Legislators' Guide to IPERS Important Information for IPERS' Plan Sponsors

Attracting and Retaining a Quality Workforce

Finding and keeping talented employees is a challenge that many employers face. The primary assets of an organization are the talents of its people, not the tangible and financial assets of budget sheets. The cost of finding key talent and replacing staff who leave is expensive and time-consuming.

The IPERS Plan can help attract and retain talented employees in Iowa. While many employers are changing from defined benefit to defined contribution plans to save money by shifting the investment risk to employees, IPERS—a defined benefit plan—offers employees the security of a guaranteed retirement benefit. With recent stock market fluctuations, many people are seeking to reduce the investment risk of their retirement savings—one of the reasons the IPERS Plan can help to attract employees. In addition, the longer employees remain in the IPERS Plan, generally, the greater their retirement benefits will be—an added incentive to remain with an IPERS-covered employer.

Membership Has Rewards

Protection for Families

The IPERS Plan values families by providing protection against the unexpected. Disability benefits provide protection in the event members develop a disability before retirement. The Plan also provides pre- and postretirement death benefits to members’ spouses, children, or other beneficiaries.

Amount of Retirement Benefit

The formula used to calculate a member’s retirement benefit includes:

1. A formula multiplier (based on a member’s years of service).
2. A member’s highest 3-year average salary.
3. For regular members, a member’s age at retirement (a member’s benefit is reduced if it is received before normal retirement age). Regular members, 96 percent of IPERS’ membership, are members not in a public safety position. Public safety positions include sheriffs, deputy sheriffs, police, firefighters, and correctional officers.

The benefit is calculated* as follows:

* Regular members who retire before normal retirement age receive reduced benefits. Their benefits are reduced by 0.25 percent for each month (or 3 percent a year) before their normal retirement age. Special Service members’ benefits are not reduced for early retirement.

Please note: The maximum benefit that a regular member may earn is 65 percent (72 percent for Special Service members) of his or her average salary, provided the member has 35 years (30 years for Special Service members) of service and is not subject to an early retirement reduction.

Payment Options

Since members have different needs and personal circumstances, members may choose between various payment options. This provides members the flexibility to choose the level of benefit protection that is right for them and their family.

Protecting Pensions from Inflation

Rather than including a cost-of-living adjustment to protect the value of pensions from inflation, the Legislature addressed retirement security in different ways.

For Pre-1990 Retirees

These retirees receive an annual payment guaranteed by Iowa law. The payment is based on a formula, defined in law, that uses a benefit multiplier. The benefit multiplier does not increase unless IPERS’ actuary certifies that the increase can be supported by current contribution rates. There has not been an increase to the base payment since November 2001.

For Post-1990 Retirees

These retirees receive an annual FED (Favorable Experience Dividend) payment based on formula defined in law. The formula includes a multiplier that is limited to no more than 3 percent. The multiplier has been frozen at 1.07 percent since 2003. The average payment in 2006 is about $760.

The payment is made from the FED Reserve Account, established by the Legislature in 1998. Money is not transferred into this account unless IPERS’ unfunded actuarial liability can be amortized over 15 years or less. The last transfer into this account was in fiscal year 2001. With the multiplier frozen at 1.07 percent, funds will run out in roughly 9–10 years.