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Calculating Your Pension
Your first step in estimating your pension will always be to figure your Final Average Compensation (FAC). Then you use the pension formula to figure your straight life calculation. Once you know your straight life amount, you have a basis for estimating a survivor pension.
The Pension Formula
Your annual pension is based on a formula that multiplies your final average compensation by a pension factor of 1.5 percent times your years of service.
Final Average Compensation (FAC)
Your highest five consecutive years of earnings (60 months) are averaged to determine your FAC. Your highest five consecutive years of earnings may have occurred earlier in your career, however we still refer to it as your final average compensation.
Your FAC period will end on your last date of employment if this period represents your highest consecutive earnings. We will count earnings from your last day of employment back five years. If your highest five years are not your final years, we review your earnings record and capture the highest five-year period for your FAC. During this review, we will verify your final wages with your employer. If one year's wages are significantly higher than the previous year, ORS will make sure the compensation is in accordance with the normal salary schedule for your job classification.
It doesn't matter if you retire during the school year or at the end, or if you receive some of your wages during the summer months after you retire. We will capture all that you earned during your FAC period. We will also review any contract settlement that occurs after you retire.
Types of compensation included in your FAC. The types of pay used to calculate your final average compensation can include:
The following payments are NOT included in your FAC:
Note: Section 401(a)(17) of the IRS code can affect the FAC, and therefore the pension payments, of certain highly compensated individuals who were hired after October 1, 1996. The rule places a limit on the maximum compensation allowed for retirement benefit computations. Any wages you earn above this limit, which is set by the IRS each year, may not be included in your pension calculation.
The pension factor used in your pension calculation is 1.5 percent (0.015).
Years of Service (YOS)
Your years of service used to calculate your pension reflect the years, or fractions of years, you have worked for a Michigan public school. In general, you earn one year of service when you work 1,020 hours in a school fiscal year. No more than 30 hours can be credited in a one-week period if you're on a weekly payroll, or 60 hours if you're paid biweekly. For more information on how you earn service, click here.
You Have a Choice of Payment Options
Straight Life Option
If you choose this payment option, you receive the maximum monthly benefit payable throughout your lifetime. No ongoing pension payments or insurances are provided to your survivors.
Calculate your annual straight life pension using your pension formula. Divide the product by 12 to calculate your monthly straight life benefit.
The calculation for the survivor options begins with a calculation of your straight life pension.
If you elect a survivor option when you apply for retirement, you receive a reduced pension throughout your lifetime; however, upon your death your pension continues for the lifetime of your survivor pension beneficiary. You can name your spouse, child (including your adopted child), sibling, or parent as your survivor pension beneficiary.
If you elect the 100 percent survivor option, upon your death your survivor will receive the same monthly benefit you received (before any tax, insurance premium, or other deductions). If you elect the 75 percent option, your survivor receives 75 percent of your pension amount; with the 50 percent option your survivor will be paid half of your monthly pension payment.
The monthly pension amount for a survivor option is based on actuarial tables that factor in life expectancies for you and your beneficiary. The Estimate Pension feature in miAccount has the full actuarial table. Note: Actuarial tables only provide estimates. Percentages are rounded and are subject to change.
Consider your options carefully
You must choose your payment option when you apply for your pension. After your retirement effective date, you will not be able to change your option or your designated survivor pension beneficiary. (However, if you marry after your pension begins, you may be able to name your new spouse as a pension beneficiary under certain conditions.)
Read carefully, ask questions, estimate under various scenarios, talk with your family — but do it before you submit your application.