TFFR Member Handbook (continued)

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Refund

Refund/Lump Sum Distribution

A member who terminates covered employment is eligible for a refund (lump-sum distribution) of the account value. This consists of employee contributions paid plus 6% interest. The refundable balance does not include employer contributions or investment earnings which are used in paying retirement benefits and reducing TFFR’s unfunded liability.

A refund closes your account and all service credit earned to that point is forfeited. By selecting a refund, you are waiving all rights to a lifetime annuity at retirement. If you are a Tier 1 member, you are also waiving Tier1 membership status, and if you return to TFFR covered employment, you will become a Tier 2 member. Tier 1 and Tier 2 members may repurchase refunded service credit upon return to covered employment.

Waiting Period
There is a 120-day statutory waiting period from your last month of TFFR employment before a refund will be issued. The waiting period may be waived if you provide all of the following:

• Written proof of your resignation or non-renewal.
• Written proof of your employer’s acceptance of your resignation.
• Written proof that you have either accepted non-covered employment or have permanently moved out-of-state OR a statement from a medical doctor attesting to non-employment during the upcoming school year for medical reasons.
• TFFR Certification of Employment form completed by your last employer.

A refund cannot be issued until your employer has submitted all retirement contributions and reported the necessary information to close your account. A refund cannot be issued if you have ceased teaching for the summer months only, or are on a leave of absence.

Tax Considerations
A refund may either be paid in a direct rollover to an IRA or another qualified plan or paid to you. The choice you make will affect the tax you owe.

If the taxable portion of your refund is rolled over, no tax or penalty will be due and no income tax will be withheld.

If your refund is paid to you, TFFR is required to withhold 20 percent of the taxable portion of your refund. North Dakota state tax withholding is optional. A 1099-R tax form will be sent to you the following January. This tax information will need to be disclosed on your tax return. If you separate from service before age 55 and receive a taxable refund payment from TFFR before age 59 1/2, you may have to pay an extra 10 percent penalty calculated on IRS Form 5329 in addition to the regular income tax.

Any previously taxed contributions will be paid to you unless you request that these contributions be rolled to an IRA or to certain employer plans that accept after-tax contributions.

See the special tax notice regarding TFFR refund benefits. Personal income tax questions should be directed to your accountant, tax advisor, or Internal Revenue Service Center.

Application
Contact the administrative office for a refund/rollover application and important tax information.

Refunds are issued on the first working day of each month. However, your refund application and waiver documentation (if applicable) must be received by our office no later than ten working days before the end of the previous month.

Retirement Benefits

TFFR is a defined benefit plan which provides members with a monthly retirement benefit based on a formula defined in state law ( NDCC 15-39.1.) Defined benefit plans provide retirees with a steady, predictable income that will enable them to maintain a stable portion of pre-retirement income.

For TFFR purposes, a member is retired after terminating covered employment in North Dakota and accepting a monthly retirement benefit. If you pass away before accepting this benefit, retirement would not have occurred and retirement benefits would not be payable. Instead, your beneficiary would be eligible for survivor death benefits the first of the month following your passing. A retiring member may not be under contract to perform teaching services in North Dakota nor on a leave of absence. A member’s retirement annuity is payable for life as long as you do not return to TFFR-covered employment. (See Employment After Retirement on page 45 .)

A member must begin drawing retirement benefits no later than April 1 of the calendar year following the year the member reaches age 70 1/2 or terminates covered employment, whichever is later.

Most retired members are eligible to receive both TFFR retirement benefits and Social Security retirement benefits. Contact the Social Security Administration for information and exceptions at 1-800-772-1213.

Benefit Limitations

Benefits payable from TFFR may not exceed the maximum benefits specified under section 415 of the Internal Revenue Code (26 U.S.C. 415) for governmental plans.

Eligibility for Benefits

Normal Retirement
A vested member is eligible for unreduced retirement benefits if the member is:

• Age 65 or older; or
• Tier 1 members - has the Rule of 85 (combined total of years of service credit and age equals or exceeds 85). For example, age 55 plus 30 years of service credit equals 85.
• Tier 2 members - has the Rule of 90 (combined total of years of service credit and age equals or exceeds 90). For example, age 55 plus 35 years of service credit equals 90.

Effective 7/1/2013

• Age 65 or older; or
• Tier 1 grandfathered members - has the Rule of 85 (combined total of years of service credit and age equals or exceeds 85). For example, age 55 plus 30 years of service credit equals 85.
• Tier 1 non-grandfathered and Tier 2 members - minimum age 60 and the Rule of 90 (combined total of years of service credit and age equals or exceeds 90). For example, age 60 plus 30 years of service credit equals 90.

Early Retirement
A vested member is eligible for reduced retirement benefits if the member is age 55 or older. Early retirement benefits are reduced by 6% per year for every year the member’s retirement age is less than age 65 or the Rule of 85 (Tier 1 members) or Rule of 90 (Tier 2 members), whichever is earlier.

For example, a Tier 1 member who retires at age 60 with 24 years of service credit would take a 6% reduction in benefits (from the Rule of 85) and receive 94% of the normal benefit. Or, the member could defer receiving benefits for one year to reach the Rule of 85, or if eligible, purchase the one year of service credit to reach the Rule of 85.

Effective 7/1/2013

A vested Tier 1 grandfathered member is eligible for reduced retirement benefits if the member is age 55 or older. Early retirement benefits are reduced by 6% per year for every year the member's retirement age is less than age 65 or the Rule of 85, whichever is earlier.

A vested Tier 1 non-grandfathered or Tier 2 member is eligible for reduced retirement benefits if the member is age 55 or older. Early retirement benefits are reduced by 8% per year for every year from the earlier of age 65 or the later of age 60 or the Rule of 90.

Deferred Retirement
A vested member who leaves covered employment in North Dakota may defer receiving retirement benefits until reaching normal retirement, age 55, age 65, or any age in between rather than take a refund. The member retains the right to receive benefits retroactive to initial eligibility.

Computing Your Retirement Benefits

Your service retirement benefit is determined by a formula defined in state law. This formula multiplies years of service credit by a percentage (2.0 percent) of your final average salary. The current formula is:

Final Average Monthly Salary × 2.0% × Service Credit = Single Life Annuity

• Final Average Monthly Salary (FAS):
  • Tier 1 member - one thirty-sixth of the total of your three highest annual fiscal year salaries reported to TFFR.
  • Tier 2 member - one sixtieth of the total of your five highest annual fiscal year salaries reported to TFFR.
• Benefit multiplier is the rate established by the Legislature, at which you earn benefits. The current benefit multiplier is 2.0%.
• Service credit is the amount of TFFR service you have accumulated through work or purchase. This is reported to you each year on your Annual Statement of Account.

Visit the TFFR website to access the TFFR retirement benefit calculator.

Summary of Benefits through 6-30-2013

Tier 1 (Active, inactive, and retired members with TFFR service on July 1, 2008)

Note: If Tier 1 member refunds, then returns to TFFR employment, the member becomes a Tier 2 member.

Tier 2 (New members and returning refunded members beginning July 1, 2008)

Summary of Benefits Effective 7-1-2013

Note: If Tier 1 member refunds, then returns to TFFR employment, the member becomes a Tier 2 member.

Table of Monthly Retirement Income

Estimated benefits based on normal retirement age under Single Life Annuity option.

Retirement Options

TFFR offers you lifetime annuity options. The single life annuity pays you the maximum amount. However, you may select a joint and survivor or term certain option that guarantees a reduced lifetime benefit to you, and a lifetime or term certain benefit to your beneficiary(ies).

Under all payment options, you are guaranteed to receive no less than your account value (member contributions plus six-percent interest). However, it is likely you will receive much more than your account value in monthly retirement benefits depending on your life span and the retirement option you choose.

• All optional plan amounts are derived from the benefit formula and actuarial tables. The tables on pages 66 through 68 will provide you with approximate reduction percentages.
   
• A married member’s spouse, if designated as beneficiary, must consent in writing to the retirement option elected by the member. If spousal consent is not obtained, the form of benefit payment will be the 50% joint and survivor option.
   
• Under the joint and survivor options, your benefit pops up to the higher single life plan if your beneficiary precedes you in death, or if a divorce grants you sole ownership of your retirement benefits. Upon remarriage, you can re-elect a joint and survivor option. Under the single life plan, ten and twenty-year term certain and life options, if a retiree marries, the retiree may also elect an option change to a joint and survivor
  option. The retiree must provide proof of the retiree’s good health and the new beneficiary’s proof of age. The monthly benefit will also be actuarially adjusted based on the new beneficiary’s age.
   
• If you name more than one beneficiary, the joint and survivor options are not available for retirement, disability, or survivor benefits.
   
• If the 100% joint and survivor plan is selected and the beneficiary is not the spouse, the beneficiary must be no more than ten years younger than the member.

Single Life Annuity
The single life annuity amount is payable to you for life. There is no monthly provision for your beneficiary(ies) under this option. However, should you die before receiving your account value, your beneficiary(ies) will receive a lump-sum payment of the balance.

100% Joint and Survivor Annuity
The single life annuity amount is actuarially reduced (based on your age and your designated beneficiary's age) to the percentage found in Table 1, page 66, and is payable to you for life. At your death, your designated beneficiary will receive 100% of your monthly benefit for the rest of the beneficiary's life.

50% Joint and Survivor Annuity
The single life annuity amount is actuarially reduced (based on your age and your designated beneficiary's age) to the percentage found in Table 2, page 67 and is payable to you for life. At your death, your designated beneficiary will receive 50% of your monthly benefit for the rest of the beneficiary's life.

Ten-Year Term Certain and Life Annuity
The single life annuity amount is actuarially reduced (based on your age) to the percentage found in Table 3, page 68, and is payable to you for life. If you die within ten years (120 months) of your retirement date, your designated beneficiary(ies) will continue to receive monthly benefits of the same amount until the end of the ten-year period.

Twenty-Year Term Certain and Life Annuity
The single life annuity amount is actuarially reduced (based on your age) to the percentage found in Table 4, page 68, and is payable to you for life. If you die within twenty years (240 months) of your retirement date, your designated beneficiary(ies) will continue to receive monthly benefits of the same amount until the end of the twenty-year period.

Level Income with Social Security Option
In addition to selecting your retirement option, you may elect to have you benefit actuarially supplemented with a percentage of your projected Social Security benefits found in Table 5, page 69 . This option provides a greater benefit from TFFR until a pre-selected age (62 or normal Social Security age). At the pre-selected age, your monthly TFFR retirement benefit will be reduced for life by the full amount of the Social Security benefit you estimated at retirement regardless of the actual amount you receive from Social Security. This option allows a retiree to receive a higher retirement benefit from TFFR until the retiree is eligible for Social Security benefits.

To apply for the level income option, you must provide TFFR with a current written estimate of Social Security benefits (using your age when you retire from teaching and no estimated future earnings).

Partial Lump Sum Option
Members eligible for normal retirement may receive a lump sum cash payment in exchange for an actuarially reduced benefit. The lump sum payment equals 12 times the amount of the single life annuity and is payable at the same time the monthly retirement annuity begins. If you select a joint and survivor or term certain option, your benefit will be reduced for the additional beneficiary coverage.

The taxable portion of the lump sum cash payment will be eligible to rollover to an IRA or another eligible retirement plan.

This option is not available to members who select the level income option, members receiving disability benefits, or to beneficiaries of deceased members.

How to Apply for Benefits

Contact a TFFR Benefits Counselor to calculate benefit options and amounts. Then, complete a Notice of Termination form and submit to the administrative office along with copies of the following documents:

• proof of age - birth or baptismal certificate, military discharge, or passport.
• proof of beneficiary's age - if you select a joint and survivor option
• teaching contract for current school year - include any extracurricular activity pay or additional salary.
• early retirement incentive agreement or letter of resignation and acceptance by employer.
• Social Security benefit estimate - if interested in the level income option.

Purchase of service credit must be complete before retirement. If a member retires prior to full payment of an installment agreement, service credit will be granted in proportion to the actual principal payments made.

Please notify the administrative office of your intent to retire 90 days before your last day of employment to allow sufficient time to process your claim. TFFR will make every effort to process your claim in a timely fashion. However, if delays occur, retirement benefits will be paid retroactive to your retirement date.

Enrollment for Benefits

After you have submitted the Notice of Termination form, TFFR will review your salaries and service credit and may contact your employer for salary verification. To avoid a delay in your first retirement benefit, TFFR will use the salary information you submit to estimate your final salary and service credit. Retirement enrollment forms will be prepared using 90 percent of the estimated salary and sent to you for completion. Upon our receipt, your retirement benefits will begin on the first of the month of eligibility or retroactive to your retirement date. Once the final salary, service credit, and last date of employment is reported by your employer, your monthly benefit will be adjusted.

If you want your enrollment forms to use 100 percent of your final salary, you must notify the retirement office. Your enrollment forms will not be sent until your employer reports the final salary information. Your retirement benefit payment will be delayed, but will be paid retroactive to your retirement date.

Payment of Benefits

Your retirement date will be on the first or fifteenth day of the month following your last date of employment or eligibility for benefits. Actual payment of benefits will be on the first day of each month and may be paid retroactive to your retirement date.

Direct deposit (electronic fund transfer) is the required method of payment for new retirees. It is a safe, fast, and cost effective method of receiving your monthly benefit. Direct deposit guarantees that your annuity check is deposited to your checking or savings account on the first working day of every month. It also eliminates problems with lost or misplaced checks.

If any change or error in the records of TFFR or any participating employer or error in any calculation results in a member receiving more or less in benefits than they are entitled to receive, the Fund reserves the right to correct the error and adjust the benefit.

Taxation of Benefits

Retirement benefits are taxable as ordinary income under both federal and state law. Taxable and nontaxable portions of the annuity are calculated according to a formula provided by the Internal Revenue Service. Under the IRS Simplified General Rule, only a small fraction of each monthly benefit payment may be nontaxable. The balance of the benefit is immediately taxable. When you have recovered the previously taxed contributions by way of monthly exclusion, 100 percent of your benefit becomes taxable. You may choose to have federal and North Dakota state income tax withheld from your monthly benefit by filing a W-4P tax form. The administrative office will determine your taxable income and transmit the information to you and the Internal Revenue Service annually on a 1099-R tax form.

Personal income tax questions should be directed to your accountant, tax advisor, or Internal Revenue Service Center.

PERS Group Insurance

Retired members who are receiving a monthly benefit from TFFR may be eligible to participate in the North Dakota Public Employees Retirement System (PERS) group insurance programs. These include:

• health insurance (Dakota Plan)
• dental insurance
• long-term care insurance
• vision insurance

In order to be eligible to join the PERS Group Insurance Plans, you must apply within 31 days from the date following any “qualifying event.” Long-term care insurance eligibility requirements may differ.

The monthly premiums can be deducted from your TFFR pension check or bank account. For rates and additional information, contact the PERS office at 328-3900 or 1-800-803-7377.

Employment After Retirement

After you retire, you may return to TFFR covered employment under certain employment limitations. The limits apply to TFFR covered employment which includes teaching, supervisory, and administrative services in a ND public school or state institution covered by TFFR, except for extracurricular duties and professional development. The limits do not apply to:

• teaching in public colleges and universities
• teaching in private schools
• employment outside of education
• employment outside of North Dakota

Non contracted substitute teaching does not apply to the annual hour limit. However, in staff substitute teaching performed during an existing contract period will apply to the annual hour limit. Keep in mind, in order to be eligible to retire and receive TFFR monthly retirement benefits, you must resign from your position and complete the necessary TFFR paperwork. Then, after the applicable waiting period, should you decide to return to work, both you and your employer must notify TFFR by completing a TFFR Retired Member Employment Notification form within 30 days of your employment.

Failure to notify TFFR that you have returned to TFFR covered employment will result in the loss of annuity benefits. Notification must be in writing.

Because of the impact returning to work could have on your TFFR retirement benefits, we strongly encourage you to contact our office to discuss all of your options. The following is a description of retiree re-employment alternatives.

• General Rule - Annual hour limit
  After 30 days elapse from your retirement date, you may return to TFFR covered employment for a maximum number of hours in a fiscal year (July 1 - June 30). You will continue to receive your monthly retirement benefits, employer contributions will be paid to TFFR on all retirement salary paid to the retiree (including in staff subbing, extracurricular and professional development pay), and your monthly TFFR benefit amount will not be affected. Effective 7-1-2012, employee contributions will also be required based on the employer payment plan model. The additional contributions will be included in the retiree's account value but the monthly benefit will not be affected.
   
  The annual hour limit is based on the length of employment.
   
  9 month contract = 700 hours
  10 month contract = 800 hours
  11 month contract = 900 hours
  12 month contract = 1,000 hours

Example: Jane retires July 1, 20011, and begins collecting TFFR retirement benefits. On August 1, she signs a 9-month contract with a ND school district to work for 600 hours which allows her 100 hours for in-staff subbing. With the exception of extra-curricular duty and professional development, all compensated hours count toward the 700-hour limit. Jane and her employer complete a TFFR Retired Member Employment Notification form and submit to TFFR for approval. Jane receives salary from the school district, and employer contributions are paid to TFFR on the teaching salary as well as any in-staff subbing, extracurricular or employment after Retirement continued professional development pay. Jane continues to receive her monthly TFFR retirement benefit while teaching part time.

• Exception A - Critical Shortage Area
  You may return to TFFR covered employment in an approved critical shortage area and exceed the annual hour limitation without losing your retirement benefits. If you retired prior to January 1, 2001, no waiting period is required. However, if your retirement date is after January 1, 2001, a one-year waiting period is required before you can consider this option. You may perform non-contracted substitute teaching during the one-year waiting period. Critical shortage areas will be determined each year by the Education Standards and Practices Board (ESPB) by rule. Each year, you must re-apply for this exception and receive verification that it remains a critical shortage area. Like the General Rule, you will continue to receive your monthly retirement benefits, employer contributions will be paid to TFFR on all retirement salary, and your monthly TFFR benefit amount will not be affected. Effective 7-1-2012, employee contributions will also be required based on the employer payment plan model. The additional contributions will be included in the retiree's account value but the monthly benefit will not be affected.
   
• Exception B - Benefit Suspension and Recalculation
  After 30 days elapse from your retirement date, you may return to TFFR covered employment and exceed the annual hour limitation. Under this option, employer contributions will be paid to TFFR before and after the benefit suspension. Your TFFR benefits will be suspended the first of the month following the month you reach the annual hour limit. For 2011-12, once the benefit is suspended, employee contributions must be paid on any retirement salary earned after the annual hour limit based on your employer's TFFR payment model. Effective 7-1-2012, employer and employee contributions will be paid to TFFR before and after the suspension based on the employer's TFFR payment model.
  
  Upon your re-retirement, your benefits will be recalculated. If you re-retire with:
   
  
  • less than 2 years of additional earned service credit – you wil receive the discontinued benefit plus benefit increases granted during the benefit suspension and a refund of employee contributions paid after the benefit suspension plus interest.
     
  • 2-5 years – you will receive the greater of the discontinued annuity, plus additional years at the current multiplier, plus benefit increases granted during the suspension or all the years recalculated at the current multiplier, less an actuarial offset for the amount of benefits already paid.
     
  • 5 or more years – you will receive the greater of the calculation above or the retirement benefit recalculated using all the years at the new multiplier with no actuarial offset.

Retiree Postretirement Benefit Increases

The TFFR retirement plan does not contain provisions for automatic cost of living adjustments to retirement benefits.

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