“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.

Making a Choice

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 survive the member are the factors that should be considered carefully.

Are there any restrictions on a member’s election of an option?

     There are no restrictions. Any member is free to select Option A, Option B or Option C.

When must a member make select an option?

     A member must choose an option before the date his/her 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/her retirement becomes effective, the law provides that the member will be retired under Option B.

Is a member permitted to change his/her option selection?

     A member is not permitted to change his/her option selection after his/her retirement becomes effective.

Spousal Acknowlegment

Must a member’s spouse acknowledge the member’s option selection?

     Yes, a married member’s Choice of Retirement Option form must reflect the signature of the member’s spouse in acknowledgement of his/her 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 information.

     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.

Options Available At Retirement

Option A

     Election of Option A means that the member will receive the full retirement allowance in monthly payments as long as he/she lives. All allowance payments will cease upon the member’s death and no benefits will be provided to the member’s survivors.

Option B

     Option B provides a member with a lifetime allowance which is 3% 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/her beneficiary or beneficiaries. Upon the member’s death, his/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.

How soon could a member’s retirement contributions be depleted?

     Although a member’s retirement allowance is not reduced because of the depletion of his/her accumulated deductions, it is generally the case that his/her deductions are used up within twelve to fifteen years of his/her retirement, depending upon the member’s age at retirement. In the event of the member’s death, any balance that does remain will be paid to his/her Option B beneficiary or beneficiaries. If there is no balance remaining, no payment will be made to a beneficiary.

Is a member’s choice of a beneficiary limited under Option B?

     Under Option B, a member may designate any person(s), or charity or institution as his/her beneficiary or beneficiaries. A member may, at any time after retirement, change his/her Option B beneficiary designation.

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/her lifetime would be approximately 20% less than those received under Option A or Option B. Upon the death of the member, his/her designated beneficiary will be paid an allowance for the remainder of his or her lifetime. That allowance will be equal to two-thirds of the allowance which was being paid to the member at the time of 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 beneficiaries are limited to a member’s spouse, the member’s former spouse (provided he or she has not remarried at the time of being designated as the Option C beneficiary), the member’s child, parent, or sibling.

Is a member permitted to change his/her Option C beneficiary designation?

     After 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.

Option C "Pop Up"

If a member is pre-deceased by his/her beneficiary, how will his/her Option C allowance payments change?

     If the member’s allowance was as the result of an application filed on or after January 12, 1988 and his/her Option C beneficiary dies on or after that date and before the member dies, the member would thereafter be paid the full retirement allowance he/she would have received had he/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.

     For retirees whose retirement became effective before January 12, 1988 and who chose Option C and who are predeceased by their beneficiaries, extension of the Option C “Pop-Up” benefit is determined by their respective retirement board’s (and relevant “legislative body’s”) acceptance of Section 288 of Chapter 194 of the Acts of 1998. Under Section 288, such adjustments must be made prospectively from July 1, 1998. No payment can be made relative to the period, if any, from the date of the death of the beneficiary to July 1, 1998.

Effect of Divorce On Option C Beneficiary

Does divorce following retirement change the status of a member’s former spouse as his/her Option C beneficiary?

     If a member names his/her former spouse as his/her Option C beneficiary during the time they were married, the former spouse will continue to be the Option C beneficiary even if they are divorced after the member’s retirement.

Cost of Living Adjustment

Are members and their survivors automatically entitled to an annual cost of living increase in retirement allowances, pensions, or annuities?

     COLAs are not automatic. The decision to grant a COLA is made by the state legislature and Governor for retirees from the State and Teachers Retirement Systems. Recent legislation requires acceptance by the local retirement board and the appropriate legislative body before retirees from local retirement systems would be eligible for COLAs. Once the legislation has been accepted, a retirement system can vote to grant an increase for a given year. Every member and beneficiary in that system who was receiving an allowance as of June 30 of the prior fiscal year would then be entitled to a COLA. The percentage increase in an allowance will be made on the full amount of an allowance up to a base of $12,000. The cost of living percentage is based on the cost of living increase granted under the Consumer Price Index, not to exceed 3.0%. In addition to this COLA, an additional COLA (up to a total COLA of 3% of $12,000) may be granted pursuant to another local option section.