Q&A: Furloughs and IPERS
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1. Am I still covered by IPERS during a furlough?
A furlough does not change your status with IPERS; you are still an active member. In fact, you cannot take your money out of IPERS until you end all employment that is covered by IPERS.
IPERS considers a furlough to be a temporary reduction in your work hours that your employer requires. You remain an employee during a furlough with the expectation you will return to your normal work after the furlough ends. Your furlough may be for a few hours or a few days, which may be sequential or spread out over several months. Your employer may use a different term for furlough, such as temporary layoff.
IPERS does not define a reduction in overtime, lower wages because of a job reassignment, or a reduction in base pay as equivalent to a furlough. Seasonal and permanent layoffs are not considered furloughs either.
2. I don’t plan to retire for many years. Will a furlough affect my IPERS retirement benefits?
It is unlikely a furlough will affect your retirement benefits if you continue to work for several more years. Because IPERS is a defined benefit plan, IPERS benefits are determined by a formula. The formula includes a multiplier that increases as your years of service increase, and a final average salary.
Your final average salary is the average of your highest three years of wages. Because wages usually increase during a career, the years during which you will earn the most have yet to come.
When a furlough lasts only a few days, regardless of whether the days are in a row or periodic one-day furloughs, you continue to earn service credits uninterrupted. You need to receive IPERS-covered wages only once anytime during each quarter (three months) to get a service credit for the quarter.
3. I hope to retire soon. Will a furlough affect my IPERS retirement benefits?
It’s possible. Although you continue to earn service credits during a furlough, you could have lower wages for that year. This could affect your benefit amount if that year is one of the three years that determines your final average salary for the benefit formula. However, there are protections in place that lessen the impact.
First, the three years of wages that determine your final average salary do not have to be the three years immediately before you retire. If your wages go down because of a furlough, or a cut in hours or pay, you do not have to use the lower wages in the formula if you had three years of higher wages in the past. We will automatically use your highest three years of wages to figure your final average salary.
Second, you can preserve a higher final average salary by making up for the contributions IPERS would have received from you and your employer had you been working instead of furloughed. See question 5 for an explanation of the action you must take.
Third, even if a furlough decreases your final average salary and you decide not to make up contributions, wages are only one variable in the benefit equation.
Benefit formula for regular members (non-public safety)
Final average salary |
x |
Multiplier |
Average of highest 3 years of IPERS-covered wages (or 121% of fourth-highest year, whichever is lower). |
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2% a year for 30 years plus 1% a year for years 31–35. Maximum = 65%. (Benefits reduced unless, at retirement, you are age 65, age 62 with 20 years of service, or your age + years of service = 88.) |
Example
Age 58 with 30 years of IPERS-covered employment
Wage increase of 3% a year during the three years before retirement
Temporary layoff during last year of highest three years of wages
Without furlough |
With 5 furlough days |
Year 1: $50,000
|
Year 1: $50,000 |
| Year 2: $51,500 |
Year 2: $51,500 |
| Year 3: $53,045 |
Year 3: $52,025
($1,020 reduction for furlough) |
| Total: $154,545 |
Total: $153,525 |
| Final average salary: $51,515 |
Final average salary: $51,175 |
| Multiplier: 60% (2% a year x 30 years) |
Multiplier: 60% (2% a year x 30 years) |
Estimated monthly benefit: $2,575.75
($51,515 x .60) / 12 |
Estimated monthly benefit: $2,558.75
($51,175 x .60) / 12 |
4. Can I make up for any drop in my monthly benefit that a furlough would create by delaying my retirement?
The impact of delaying retirement depends on your circumstances, but it is likely you would make up for a reduction in your monthly benefit caused by a furlough—and potentially gain even more.
By continuing to work, you could increase the wages that IPERS will use to calculate your final average salary, which is used in the benefit formula. You can also continue to increase your service credits, which will increase your multiplier in the benefit formula.
In the example above, the person was eligible to retire because she met the rule of 88 (age + years of service = 88). However, being eligible to retire does not mean your benefit amount will be calculated with the maximum multiplier. For regular members, the multiplier continues to increase until you have 35 years of service.
Even if you have earned the maximum multiplier, any increase in salary, even if it is only a cost-of-living increase, can increase your final average salary, subsequently increasing your monthly benefit.
5. How do I prevent a drop in my monthly benefit that a furlough may cause by making up contributions?
If your final average salary would be reduced as a result of an employer-mandated reduction of work hours (furlough), you may be eligible to make voluntary contributions to your IPERS account. Choosing to do this will minimize the furlough’s negative impact to your IPERS benefit amount. The voluntary contributions must be the amount of IPERS contributions you and your employer would have paid if you had not had reduced work hours.
For example, if the person in the example above were to make up contributions for her five-day layoff, she would have to pay her own share and her employer’s share of contributions for the amount of her lost wages. The combined member and employer contribution rate for July 1, 2008–June 30, 2009, is 10.45 percent, so she would pay $106.59 ($1,020 × 10.45%). The additional contributions restore her final average salary, increasing her estimated monthly benefit by $17. In slightly over six months, she would make up the cost of the added contributions through a higher monthly benefit. The higher benefit is for life.
You can make voluntary contributions only for hours reduced between January 1, 2009, and June 30, 2010. You will find this beneficial only if your final average salary will include your wages from calendar year 2009 and/or 2010. To make voluntary contributions, you must file an application form with your employer before July 1, 2010, and your employer must forward your additional contributions to IPERS no later than July 31, 2010.
The Application to Submit Contributions for Furlough contains more information. Before completing the application, make sure this is the right decision for you. File a Request for Benefit Estimate for Members Affected by a Furlough before signing the application. The contribution rates are here.
6. Do I need to call IPERS or take any action if I am furloughed and do not plan to retire for several years?
There is nothing you need to do about your IPERS benefits when you are furloughed. Your employer reports your earnings and submits contributions on your behalf each month. IPERS cannot pay any money to you until you end all IPERS-covered employment. The furlough will not affect your future retirement benefits unless it occurs during your three highest years of earnings.
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