will continue to receive your same monthly amount for the remainder of that 10, 15, or 20 year window. If you live past the 10, 15, or 20 year mark, you continue receiving your check, but the survivor protection ends.

How is the monthly benefit amount for option 4B 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 4B, PERS applies an actuarial reduction to that maximum amount. Because this option only guarantees payments for a set number of years rather than a second full lifetime, the reduction to your monthly check is often smaller than options like option 2 or option 4. The longer the certain period you choose, the larger the reduction to your check will be.

The beneficiary rules for option 4B offer more flexibility than the survivor options we've discussed previously. How many beneficiaries can you have under option 4B? You can name one or multiple beneficiaries. Who can be named as a beneficiary under option 4B? You can name a person, your estate, or even a trust. What does your beneficiary get under option 4B when you pass? If you pass before the end of the guaranteed period, then they receive your same monthly benefit until the guaranteed period ends. If you pass after the end of the guaranteed period, then they receive nothing. Can you make changes to your beneficiary under option 4B? You can change your beneficiaries at any time.

A common question is, if I pick option 4B 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. Unfortunately, the answer to this question is yes, you are stuck with it forever. Option 4B does not allow for a pop-up or pop-down provision. This means that after retirement, you cannot pop up to the maximum retirement allowance option, and you cannot pop down to a joint and survivor annuity, such as option 2, 4, or 4A. However, under option 4B, in the event one of your primary beneficiaries pass, your remaining beneficiaries, will receive the monthly guaranteed benefit of the beneficiary that passed. You also have the ability to update your beneficiaries at any time, such as when a primary or contingent beneficiary passes.

What about Partial Lump Sum option and Internal Revenue Code limitations with option 4B? PLSO Availability: If you are eligible, you can combine option 4B with a Partial Lump Sum option. Just keep in mind this will result in a double reduction, one actuarial reduction for the guaranteed period, and one actuarial reduction for the cash taken upfront. IRC Limitations : Internal Revenue Code Section 401A-9 may limit your eligibility for option 4B or the length of the certain period you can choose, 10, 15, or 20 years, based on your age at retirement. PERS will notify you if these federal limits apply to your selection.

So who should consider option 4B? Here are examples of situations where retirees should consider option 4B. Retiree with short-term dependent need: If you have children who will be independent in 10 or 15 years or have a spouse and you have a mortgage that will be paid off in that timeframe, option 4B provides a guarantee for the time you need it. Sick retiree providing charitable legacy: If you have a shorter life expectancy, can live off the reduced monthly benefit for the rest of your life, and your estate planning goals include making a donation to a charitable organization, option 4B could be a great choice.

If you are considering option 4B, here are your action items for today. #1 Compare the guaranteed periods: Ask PERS for an estimate showing the difference in your monthly check between the 10, 15, and 20 year certain periods under option 4B. Make sure the benefit amount fits within your retirement spending plan. #2 Evaluate your needs: Look at your long-term debts or the ages of your dependents to see which certain window actually covers your needs. #3 Review your beneficiary: Ensure your beneficiary information is current. Remember, you can select multiple and even trust estates and organizations as beneficiaries under option 4B. And if updates are needed, file form 1B with PERS.

In our next video, we will dive into PERS data to share what service retirement benefit options are most popular among Mississippi PERS retirees. 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 follow up question about PERS or anything else related to personal finance, please visit our website at www.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.