Depending on what you do in your career and how long you live, either you or your survivors will receive all or a portion of your contributions and interest in the form of a refund, retirement allowance or survivor benefit.
The MTRS is a defined benefit plan, which means that your benefits are calculated according to a set formula. This formula considers your years of creditable service, age at the time of your retirement and your final salary average. Your benefit is not based solely on your contributions and interest.
Does the balance in my annuity savings account figure into the determination of my retirement benefit?
No—the MTRS is a “defined benefit” plan, which means that your retirement benefit is calculated based on your age at the time of your retirement, your years of creditable service, and your highest three-year salary average (Tier 1 members) or five-year salary average (Tier 2 members). Unlike with a “defined contribution” plan, such as a 401(k), or an IRA, your retirement benefit is not a return on what you put into your annuity account.
Where does the money I contribute go?
Your school district forwards your contributions to us and we establish and maintain an annuity savings account on your behalf for your retirement. Your MTRS annuity savings account consists of two parts:
- contributions, which are deducted from your paycheck by your school district and
- interest, which is earned on your prior year’s ending balance and credited at a rate determined annually by the Public Employee Retirement Administration Commission (PERAC). The rate is equal to an average passbook savings return.
Additionally, if you have purchased creditable service, your payments will be included in your annuity savings account balance.
As an active, contributing member, will I have access to the funds in my annuity savings account?
No. The MTRS is a defined benefit pension plan. Your contributions, along with an annual appropriation by the Commonwealth and the investment earnings on the system assets, are used to fund your future pension benefits. As a member who is actively contributing to the MTRS through regular payroll deductions or who is on an authorized leave of absence, you are not eligible to withdraw any portion of your annuity savings account balance, or borrow money from this account.
What happens to the money in my annuity savings account?
Depending on what you do in your career, the money in your account will be paid out in the form of either a refund to you, or a retirement benefit to you or your beneficiary(ies). Specifically, if you:
- Leave Massachusetts public service before retiring, you may withdraw your account (also known as taking a refund). If you take a refund, then your account will be closed and you will no longer be a member of the MTRS or entitled to MTRS benefits.
- Retire from the MTRS, your funds will remain on account with the MTRS and will be paid out to you over time as part of your monthly lifetime benefit. You do not have access to this account after you have retired.
- Die before retiring, depending on your marital status and the type of beneficiary you have selected, we will either pay your account balance in a lump sum to your named beneficiary(ies), or use it to pay a portion of the benefit to your survivor.
If you leave our system for employment with another Massachusetts public agency that requires your membership in its retirement system, we cannot refund your balance; in that event, we must transfer your funds directly to that other Massachusetts contributory retirement system, unless you were a member of more than one contributory retirement system (a “dual member”) on or after January 1, 2010.
When I retire, will I also receive a refund of my annuity account balance?
No, you will not receive both a retirement benefit and a refund of your account.
How do I know how much money I have in my annuity savings account?
The MTRS sends annual statements of account to all active and inactive members who have funds in their annuity savings accounts. This statement reflects personal data (name, address, beneficiary designation) as well as financial information regarding any activity in your account, the amounts of after-tax contributions, pre-tax contributions, interest and the total balance in the account as of the end of the previous calendar year. If you need a statement of your MTRS annuity savings account balance—for instance, as documentation for a mortgage application or for some other legal issue—you may request one at any time during the year. Simply contact us by phone or email, and we will gladly send you a letter with this information.
What is the difference between after-tax contributions and pre-tax contributions?
The difference is that you have already paid taxes on your after-tax contributions—and therefore you do not have to pay taxes on them again when you receive them in the form of a lump-sum payment or a retirement allowance—but you have not yet paid taxes on your pre-tax contributions and, so, you will have to pay taxes on those when you receive them.
Is the interest on my account considered a pre-tax or an after-tax amount?
All interest is paid on a pre-tax basis; as such, all interest is included in the taxable portion of your annuity savings account balance, which you may need to reference for tax purposes in the event you take a refund of your account.
How do I know what amount is nontaxable and what is taxable?
The MTRS will separate the taxable and nontaxable amounts on your annual statement. Additionally, if you leave service and take a refund of your account, the pre-tax and after-tax amounts will be identified on the form 1099-R that you will receive in January after the calendar year in which you receive your payment.
Can the money in my account be assigned to someone else or attached by a third party?
No—you may not assign the funds in your account, nor may your account be garnished or attached by a lien or any other legal or equitable process except by the Internal Revenue Service, the Massachusetts Department of Revenue or, in the event of divorce, pursuant to a Domestic Relations Order. The funds must remain in your account with the MTRS until you retire, die or become an inactive member who is eligible to receive a refund of the money.
Likewise, your retirement allowance is subject to assignment generally only pursuant to court-ordered child support payments and in divorce cases, domestic relations orders.
How is the interest rate on my MTRS account determined?
This interest rate bears no relationship to the actual return earned on the annuity savings fund; rather, it is an “artificial” rate of interest established by the Public Employee Retirement Administration Commission (PERAC). By law, this rate is determined by the average interest rate paid on individual savings accounts, which is obtained from a representative sample of financial institutions in Massachusetts.
The contributions from active members are pooled and invested for the MTRS by the Pension Reserves Investment Management (PRIM) Board in the Pension Reserves Investment Trust (PRIT) Fund. The interest you earn on your balance does not reflect the MTRS fund’s actual investment return. The fund’s excess investment return is transferred to the system’s reserve fund, which ensures the future stability of the system.
Who manages the investment fund?
The Pension Reserves Investment Trust (a pooled investment fund established to invest the pension reserve assets of the Massachusetts State Employees’ and Teachers’ Retirement Systems) is managed by the Pension Reserves Investment Management Board (PRIM). PRIM’s mandate is to accumulate assets through investment earnings and other revenue sources in order to reduce the Commonwealth’s unfunded pension liability and to assist local participating retirement systems in meeting their future pension obligations.
The PRIM Board consists of nine elected and appointed members, including two representatives of the MTRS (one appointed and one elected). For more information, visit PRIM online.