 IPERS Member Handbook
HOW YOUR BENEFITS ARE CALCULATED
This section of the handbook lays out the formulas used to calculate your retirement benefits. You can obtain an estimate of your benefits for all six payment options by contacting an IPERS representative, or by using the Retirement Calculators.
A. Calculating a Defined Benefit
As a defined benefit plan, IPERS uses a formula to determine your benefits. The formula includes:
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A formula multiplier (based on your years of service) not to exceed 65%.
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The multiplier for Special Service members is different from the multiplier for regular members. |
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Your age at retirement, unless you have always worked as a Special Service member. |
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The retirement benefit is reduced for regular IPERS members if the benefit is received before normal retirement age. |
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Your highest 3-year average salary (or, beginning July 1, 2007, 121 percent of the fourth highest year’s wage, whichever is lower). |
Your highest 3-year average salary is determined by averaging your three highest calendar years’ wages. However, if you terminate employment before the end of the calendar year, the final year’s wage can be calculated using a computed year. The computed year uses the wages reported for the quarters worked in the last year of employment and fills the remaining empty quarters with the quarterly average wage from the third highest calendar year wage. If this computed year is greater than the third highest calendar year, then the computed year is used. This computed year is limited to 103 percent of the highest calendar year wage being used in the calculation. This calculation will not result in additional quarters of service credit for the filled quarters.
 Beginning July 1, 2007, the final highest 3-year average computation will be compared to the highest calendar year wage (control year wage) not being used in the computation. If the final average is more than 121 percent of the control year wage, the final average will be reduced to 121 percent of the control year wage.
B. Calculating Benefits for Regular Members
This example shows how IPERS benefits are calculated for regular members:
Multiplier
(Based on Your
Years of Service) |
X |
Salary
(Your Highest
3-Year Average) |
If benefits begin before normal retirement age, the benefit amount will be reduced by 0.25 percent for each month (or 3 percent per year) that benefits begin before the member would reach normal retirement age.
To determine the multiplier used in the calculation above, refer to the chart below:
View enlarged version of chart in a new window.
Following are examples of the benefit formula for determining the annual Option 2 retirement benefit (see the section entitled “Option Choices”) from July 1, 1994, forward:
Scenario A—Normal Retirement
Jane works for an IPERS-covered employer for 21 years. She retires at age 62, when she qualifies for a normal retirement pension. Her highest 3-year average salary is $51,814. Her annual retirement benefit would be $21,761.88 (42% x $51,814) under Option 2. Depending on the payment option Jane elects, this amount may be adjusted.
42% Multiplier
(Based on Jane’s
Years of Service) |
X |
$51,814 Salary
(Jane’s Highest
3-Year Average) |
= |
$21,761.88
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Scenario B—Early Retirement
Steve works for an IPERS-covered employer for 25 years and decides to retire at age 55 before he meets normal retirement age. When he leaves covered employment, his highest 3-year average salary is $64,000. His annual retirement benefit under Option 2 would be $25,280 (50% x $64,000 = $32,000 - $6,720 age reduction [7 years before normal retirement age x 3% per year reduction]).
50%
Multiplier
(Based on
Steve’s Years
of Service) |
X |
$64,000
Salary
(Steve’s
Highest 3-Year
Average) |
– |
$6,720
Reduction
for Early
Retirement
(3% per year) |
= |
$25,280 |
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 C. Calculating Benefits for Special Service Members
Examples that follow show how IPERS benefits are calculated for Special Service members.
Multiplier
(Based on Your
Years of Service) |
X |
Salary
(Your Highest
3-Year Average) |
To determine the approximate multiplier used in the calculation above, refer to the chart below.
View enlarged version of chart in a new window.
The age at which sheriffs and deputy sheriffs with 22 or more years of eligible service first qualify for a retirement benefit is reduced as follows:
- 52 effective July 1, 2006 (fiscal year 2007)
- 51 effective July 1, 2007 (FY2008)
- 50 effective July 1, 2008 (FY2009)
Scenario A
Joe works for an IPERS-covered employer for 21 years. He retires at age 55, when he qualifies for a normal retirement pension. His highest 3-year average salary is $51,814. His annual retirement benefit would be $29,673.88 (57.27% x $51,814) under Option 2. Depending on the payment option Joe elects, this amount may be adjusted.
57.27% Multiplier
(Based on Joe’s
Years of Service) |
X |
$51,814 Salary
(Joe’s Highest
3-Year Average) |
= |
$29,673.88 |
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Scenario B
If Joe worked another 3 years and retired at age 58 with a highest 3-year average salary of $55,056, his annual retirement benefit would be $34,685.28 (63% x $55,056) under Option 2. Again, depending on the payment option Joe elects, this amount may be adjusted.
63% Multiplier
(Based on Joe’s
Years of Service) |
X |
$55,056 Salary
(Joe’s Highest
3-Year Average) |
= |
$34,685.28 |
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D. Calculating Benefits Using the Hybrid Formula
Members who have a combination of Special Service and regular time may retire using a hybrid formula. If you have Special Service and regular service, contact IPERS for more information about how your benefits are calculated.
The hybrid formula takes all service into account. The service credits are separated by service type (regular and Special Service) and each type of service is applied to the corresponding formula multiplier chart. The total amount of service cannot exceed 30 years. Grandfathered years of Special Service (years in which the member contributed at regular rather than Special Service rates while working in a Special Service position) are treated as regular service in this formula. The following calculation is for a member with 15 years as a deputy sheriff and 6 years in regular service who retired at normal retirement age.
Scenario A
Nancy works for an IPERS-covered employer for 21 years. During those years, she worked as a regular-class employee for 6 years and as a deputy sheriff for 15 years. She retires at age 62, when she qualifies for normal retirement pension (Rule of 62/20). Her highest 3-year average salary is $53,754. Her annual retirement benefit would be $28,435.87 (12% regular-class formula multiplier x $53,754 + 40.90% Special Service formula multiplier x $53,754) under Option 2. Depending on the payment option Nancy elects, this amount may be adjusted.
12% Multiplier
(Based on Nancy’s
years of service as a
regular-class
employee) |
X |
$53,754 Salary
(Nancy’s Highest
3-Year Average) |
= |
$6,450.48
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40.90% Multiplier
(Based on Nancy’s
years of service as a
Special Service
employee) |
X |
$53.754 Salary
(Nancy’s Highest
3-Year Average) |
= |
$21,985.39
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E. Conditions for Receiving a Minimum Benefit or Mandatory Lump-Sum Payment
1. Minimum Benefit
Any member who retires on or after July 1, 1990, will receive a minimum benefit of $50 per month if the following conditions are met. The member must:
- Have at least ten years of service after July 4, 1953.
- Have covered wages and a length of service that do not provide for larger benefits.
The $50 minimum applies to Option 2, selected at normal retirement. The benefit will be reduced if the member retires before normal retirement or selects an option other than Option 2.
2. Mandatory Lump-Sum Payment For members whose benefit under Option 2 is less than $50 per month, an actuarial equivalent (AE) lump sum equal to the member’s and employer’s accumulated contributions will be paid. |
