Originally Posted by Veritas Scriptor

I've crunched some numbers of the ERI. I've come up with some interesting data. This next section is a both a tad techincal and lenghty, but I think you may find it worth the read. I'll begin with some background information on the ERI program (according to the documents available at City Hall).


To be eligible for the ERI, you must have 18 years of service with the city, or have attained age 55 with 15 years of service. In addition, you must have accepted the ERI by January of 2005.

So one can deduce that the ERI is geared toward people of any age who were hired during or before 1986, or people age 55 (or older) hired between 1986 and 1989. If you are 40 and were hired in 1986, you are elgible...the only time age 55 comes into play is if you were hired between the years 1986 and 1989.

(Kind of off the subject, but something I find ironic: Imagine a 22 year old hired in 1986 who is eligible for "accelerated" pension benefits at age 40 Whereas a 50 year old hired in 1990 is not eligible for the same "accelerated" pension benefits at age 64.)

Moving on...there's more. Stay with me on this.

If you subtract 18 years from 2004, you come up with 1986. One year before the 1987 multiplier interchange. This 1987 year is an interesting one. According to the ERI data provided by City Hall:

• Employees hired after October 1, 1987, are subject to a 2.3% multiplier while employees hired before this date are subject to a 2.8% multiplier
• The ERI documents that I have seen place a cap of the the lesser of 100% of their final average compensation or:
  • (If hired prior to October 1, 1987):
    • 78.4% of their final average compensation
  • (If hired after October 1, 1987):
    
    • 64.4% of their final average compensation
• Annuity payments range from $60,000 to $70,000

Before I go on, let's look at some hypothetical examples of ERI benefits to a group of different people:


The problem here is that the ERI caps the benefit at 78.4%. So line 3 of this equation would read: Note the (roughly) $70,000 annuity payment. This in line with the highest annuity payment, using the $60k to $70k spectrum. Retiree B fell below their 78.4% cap, so they can enjoy the "full" benefit of the incentive Retiree C fell below their 64.4% cap, so they get to enjoy the "full" benefit of the incentive. Again, the problem arises that the 78.4% cap has been breached. So line 3 of this equation would read: Are we seeing a pattern here yet? Those with 30 years or more of service are being capped. In fact, any employee with more than 23 years of service will run into this cap problem. (23 years + 5 bonus years = 28 years. 28 years X 2.8% multiplier = 78.4%...the exact amount of the cap).

Retiree E fell below their 78.4% cap, so they can enjoy the "full" benefit of the incentive. RetireeF fell below their 78.4% cap, so they can enjoy the "full" benefit of the incentive.

Did you get all of that?

Now here's the kicker: According to what we know about the ERI, the only retirees that can exist in the above examples are 'A' and 'B' (annuity payments range from $60,000 to $70,000 remember?). And 'A' was essentially "penalized" by a cap, while 'B' was able to enjoy his "full" benefit.

The optimal tenure is 23 years (you will recieve a 78.4% FAC calculation and not violate any caps). In order to fall between the $60,000 to $70,000 annuity range, you could earn no more than $77,000 to $90,000 with 23 years of service.

Here's another kicker. This one may be a little tough to follow...but please do try:

Employees hired before October 1, 1987 are subject to a 78.4% cap. Employees hired after October 1, 1987 are subject to a 64.4% cap. What does this mean? Let's review:


I'm a little puzzled by the 64.4% cap on employees hired after October 1, 1987. Here's why:


So why is the cap for someone hired after October 1, 1987 at 64.4%, when it is clearly impossible for them to come anywhere near that cap? Do the math yourself...they cannot possibly exceed a 50.6% FAC calculation.

The only way to hit the 64.4% cap is if: Umm....am I an idiot or is it really the year 2010? How can someone have 23 years of service betweenthe years of 1987 and 2004? Oh wait...they can't.

It sounds alot to me like this plan is geared towards people who are 55 or older and were hired between 1987 and 1989. Anyone hired prior to 1981 would exceed their 78.4% cap, while those hired after 1987 would not come close to capping out. You are not eligible if you were hired in 1987 unless you are currently 55 or older.

Consider this final example: Retiree G, if such a group of people exist, got the sweetest deal of all. They would be able to skate by on the minimum of 18 years of sevice, they qualify for the incentive regardless of age, and they barely avoid the "1987 penalty", thus recieving a 50 basis point bump in their multiplier; while at the same time not even coming close to hitting their 78.4% cap.

Had this person hired in just one year later, not only would they have to be age 55 (or older) to participate, but their multiplier would have dropped to 2.3%; thus lowering their annuity payments by a staggering $15,180 per year (for a total benefit of $55,660 per year as compared to $70,840).

Had they hired in just five years sooner, age requirements would still cease to exist and their multiplier would stay the same. However their FAC calculation would equal 81.2%, which would exceed the 78.4% cap. But we know this group doesn't exist, because the highest benefit is $70,000 a year.

As a side note, I find it ironic that (in this example) that 64.4% figure pops up again. That could just be a coincidence...but a very peculiar one, at that.

Remember This:
In order for annuity payments to range between $60k and $70k on a maximum cap of 78.4%, the salaries for each retiree would have to range between $77,000 and $90,000 per year. The salaries could be higher, as pointed out in my example above (Retiree G), but their time in service would have to be less than 23 years. For every year under 23, they can afford to earn more salary and still stay below the 78.4% cap and the known maximum annuity payment of $70,000. The "limit" of this rationale is a retiree who was earning a $150,000 annual salary with 15 years of service. Using a 2.3% multiplier and adding their 5 years of bonus service, their annuity payments would equal $69,000 a year. In other words, those who benefit most are those who earned higher salaries with less years of service.

Originally Posted by Veritas Scriptor

Appears to be specific? I would say that's a safe assumption.
Employees with 18 years of service, regardless of age, are eligible.

18 years ago, the year was 1986. This is one year before the 1987 multiplier reduction.

If you were hired more than 23 years ago, you exceed your 78.4% cap.

Employees 55 or older with 15 years of service are eligible

If you are 55 or older and hired after October 1, 1987 but before 1989, you are eligible. However you are eligible at a reduced multiplier.

If you fall into the reduced multiplier bracket, it is mathematically impossible for you to even come close to hitting your 64.4% cap.

Here is what the plan document says about eligibility:


Eligibility: Employees who are vested in the retirement system will recieve full age and service pension benefits if they have 18 years or more of service, regardless of age or age 55 with 15 years of service.




Municipal Employees hired prior to October 1, 1987 = 2.8% multiplier. Maximum benefit is the smaller of 78.4% of FAC or 100% of base salary; and Municipal Employees hired after October 1, 1987 = 2.3% multiplier; maximum benefit is the smaller of 64.4% of final average compensation or 100% of base salary, or limitations imposed upon qualified plans by the Internal Revenue Code, Section 415.


In a nutshell, the whole "after 1987" group is peculiar. In order to have been hired after 1987 and be eligible, you have to be 55 years or older. While the plan document doesn't come right out and say it, simple math will show this to be the case. If you have between 15 and 17 years of service, you would have been hired between the years 1987 amd 1989.

However any employee, regardless of age, with 18 years or more of service is also eligble. This means they would have been hired prior to 1987. But if you have worked more than 23 years with the city, those years in excess are virtually uncounted because of the 78.4% cap.

One may deduce that this plan is most advantagous to those employees hired between the years of 1981 and October of 1987. Why?
Your age is not a factor

You only need 18 years of service to qualify

Your 18 years of service (minimum) means you just barely avoid the 1987 multiplier reduction

If you've got 23 years of experience or less, you do not exceed the cap on the pension calculation

The cap on the pension calculation for persons hired after October 1987 is moot. Mathematically, it is impossible to reach a 64.4% calculation. A retiree would not be able to hit their 64.4% cap unless they retired in the year 2010 or beyond...but in order to qualify you have to have accepted the ERI by January of 2005.


These are just numerical data. Numbers don't lie. I'll leave all of you to ponder the theoritical possibilities.

Originally Posted by hotpotato

I belive the employees could not exceed there maximum years of service for a full pension with the additional 5 years. For example,if employee A can retire at a full pension with 28 years and they had 25 years of service they would not get the credit of the full five years. They would recieve 3 years of it to max them out. The full five years of credit would only benefit employees who had 23 years of service.