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welcome to part two of planning your future retirement the second leg of the retirement income is the Denver employees retirement plan pension in this next section we'll look at the pension benefits from the Denver Employees Retirement plan it's the second leg of our retirement income stool depending on your years of service with the city your pension benefits from derped can be a very significant piece of your total retirement income in fact it could be the most significant piece so what exactly is the Denver Employees Retirement plan established in 1963 the Denver Employees Retirement plan is a defined benefit plan its purpose is to provide retirement benefits to qualified members of the City and County of Denver and Denver Health and Hospital Authority contributions are collected from employers and from employees invested over time and then paid to vested plan participants on a monthly basis the benefit comes out of the accumulated assets accumulated assets at last year's end were approximately two billion dollars that's billion with a be similar to Social Security the basic benefit is paid in the form of a life annuity paid monthly starting on your retirement date and then for the rest of your life therefore you can't outlive it and just like Social Security it's a future benefit that is defined that's why the Denver Employees Retirement plan is called a defined benefit plan and why Social Security is also a form of a defined benefit plan however unlike Social Security durp is not inflation protected before we get into the details of how the dirt benefit is calculated let's talk for a minute about how the Denver employees retirement plan is funded where exactly does the money come from the funding for the Denver Employees Retirement plan is a responsibility shared by the city and by employees the employers current contribution is 11.5% of employee gross pay every pay period employees currently pay 8% of their gross pay pre-tax every pay period derps role is to collect the contributions invest them over time and then pay the promised benefits to vested participants when they retire and as mentioned earlier the participant will receive the benefits for the rest of their life now let's look at how the dirt pension is calculated compared to Social Security the durp formula is much simpler here's how it's calculated for those hired after July 1st 2011 keep in mind the benefits are even more advantageous for those hired earlier first you multiply 1.5% by the number of years of credited service next that percentage is multiplied by average monthly salary AMS AMS is based on your highest consecutive 60 months of salary that's different from Social Security which bases its benefits on a career average of 35 years that's important because if you're like most people you make your highest wages at the end of your career so even though Social Security takes inflation into consideration it doesn't account for any merit increases or promotions you may have received over the whole course of your career here's an example of how the dirt pension is calculated let's say you're 65 you have 20 years of credited service and your average annual salary at the end of your career is $60,000 which comes out to $5,000 per month the formula then is 1.5% times 20 years which equals 30% times $5,000 which equals $1,500 per month or $18,000 per year oK we've covered how the basic dirt benefit is calculated now let's cover some important plan rules first you need to stay with the city a minimum of five years to get a life annuity benefit from dirt so at five years you are considered vested if you leave the city with less than five years of credited service all of your employee contributions that were withheld and contributed to durp will be refunded to you plus interest if you stay with the city until retirement eligibility you can begin to draw your monthly life annuity benefit at that time if you leave city employment after five years but before you reach retirement eligibility age you are still vested in your future retirement benefits but you have to wait until retirement eligibility to begin to draw your monthly life annuity next let's go over joint and survivor benefits this allows for retirement benefits to be either paid in the form of a 100 percent life annuity to the employee or set up to cover a beneficiary for the rest of the beneficiary's lifetime after the retirees death there is also a program called purchase of service where you can increase the amount of service used in the calculation of your retirement benefit remember how the formula worked years of service times 1.5% employees can increase their benefits by purchasing up to 5 years of additional service lastly there are health insurance benefits available to retirees both before and after Medicare eligibility now let's do the math to calculate the levels of end of careers salary replacement that can be provided by the dirt pension based on years of service with the city please note that these figures are based on the employee being hired after September 1st 2004 1.5 percent per year times 5 years of service equals 7.5% 1.5 percent per year times 10 years of service equals 15 percent and so on for example if you have 32 years of service 48 percent of one's end of career average monthly pay would be replaced by the monthly life annuity from the Denver employees retirement plan okay now let's turn those percentages into dollars we'll use the same end of career average pay of $60,000 which is $5,000 monthly you can see that the shorter the employment time with the city the smaller the annual benefit the longer the time with the city the larger the annual benefit okay where's that stool there it is let's do the same analysis with derp as we did with social security we'll set the column side-by-side so we can compare the two you'll see the first three rows are the same employee and employer contributions supporting the funding plus required employee participation the next row we have the party responsible for paying benefits and we see that it comes from the US government and derp respectively as we learned the Denver Employees Retirement plan has been collecting at investing contributions for more than 50 years and as stated earlier the accumulated asset value at the prior years in is approximately two billion dollars as for benefits maximization strategy while we pay FICA taxes for 35 years the dirt benefit is dependent on the length of employment with the city moving down to the next two rows the benefits payment term for derp like Social Security is lifetime because like Social Security it's a life annuity and as we discussed survivor benefits are also available when we get to inflation protection there is obviously a difference Derk benefits are not inflation protected in summary the strength of the stool leg for the Denver Employees Retirement plan looks to be very strong as well now we're going to have some fun let's combine the two life annuities of Social Security enter let's stick with the scenario of the Social Security benefit being $20,000 annually based on pain into Social Security for 35 years and an end of career pay of $60,000 we'll also go with the full retirement age of 67 so the Social Security benefits stay the same but notice how the dirt benefits increase proportionately based on the number of years of service from forty five hundred dollars after five years of employment all the way up to thirty one thousand five hundred after 35 years of employment now look what happens when we combine the two you can see how much smaller the sum of the two life annuities is if you work for the city for a relatively short period of time compared to spending a long career with the city now let's look at the data in terms of percentage we'll start with social security using the same example of a twenty thousand dollar annual benefit based on end of your career pay of sixty thousand dollars we get thirty three percent with the dirt benefit we see it grow proportionally based on years of city service from 7.5% on up again you can see from a replacement of end of career pay standpoint the longer one works for the city the higher the replacement in percentage terms if you work and pay FICA taxes for thirty five years as most people will do you can cover your basic needs upon retirement however because Social Security is designed to provide more support for low earners it will typically fall short of replacing a meaningful amount of one's pre-retirement income now let's take a look at the combination of a Social Security and a durp pension basic needs will still be covered but now there's a possibility of having enough income in retirement to maintain your pre-retirement lifestyle but there is a catch covering your basic needs and having enough income in retirement to maintain your pre-retirement lifestyle depends on your length of career with the city to learn more about durp you can visit dirt dot org additionally you can log in to your account on our member self-service portal at my jerbs org on the portal you will be able to view your annual member statement run benefit estimates update your beneficiary information and even start your retirement application this concludes part two on the Denver employees retirement plan to learn more about durp you can visit derp dot org feel free to take a short break before we begin the final section personal savings and investments