PERAC's Main Guide-Formula: Restrictions and Variations
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Main Guide

     

FORMULA: RESTRICTIONS AND VARIATIONS

RETIREMENT ALLOWANCE RESTRICTIONS


Is there a limit on the amount of a retirement allowance?

Superannuation
The superannuation retirement allowance of any member may not exceed 80% of his or her three-year average annual rate of regular compensation.

Veteran’s Benefit
If you are a veteran, you are entitled to $15 a year a year extra for every year or fraction thereof of creditable service, up to a maximum additional benefit of $300.00 per year. Veterans can still receive this additional veteran's benefit even if it causes their superannuation retirement allowance to exceed 80% of their average annual rate of regular compensation.

 

SAMPLE CASES AND CALCULATIONS


Examples

The following examples are presented to aid your understanding of the formula's usage. Please note that annual allowance figures are rounded off to be divisible by 12. Also, all benefits are calculated as though the member selected Option A. (For a discussion of options, please see the section of this guide entitled, "Options for Retirees.")

 
Case 1

     

Case Facts

   

• Group: 1

• Retirement Date: December 31, 2004
   

• Age: 55

• Creditable Service: 15 years, 6 months
   

• Non-Veteran

• 3-Year Average Annual Rate of Regular Compensation:    $42,000.00

Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

2004         $44,000.00

2003         $42,000.00

2002         $40,000.00

1.5 100
Subtotal  $126,000.00 ÷3
 
         

.015

X

$42,000.00

X

15.5

 
Total Annual Allowance
Monthly Benefit
$9,765.00
$813.75


Case 2

     

Case Facts

• Group: 1

• Retirement Date: December 31, 2004
   

• Age: 68

• Creditable Service: 32 years
   

• Non-Veteran

• 3-Year Average Annual Rate of Regular Compensation:    $36,000.00


Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.025

X

$36,000.00

X

32

 
Total Annual Allowance
Monthly Benefit
$28,800.00
$2,400.00


Case 3

     

Case Facts

• Group: 1

• Retirement Date: December 31, 2004
   

• Age: 45

• Creditable Service: 20 years
   

• Non-Veteran

• 3-Year Average Annual Rate of Regular Compensation:    $30,150.00

Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.005

X

$30,150.00

X

20

 
Total Annual Allowance
Monthly Benefit
$3,015.00
$251.25

 


Case 4

  

Case Facts

• Group: 1

• Retirement Date: December 31, 2004
   

• Age: 55

• Creditable Service: 20 years
   

• Non-Veteran

• 3-Year Average Annual Rate of Regular Compensation:    $31,500.00
   

Left public service at age 45 in 1994

Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.015

X

$31,500.00

X

20

 
Total Annual Allowance
Monthly Benefit
$9,450.00
$787.50


Case 5

   

Case Facts

• Group: 2

• Retirement Date: December 31, 2004
   

• Age: 55

• Creditable Service: 15 years
   

• Veteran

• 3-Year Average Annual Rate of Regular Compensation:    $35,000.00

Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.020

X

$35,000.00

X

15

 
Because this member is a veteran, he is entitled to $15.00 a year for each of his 15 years of creditable service.
 
Total Annual Allowance (Initial Computation)
+ Veteran’s Benefit ($15.00 x 15 years)
$10,500.00
$225.00
 
Total Annual Allowance
Monthly Benefit
$10,725.00
$893.75

 


Case 6

   

Case Facts

• Group: 4

• Retirement Date: December 31, 2004
   

• Age: 65

• Creditable Service: 41 years
   

• Veteran

• 3-Year Average Annual Rate of Regular Compensation:    $58,833.00

Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.025

X

$58,833.00

X

41

 
Statutory provisions limit the allowance to 80% of $58,833.00 = $47,066.40.
However, the veteran’s credit should be applied.
 
Total Annual Allowance (Initial Computation)
Statutory Limit (80% of $58,833.00)
+ Veteran’s Benefit ($15.00 x 20 year maximum)
$60,304.08
$47,066.40
$300.00
 
Total Annual Allowance
Monthly Benefit
$47,366.40
$3,947.20


Case 7

 

Case Facts

• Group: 4

• Retirement Date: December 31, 2004
   

• Age (at Termination of Service): 43

• Age (as of Retirement Date): 44
   

Creditable Service: 20 years

Non-Veteran
 

3-Year Average Annual Rate of Regular Compensation: $47,000.00


Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.014

X

$47,000.00

X

20

 
Since the Group 4 member terminated service prior to his 45th birthday and his retirement allowance became effective prior to his 45th birthday, his allowance is calculated using the benefit rate for a Group 4 member.
 
Total Annual Allowance
Monthly Benefit
$13,160.04
$1,096.67

 


Case 8

   

Case Facts

• Group: 4

• Retirement Date: December 31, 2004
   

• Age (at Termination of Service): 44

• Age (as of Retirement Date): 45
   

Creditable Service: 20 years

Non-Veteran
 

3-Year Average Annual Rate of Regular Compensation: $47,000.00


Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.005

X

$47,000.00

X

20

 
Since the Group 4 member terminated service prior to his 45th birthday but his retirement allowance became effective after his 45th birthday, his allowance is calculated using the benefit rate for a Group 1 member.
 
Total Annual Allowance
Monthly Benefit
$4,700.04
$391.67

 


Case 9

  

Case Facts

• Group: 4

• Retirement Date: December 31, 2004
   

• Age (at Termination of Service): 44

• Age (Defers Accepting Allowance): 57
   

Creditable Service: 20 years

Non-Veteran
 

3-Year Average Annual Rate of Regular Compensation: $47,000.00


Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.025

X

$47,000.00

X

20

 
Since the Group 4 member terminated service prior to his 45th birthday but he deferred accepting his retirement allowance until age 57, his allowance is calculated using the benefit rate for a Group 4 member.
 
Total Annual Allowance
Monthly Benefit
$23,499.96
$1,958.33

 


Case 10

  

Case Facts

• Group: 2

• Retirement Date: December 31, 2004
   

• Age:m 55

• Veteran
 

Creditable Service: 17 years (Public Employee: 15 years + Military Service: 2 years*)

 
3-Year Average Annual Rate of Regular Compensation: $45,000.00
 

* Calculation for Veterans’ Purchase of Creditable Service


Percent

Average Annual Rate
of Regular Compensation
(Upon Entry into
Public Service)

Years of
Military Service

0.10

X

$12,000.00

X

2

   

Cost of Purchase                

$2,400.00         

     
Benefit Rate

Average Annual Rate of
Regular Compensation

Years of
Creditable Service

.020

X

$45,000.00

X

17

 
Because this member is a veteran, he is entitled to $15.00 a year for each of his 17 years of creditable service.
 
Total Annual Allowance (Initial Computation)
+ Veteran’s Benefit ($15.00 x 17 years)
$15,300.00
$255.00
 
Total Annual Allowance
Monthly Benefit
$15,555.00
$1,296.25
 


Is the same basic formula applied in every case?

The formula, as outlined above, applies in most cases and gives members an approximate figure for estimation purposes. The retirement law does include particular provisions for certain employees with unique circumstances who may be entitled to different benefits.

How is the allowance of a Group 3 member calculated?

The annual retirement allowance of a Group 3 member (state police officers) will be equal to 60% of the average annual rate of regular compensation received during the twelve month period immediately preceding the effective date of his or her retirement. The total amount of the allowance will be increased by one twelfth of three percent for each full month of creditable service in excess of 20 years service earned prior to the last day of the month in which the member will attain the age of 55, not to exceed 75% of the average annual rate of regular compensation received during the twelve month period immediately preceding the effective date of his or her retirement. If the member does not have 20 years of creditable service upon attaining age 55 the allowance is decreased by 1/12th of 3% for each full month of creditable service less than 20 years. Group 3 members are also entitled to the additional allowance for veterans.

Does the law guarantee retirement benefits?

The payment of superannuation retirement allowances is considered to be a contractual obligation of the Commonwealth and its governmental subdivisions to retirement system members. Superannuation retirement allowances paid to members cannot be decreased or terminated during the member's lifetime, except under extremely limited circumstances involving criminal activity or failure to follow post-retirement employment restrictions.

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