“Option” is the term used to describe how a retirement allowance is allotted. The allowance must be paid to the member in lifetime monthly payments, but the apportionment of those payments will differ depending upon the member’s option selection. Option selection also determines what benefits, if any, will be paid to survivors after a retiree’s death.
What Factors Should Influence a Member's Choice of Option?
The member’s health and age at retirement, income from other sources, financial obligations, and the need to provide for others who may survive the member are just some of the factors that should be considered carefully.
Are There Any Restrictions on a Member's Selection of an Option?
No, there are no restrictions. Any member is free to select Option A, Option B or Option C upon retirement.
When Must a Member Select an Option?
A member must choose an option before the date his or her retirement allowance becomes effective. Retirement board staffers are available to thoroughly discuss options with the member prior to that date. If a member refuses or fails to select an option before the date his or her retirement allowance becomes effective, the law provides that the member will be retired under Option B.
Is a Member Permitted to Change His or Her Option Selection?
A member is not permitted to change his or her option selection after the date upon which his or her retirement allowance becomes effective.
Must a Member's Spouse Acknowledge the Member's Option Selection?
Yes, a married member’s Choice of Retirement Option form must contain the signature of the member’s spouse, acknowledging the spouse’s understanding of the option chosen. If a married member files a Choice of Retirement Option form that has not been acknowledged by his or her spouse, the member’s retirement board is required to notify the member’s spouse within fifteen days by registered mail of the option selection and of the spouse’s right to sign and return an acknowledgment of receipt and understanding of such selection.
An unacknowledged option selection shall not take effect unless the spouse fails to submit the signed spousal acknowledgment within thirty days of receipt of the information regarding the option selection from the retirement board. The effective date of the member’s retirement will not be affected by the requirement that spousal acknowledgment be obtained.
What are the Options Available at Retirement?
Options A, B and C.
What if a Member Fails to Pick an Option?
Option B is the “default” option to which those who fail to select an option are assigned. Please see a detailed discussion of Option B below.
What Will Happen if the Member Elects Option A?
The election of Option A means that the member will receive a full retirement allowance in monthly payments as long as he or she lives. All allowance payments will cease upon the member’s death and no future allowance payments will be made to anyone, nor will a return of any amount remaining in the member’s annuity savings account be made. The only amounts payable will be payment owed for the days the retiree lived in the month of his or her death. For example, if a person dies on the 16th of September, they are still owed 16 days of payment. This could result in a check being issued to an individual’s estate. Some retirement boards provide forms to permit a member to designate a beneficiary for this residual payment.
What Does Option B Provide?
Option B provides a member with a lifetime allowance which is approximately 1% to 5% less per month than the allowance payable under Option A. The annuity portion of a member’s allowance is reduced to allow a potential benefit for his or her beneficiary or beneficiaries. Upon the member’s death, his or her surviving beneficiary or beneficiaries of record, or if there are no beneficiaries living, the person or persons appearing in the judgment of the member’s retirement board to be entitled thereto, will be paid the unexpended balance of the member’s accumulated total deductions, if any, from the annuity reserve account in one lump sum.
Under Option B, How Soon Could a Member's Retirement Contributions be Depleted?
It is impossible to generalize because people retire at different ages but it is usually the case that all of the accumulated deductions which the member contributed to the system during his or her career will be dissipated approximately 12 to 15 years after retirement. It is important to note that a member’s retirement allowance is not reduced upon the depletion of the amounts in the account. When the member dies, if any balance remains in the account, it will be paid to the beneficiary or beneficiaries of record. If there is no balance remaining, no payment will be made to the designated beneficiary or beneficiaries.
Is a Member's Choice of Beneficiary Limited under Option B?
Under Option B, a member may designate as many beneficiaries as he or she desires. He or she may designate an individual, individuals, a charity, an institution, or virtually any entity or entities. Although the choice of an option may not be changed after the date a retirement allowance becomes effective, a retiree may change his or her Option B beneficiary designation at any time.
What is Option C?
Option C is also known as the joint and last survivor allowance. Selecting this option means that the allowance payments that the member would receive during his or her lifetime will be approximately 7% to 15% less than he or she would receive under Option A. Upon the death of the retiree, his or her designated beneficiary will be paid a monthly allowance for the rest of his or her life. That allowance will be equal to two-thirds of the allowance that was being paid to the retiree at the time of his or her death.
How Are the Monthly Allowance Payments Calculated Under Option C?
The monthly allowance payable under Option C depends upon life expectancy factors for the member and the member’s designated beneficiary.
Who May Be Named as a Beneficiary under Option C?
Only one beneficiary may be named under Option C. The eligible beneficiary is limited to a member’s spouse, the member’s former spouse (provided he or she has not remarried at the time the Option C benefit becomes payable to the member), the member’s child, parent, or sibling.
Is a Member Permitted to Change His or Her Option C Beneficiary Designation?
No. Once a member’s retirement has become effective, the Option C beneficiary designation cannot be changed.
If a Member's Spouse Dies After Receiving Allowance Payments Under Option C, Will Benefits Then be Payable to the Member's Children?
Each child would be eligible to receive an equal share of the allowance that the spouse had been receiving. Payments would be made to the legal guardian of each child and would cease upon each child’s 18th birthday.
What if a Person Designated as an Option C Beneficiary Dies Before the Retiree?
If the member’s allowance was as the result of an application filed on or after January 12, 1988 and his or her Option C beneficiary dies before the member, the member would thereafter be paid the full retirement allowance he or she would have received had he or she originally selected Option A. (This conversion is commonly referred to as the Option C “Pop-Up”.) Any cost-of-living increases that are granted after the member’s Option C retirement becomes effective will be reflected in the newly established Option A allowance. All payments will cease upon the member’s death. No payments will be available to any beneficiaries.
Does Divorce Following Retirement Change the Status of a Member's Former Spouse as His or Her Option C Beneficiary?
If a member names his or her spouse as the Option C beneficiary during their marriage, the former spouse will continue to be the Option C beneficiary even if they are subsequently divorced after the member’s retirement.
What if a Former Spouse is Named as the Option C Beneficiary, but Then Remarries Following the Member's Retirement?
He or she would remain the Option C Beneficiary. A person’s eligibility to be the Option C beneficiary is determined at the time of the member’s retirement, not at the time of the member’s death.
What is a DRO and How Might it Impact the Survivor's Benefits to Which a Beneficiary May be Entitled?
Regardless of whether a member divorces before or after retirement, a divorce or separation may result in a Domestic Relations Order (DRO) being generated. A DRO is an order of the Court and must be followed as long as it is consistent with the provisions of Chapter 32. A DRO may require a member to name their former spouse as an Option C beneficiary, or entitle the former spouse to a certain percentage of the member’s allowance, and those directives of the court must be carried out. However, a DRO cannot create a right or establish a benefit that is inconsistent with the provisions of G.L. c. 32. For example, a DRO, which purports to order the disbursement of the member’s accumulated total deductions prior to retirement or separation from service, would be invalid.
I Have an Ironclad DRO Requiring My Former Spouse to Name Me as His Option C Beneficiary When He Retires. Is There Any Way He can Get Around This?
Yes, but it will be at great personal cost to himself. He must die before retirement, having remarried. If he dies as a result of, or while in the performance of his duties, his current spouse would get an accidental death benefit pursuant to G.L. c. 32, Section 9. Alternatively, if the member dies while a member of a non-job related cause, the present spouse could elect the 12(2)(d) benefit even if you are the Option D beneficiary. Please see a more detailed discussion of both accidental death benefits and Option D benefits on the following pages.