Legislators' Guide to IPERS
Important Information for
IPERS' Plan Sponsors |
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The Trust Fund at a Glance
IPERS’ total assets fund its total liability to active members, current retirees, and surviving beneficiaries.
The Plan's Total
Assets Include... |
The Plan's Total
Liability Includes... |
- Employer contributions
- Member contributions
- Investment earnings
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- Benefits earned by active members
- Benefits paid to current retirees and beneficiaries
- Refunds paid to those leaving IPERS
- Costs of administering the Plan
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Here’s how it works:
- The IPERS Trust Fund, by law, must be used for the exclusive benefit of members. IPERS needs to have enough assets to pay benefits to current retirees and surviving beneficiaries and benefits earned by active members.
- As active members work, they earn IPERS benefits, which IPERS pays at retirement (or another qualifying event such as disability or termination of employment).
- Active members contribute to the System while they are working. Employers pay a share of the contributions as part of the total compensation package they provide to employees.
- IPERS is a “prefunded” system, which means that current contributions and income from contributions should cover the future retirement benefits of members currently working.
- Federal and state law grants broad investment authority to IPERS. The earnings on these investments (11.25 percent rate of return for fiscal year 2005) provide the largest percentage of income to the Plan.
A Note About Expenses
The Legislature controls what IPERS pays in expenses in two ways:
- The law caps the amount IPERS can spend on investment expenses. In fiscal year 2005, IPERS spent about one-third less on investment expenses than the law allows.
- The Legislature authorizes spending from the Trust Fund to pay other administrative expenses.
IPERS closely monitors and negotiates what it pays to investment portfolio managers, does not spend money on costly advertising campaigns, and manages itself with a lean and efficient staff. Limiting administrative and investment management expenses allows IPERS to use its assets to pay out benefits and helps ensure the long-term funding of the Plan.
| Myth |
Fact |
IPERS benefits are not portable. |
Members become vested after they accrue 4 years of service or if they reach age 55 while an active (contributing) member, whichever occurs first. Members are always 100 percent vested in their own contributions. When vested members leave IPERS-covered employment before retirement, they may receive, in addition to their own contributions and interest, a portion of their employer’s investment based on their years of service. Alternatively, members may roll over their IPERS account to another eligible retirement plan or take a refund upon termination of employment. If a member changes jobs to another IPERS-covered position, the member remains covered automatically. |
| IPERS is the only retirement benefit a member needs at retirement. |
IPERS Plan benefits are only one component of a member’s overall retirement savings. Total retirement income will come from a combination of a member’s IPERS Plan benefits, Social Security, personal savings, and any other retirement plan benefits. |
A member’s IPERS
benefit and preretirement pay are equal. |
IPERS replaces only a portion of an employee’s preretirement pay. The maximum benefit regular members can receive is 65 percent of their average salary, provided they meet the 35-year service requirement and are not subject to reductions for early retirement. Special Service members can receive up to 72 percent of their average salary provided they have 30 or more years of service; their benefits are not reduced for early retirement. |
| IPERS covers only state employees. |
IPERS covers several types of employers including schools, counties, cities, and others. The largest percentage of IPERS members is in education. |
| Iowa taxpayers pay for IPERS. |
Employers contribute to IPERS as part of the total compensation package they offer to members. Members contribute to the Plan via salary deductions. Investment income earned from IPERS contributions provides the largest percentage of money that is used to pay benefits. Taxpayers indirectly contribute to IPERS via tax dollars used to support government and the compensation packages of public employees. |
IPERS decides which benefits
to offer. |
The Iowa Legislature determines the amount of benefits IPERS members receive. The Iowa Legislature also determines the contribution rate for regular members, who account for 96 percent of IPERS’ membership. |
| IPERS works like Social Security. |
IPERS is a prefunded system—people working today contribute toward a future retirement benefit. The Plan must meet actuarial tests to ensure that it has the funds available to pay retirement benefits to members when they are ready to retire. In theory, Social Security should work in a similar way. However, social security benefits do not need to meet the same rigorous actuarial tests that IPERS does. Consequently, social security benefits are not prefunded. |
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