Participants in the New Jersey Public Employee Retirement System (PERS) will likely have their employee contribution rate raised to 8.5% of pay and might be paying as much as 30% of their health care premiums if they choose not to retire as of a certain date. I got a cold call at work this week from a PERS member thinking about retiring because of this and offering to pay me to help him with the numbers. I wondered myself so I ran some numbers for my own benefit:
Current Salary: $100,000
Years of Service: 25
The handbook says you can retire now at 80% of your accrued benefit or keep working until age 60 at an unreduced benefit calculated as follows:
Go now: $100,000 x 25/55 x .8 = $36,364 annually now
Stay: $100,000 x 35/55 = $63,636 in ten years
Using factors for determining lump sums in the private sector (January, 2010 segment rates and the AMT10 mortality table if you must know) the respective values of these payout patterns now are:
Go now: $36,364 x15.3543 = $558,344
Stay: $63,636 x 7.35965 = $468,339
This $90,005 difference surprised me and is due to the heavily subsidized (i.e. bogus) early retirement factors. But it gets worse when you consider:
- 10 years of paying either 5.5% or 8.5% of salary into the plan would be valued at $43,000 or $66,000 respectively based on a 6% discount rate.
- Under Sweeney’s proposal current retirees would not be expected to contribute to their health care premiums but future retirees would be expected to contribute a fixed amount each year — between $2,280 and $5,700, based on pension level. This is a backdoor way of reducing pensions for anyone who doesn’t get themselves classified a ‘current retiree’ and would be valued at around $100,000 in this example.
So that brings us to about a quarter of a million dollars in benefits that our example would be giving up by not retiring now. But it gets worse when you consider:
- You would be getting that money and your calendar is free. You could get another job selling your acquired experience and the fact your new employer will not need to provide you with health benefits as New Jersey taxpayers will be picking that up.
- If you think this plan will be around in 10 years you possess a dangerous ignorance of both math and New Jersey politicians.