Does a Pay Raise Affect My Future Benefit?
Have you recently received a pay raise? If so, you may be wondering how a pay increase will affect your future benefit.
Your pay is one of the important factors used to determine your future retirement payments. We use your final average pay to calculate your monthly pension benefit amount based on the following formula:
Final Average Pay (FAP) x Multiplier x Credited Service = Monthly Base Benefit
Final Average Pay (FAP) is the average of your highest 36 full consecutive months of pay. For most members, it is their last three years of employment, but not always. We will look at your entire pay history and find your highest 36 full consecutive months of pay and use that to calculate your MOSERS defined benefit pension payments.
How will a pay increase affect my monthly benefit amount?
The impact of a pay increase on your monthly benefit amount will depend on how long you earn this higher pay rate before retirement. Take a look at the following examples to see how a pay increase may impact the amount of your retirement benefit, based on your retirement plan and where you are in your career.
| Your Career Stage | Impact of Pay Increase |
If you have 3 or more years until retirement eligibility | You will realize the full benefit of the pay increase to calculate FAP for your monthly benefit. |
If you are less than 3 years from retirement eligibility and you plan to retire when eligible | You will partially recognize the benefit of the pay increase to calculate FAP for your monthly benefit. |
If you are already in your BackDROP period and plan to elect BackDROP (MSEP and MSEP 2000 only) | You will see a limited or no increase in your FAP, depending on the BackDROP period you elect at retirement. |
If you are at or past retirement eligibility and do not plan to elect BackDROP (or are not eligible for BackDROP) | You will see a partial to full benefit of the increase in your FAP, depending on how long you continue to work. |
How will a pay increase affect my BackDROP lump-sum amount?
BackDROP is a lump-sum benefit payment option, in addition to a monthly benefit amount, that is available only to general state employees in MSEP and MSEP 2000.
The lump-sum payment is equal to 90% of the pension benefits (based on the Life Income Annuity option) that you would have received during your BackDROP period if you had retired.
If you become eligible for and elect BackDROP at retirement, only MOSERS covered service credit and pay earned before your BackDROP period will be used to calculate your monthly pension payments.
This means that if you are more than three years away from normal retirement eligibility and continue to work at least two years beyond normal retirement eligibility, then elect BackDROP, you will get the maximum impact of this increase on your BackDROP lump-sum amount.
If you are already in your BackDROP period, this pay increase will have little to no impact on your BackDROP lump-sum amount.
Questions?