Calculate Employee 2 Courtney Richardson monthly pension payment. Pg. 76 questions four. See pages 64, 65, & 66. (10)

76 Chapter Three your FY 2015 Salary Projections and budget requests (see Apperndix 3B). Note that the budget has the number of employees in each position grade rather than listing each employee. Also, you should calculate the total cost of employment for each staff person. The salary of the chief increased 7% while everyone else re- ceived a 5% increase. FICA is 12.4% and Medicare is 2.9% for all employees. Only consider employer contributions to FICA and Medicare. The cost of health insurance increased 5%. The cost of uniforms increased 2%. The fire fighter's pay range is $30,000.00-$40,000.00. You will pay the new fire fighters (2a) $35,000.00 The new fire fighters (2a) will receive the same benefits pack- age as the other FY 2015 employees. Cost of training the new fire fighters is $2,000 per employee. The pension rate in FY 2015 is the same as it was in FY 2014 The clerical staff member works a half day schedule 12 months per year (.5 FTE). Complete the FTE column. 4. Three employees are retiring from Jefferson City. Your job as the human resource officer is to calculate their pension payments using the following information. Use the model in Exhibit 3.1 to assist you in completing this problem. Calculate: Total % value PP, Average Final Compensation, Annual Benefit, and Monthly Benefit. Turn in the short version Excel worksheet to your professor (See Appendix 3C). Employee 1 Eboni Harris Has 31 years of service and is 63 5 highest years of salary are: $18,904; $19,398; $20,198; $22,239; & $24,908. of age. years Employee 2 Cortney Richardson Has 32 years of service and is 64 years of age. Five highest years of salary are: $28,504; $29,698; $30,798; $32,839; &$34,508. Employee 3 Jordan Moore Has 34 years of service and is 69 years Five highest years of salary are: $47,904; $49,899; $53,678; $55,742; of age &$57,108. 64 Chapter Three stated exactly how much could be expected at retirement based on age, years of service, and final average salary. Pension fund managers have the liability for pensions calculated by actuaries. The actuaries determine how much the em ployer and employee have to contribute to fund the pensions. It is the responsi bility of the managers to find investments that will yield the amounts necessary to cover all members in the system. When the economy has significant down. turns, as happened in the late 2000s, investments are not able to keep pace with the required amounts. This means that the pension contributions should be in creased. However, that is not easy to do. It requires legislation to raise contribu. tions. Some pension plans have had to borrow to meet their obligations. Others defined I5 have had to supplement pension contributions with general fund subsidies Since the mid-1990s, a number of governments have established required contribution plans. The government and employee each contribute a amount for the pension. However, the employee is responsible for investing the funds. Employees are provided various investment options and select an option that is appropriate. Defined contribution plans are portable. That is, when the employee leaves government service, the pension stays with the employee. In a defined benefit plan, the employee may not get back any of the contributions may receive a refund of his/her contribution. The advantage to the employer of defined contribution plan is that there is no long term liability. Some govern. ments, such as Orlando, Florida, have replaced a defined benefit plan with defined contribution plan for all employees coming on board after October 1 1998. Calculating the Pension Benefit While the years of service can vary, most state and local governments re- quire their employees reach an age between 62-65 and work at least 5-10 years in order to receive a pension. However, there are a number of other factors that can take place to change that scenario. These would include things like disabili- ties. There are two key factors involved in calculating the pension benefit--final average salary and the annual multiplier. The final average salary is based on the highest earning years of an employee and can vary from three, four or five depending on the pension system. An annual multiplier is the percentage of final average salary that is applied to each year of service. For example, a pension plan provides for each year of service to be multiplied by two percent. An e years ployee working 30 years would receive 60% of his/her final average salary. This comprises the total percentage value. An employee that works five years, which is usually the minimum vesting period, would receive 10% of their final average salary. Exhibit 3.1 provides a model that can be used to calculate retiremen benefits. In this example, Mrs. Deepthi Kollipara worked 30 years for the city Personnel Services and Operating Budgets 65 and is 64 years of age. The last piece of data needed to calculate her retirement benefit is her five highest calendar year salaries. In order to calculate her benefit, you must first multiply her years of service times the percentage value per years of service. Second, her five highest years of service are added up and divided by five (years). Third, her average five year salary is multiplied by the total percentage value (TVPP). Based on the formula, Mrs. Kollipara would receive $37,544.07 per year and $3,128.67 per month for her 30 years of service. Note: When age and years of service are not on the same line, choose the factor that best benefits the employee. Exhibit 3.1 Sample Calculations of Retirement Benefits Step 1: Creditable Services and Percentage Value % Value Per Total Years of Service Total % Year of Value Per Service Plan (TVPP) mplone Retirement up to age 62 or 30 Years ntrib 1.60% X Retirement at Age 63 or 31 Years mpa 1.63% X Retirement at Age 64 or 32 Years Retirement at Age 65 or 33 Years 1.65% 30 49.50% X 1.68% X or more Step 2: Average Final Compensation (AFC) Mrs. Kollipara worked for 30 years in the same system and retired at age 64. In this step, we add her five highest fiscal year salaries and divide the total by five. $85,000.00 87,590.00 95,890.00 99,569.00 103.899.00 $471,948.00 AFC = $471,948.00/5 $94,389.60 Step 3: Annual Benefit Calculation AFC x TVPP= Annual Benefit $94,389.60 x .4950 $46,722.85 Step 4: Monthly Benefit Calculation Annual Benefit/12 = Monthly Benefit $46,722.85/12 $3,893.57 Source: Smith, Robert W. and Thomas D. Lynch. 2004. Public Budgeting in America. Upper Saddle River: Pearson/Prentice Hal. Exhibit 3.2 is an Excel spreadsheet of the same person that is calculated in Exhibit 3.1. This computer program expedites the process and provides the user an opportunity to examine various retirement scenarios. SON sutidn lect 66 Chapter Three Exhibit 3.2 Short Version for Calculating Retirement Benefits (in Excel) Monthly Benefit 3,893.57 Annual Average Final Compensation $94,389.60 Benefit $46,722.85 % Value Per Total % Total Years of Service 30 Value PP Year of Service 1.65% 49.50% 5 Highest Years $85,000.00 87,590.00 95,890.00 99,569.00 103.899.00 $471,948.00 $94.389.60 Ave. AFC There are some other issues that this model does not examine, but they are still important to the employee. This includes things such as vesting, portability systems, cost of living adjustments, early retirement, and disability/surviv protections. Vesting occurs when an employee works a certain number of making them eligible to receive retirement benefits. The minimum number of years required for vesting can range from 3-5, but really depends upon the tem where you work. In some cases, you can move your vested status to another government job (portability). This is simple when you stay in the same system (work for the same municipality or state), but less likely to occur if you move to a different city or state. This is one of the drawbacks of the defined benefit plan and one of the advantages of the defined contribution plan. There is an array of issues and questions related to disability status. For ex- ample, will you be able to receive pension benefits if you become disabled prior to becoming eligible for benefits? Will your children or spouse receive your pension if you die prior to receiving benefits? Will you qualify for benefits if you permanently injure yourself outside of work? The ans wers to these and many other questions will vary based on where you are working. It is important that a government address all of these questions with written policies (Hildreth and Miller 1996; Smith and Lynch 2004). years sys- Position Classifications and Salary Ranges Exhibit 3.3 shows a simple agency budget with each of three main catego ries along with classification codes. The codes are for administrative purposes They make it easier to locate a specific line in a budget. This particular budge represents a specific division within an agency. Because it is in a line item for- mat, it essentially tells the reader the amount of funds necessary to run the divi- sion without any cost associated with a particular individual and their responsi- bilities. However, the budget does not tell the reader the number of persons who work in the Procurement Division, nor does it break down the fringe benefits by 76 Chapter Three your FY 2015 Salary Projections and budget requests (see Apperndix 3B). Note that the budget has the number of employees in each position grade rather than listing each employee. Also, you should calculate the total cost of employment for each staff person. The salary of the chief increased 7% while everyone else re- ceived a 5% increase. FICA is 12.4% and Medicare is 2.9% for all employees. Only consider employer contributions to FICA and Medicare. The cost of health insurance increased 5%. The cost of uniforms increased 2%. The fire fighter's pay range is $30,000.00-$40,000.00. You will pay the new fire fighters (2a) $35,000.00 The new fire fighters (2a) will receive the same benefits pack- age as the other FY 2015 employees. Cost of training the new fire fighters is $2,000 per employee. The pension rate in FY 2015 is the same as it was in FY 2014 The clerical staff member works a half day schedule 12 months per year (.5 FTE). Complete the FTE column. 4. Three employees are retiring from Jefferson City. Your job as the human resource officer is to calculate their pension payments using the following information. Use the model in Exhibit 3.1 to assist you in completing this problem. Calculate: Total % value PP, Average Final Compensation, Annual Benefit, and Monthly Benefit. Turn in the short version Excel worksheet to your professor (See Appendix 3C). Employee 1 Eboni Harris Has 31 years of service and is 63 5 highest years of salary are: $18,904; $19,398; $20,198; $22,239; & $24,908. of age. years Employee 2 Cortney Richardson Has 32 years of service and is 64 years of age. Five highest years of salary are: $28,504; $29,698; $30,798; $32,839; &$34,508. Employee 3 Jordan Moore Has 34 years of service and is 69 years Five highest years of salary are: $47,904; $49,899; $53,678; $55,742; of age &$57,108. 64 Chapter Three stated exactly how much could be expected at retirement based on age, years of service, and final average salary. Pension fund managers have the liability for pensions calculated by actuaries. The actuaries determine how much the em ployer and employee have to contribute to fund the pensions. It is the responsi bility of the managers to find investments that will yield the amounts necessary to cover all members in the system. When the economy has significant down. turns, as happened in the late 2000s, investments are not able to keep pace with the required amounts. This means that the pension contributions should be in creased. However, that is not easy to do. It requires legislation to raise contribu. tions. Some pension plans have had to borrow to meet their obligations. Others defined I5 have had to supplement pension contributions with general fund subsidies Since the mid-1990s, a number of governments have established required contribution plans. The government and employee each contribute a amount for the pension. However, the employee is responsible for investing the funds. Employees are provided various investment options and select an option that is appropriate. Defined contribution plans are portable. That is, when the employee leaves government service, the pension stays with the employee. In a defined benefit plan, the employee may not get back any of the contributions may receive a refund of his/her contribution. The advantage to the employer of defined contribution plan is that there is no long term liability. Some govern. ments, such as Orlando, Florida, have replaced a defined benefit plan with defined contribution plan for all employees coming on board after October 1 1998. Calculating the Pension Benefit While the years of service can vary, most state and local governments re- quire their employees reach an age between 62-65 and work at least 5-10 years in order to receive a pension. However, there are a number of other factors that can take place to change that scenario. These would include things like disabili- ties. There are two key factors involved in calculating the pension benefit--final average salary and the annual multiplier. The final average salary is based on the highest earning years of an employee and can vary from three, four or five depending on the pension system. An annual multiplier is the percentage of final average salary that is applied to each year of service. For example, a pension plan provides for each year of service to be multiplied by two percent. An e years ployee working 30 years would receive 60% of his/her final average salary. This comprises the total percentage value. An employee that works five years, which is usually the minimum vesting period, would receive 10% of their final average salary. Exhibit 3.1 provides a model that can be used to calculate retiremen benefits. In this example, Mrs. Deepthi Kollipara worked 30 years for the city Personnel Services and Operating Budgets 65 and is 64 years of age. The last piece of data needed to calculate her retirement benefit is her five highest calendar year salaries. In order to calculate her benefit, you must first multiply her years of service times the percentage value per years of service. Second, her five highest years of service are added up and divided by five (years). Third, her average five year salary is multiplied by the total percentage value (TVPP). Based on the formula, Mrs. Kollipara would receive $37,544.07 per year and $3,128.67 per month for her 30 years of service. Note: When age and years of service are not on the same line, choose the factor that best benefits the employee. Exhibit 3.1 Sample Calculations of Retirement Benefits Step 1: Creditable Services and Percentage Value % Value Per Total Years of Service Total % Year of Value Per Service Plan (TVPP) mplone Retirement up to age 62 or 30 Years ntrib 1.60% X Retirement at Age 63 or 31 Years mpa 1.63% X Retirement at Age 64 or 32 Years Retirement at Age 65 or 33 Years 1.65% 30 49.50% X 1.68% X or more Step 2: Average Final Compensation (AFC) Mrs. Kollipara worked for 30 years in the same system and retired at age 64. In this step, we add her five highest fiscal year salaries and divide the total by five. $85,000.00 87,590.00 95,890.00 99,569.00 103.899.00 $471,948.00 AFC = $471,948.00/5 $94,389.60 Step 3: Annual Benefit Calculation AFC x TVPP= Annual Benefit $94,389.60 x .4950 $46,722.85 Step 4: Monthly Benefit Calculation Annual Benefit/12 = Monthly Benefit $46,722.85/12 $3,893.57 Source: Smith, Robert W. and Thomas D. Lynch. 2004. Public Budgeting in America. Upper Saddle River: Pearson/Prentice Hal. Exhibit 3.2 is an Excel spreadsheet of the same person that is calculated in Exhibit 3.1. This computer program expedites the process and provides the user an opportunity to examine various retirement scenarios. SON sutidn lect 66 Chapter Three Exhibit 3.2 Short Version for Calculating Retirement Benefits (in Excel) Monthly Benefit 3,893.57 Annual Average Final Compensation $94,389.60 Benefit $46,722.85 % Value Per Total % Total Years of Service 30 Value PP Year of Service 1.65% 49.50% 5 Highest Years $85,000.00 87,590.00 95,890.00 99,569.00 103.899.00 $471,948.00 $94.389.60 Ave. AFC There are some other issues that this model does not examine, but they are still important to the employee. This includes things such as vesting, portability systems, cost of living adjustments, early retirement, and disability/surviv protections. Vesting occurs when an employee works a certain number of making them eligible to receive retirement benefits. The minimum number of years required for vesting can range from 3-5, but really depends upon the tem where you work. In some cases, you can move your vested status to another government job (portability). This is simple when you stay in the same system (work for the same municipality or state), but less likely to occur if you move to a different city or state. This is one of the drawbacks of the defined benefit plan and one of the advantages of the defined contribution plan. There is an array of issues and questions related to disability status. For ex- ample, will you be able to receive pension benefits if you become disabled prior to becoming eligible for benefits? Will your children or spouse receive your pension if you die prior to receiving benefits? Will you qualify for benefits if you permanently injure yourself outside of work? The ans wers to these and many other questions will vary based on where you are working. It is important that a government address all of these questions with written policies (Hildreth and Miller 1996; Smith and Lynch 2004). years sys- Position Classifications and Salary Ranges Exhibit 3.3 shows a simple agency budget with each of three main catego ries along with classification codes. The codes are for administrative purposes They make it easier to locate a specific line in a budget. This particular budge represents a specific division within an agency. Because it is in a line item for- mat, it essentially tells the reader the amount of funds necessary to run the divi- sion without any cost associated with a particular individual and their responsi- bilities. However, the budget does not tell the reader the number of persons who work in the Procurement Division, nor does it break down the fringe benefits by