State university employees who choose defined-benefit retirement plans receive a monthly annuity payment based on one of several calculations designed to provide them with the highest benefit.
The money-purchase option, available to employees who became vested in the State Universities Retirement System before July 1, 2005, can provide a higher annuity payment than SURS' general formula.
The latter guarantees a minimum level of payments based on years of service, the employee's age and final average salary, as well as actuarial projections.
The money-purchase formula uses a slightly different calculation, based on those factors but also how much is in an employee's "account" and how large an annuity that money can purchase. It performs similarly to a guaranteed variable annuity, in which pensioners are guaranteed a minimum benefit each month but can also get more based on the market.
Employees can earn more if SURS experiences above-average investment returns and shorter-than-average life expectancies. The problem is, retirees are living longer, and the market hasn't performed well over the past few years, said SURS Executive Director William Mabe.
SURS is required by law to review its terms every five years. The most recent study showed investment returns falling and retirees' life expectancy increasing, which means SURS wouldn't be able to pay out the same amount of money or would have to spread out the payments over a longer period, Mabe said.
After that review, the SURS board decided to reduce the annual annuity payment by 7 percent to 8 percent effective July 2, 2012. Mabe said employees could make up for the reduction by working an additional year or less, on average, to put in more service time.
The state used to contribute money to SURS to cover the money-purchase option, but those payments ended in 2005 when the pension code was changed, he said. About 24,000 employees were eligible to retire by Dec. 31, 2011, and another 2,700 will be eligible by June 30, 2012.
The change does not affect employees who have chosen a self-managed retirement plan.