2008 Federal Tax + Estimate + Calculator

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					KPERS Papers Newsletter
Active Member Issue • 2008 – Volume 1

Inside This Issue

Turning Your Retirement Savings Into Income

Watch for Your Redesigned Annual Statement This Spring

Divorce May Affect Your Benefits

Rollovers Keep Your Retirement Plan on Track During Career Turns

Fiscal Year 2007 – A Snapshot for Members

Breaking Even on Social Security

Target Date Funds Offer a More Simple Approach for Investors

Important Information for Your Taxes

Tax Strategies for Increasing Your Retirement Savings
With the April tax deadline just around the corner, you may be anticipating a big refund or dreading a tax bill.
Whatever the case may be, either is a good reason to give your retirement savings a boost.

If you receive a large tax refund, consider decreasing your tax withholding this year and put the extra into your
retirement savings plan.

If you’re like most people, you probably have too much withheld from your paycheck. In fact, the Internal
Revenue Service estimates the average individual tax refund last year was about $2,225. While it’s nice to get a
hefty tax refund each year, your money can’t work for you if someone else – the federal government – is hold-
ing onto it.

If you owe taxes, increasing your retirement savings (within certain limits) can reduce your taxable income. Not
only will you boost your retirement savings, you may help lower your tax bill next year.

Estimate your tax withholding with the IRS withholding calculator at www.irs.gov/individuals/index.html.
You’ll need a recent pay stub and your most recent tax return. Use the results to complete a new Form W-4 to
submit to your employer. At the same time, be sure to start or increase your contributions to your retirement
plan at work and watch your “tax” dollars go to work for you. Even small amounts of money, saved over time,
can make a big difference.
Additional Savings Per Month*
                        $25                  $50                 $100
         5            $1,790               $3,580               $7,160
                                                                                Assumes monthly pre-tax contribu-
         10           $4,300               $8,601              $17,202          tions and a 7 percent return on invest-

         15           $7,822              $15,643              $31,286

         20          $12,760              $25,520              $51,041          Reach Your Investment Objectives –
                                                                                Future Value Calculator
         25          $19,687              $39,373              $78,847
         30          $29,402              $58,803              $117,606         www.ingretirementplans.com

Turning Your Retirement Savings Into Income
Often, people focus on saving for retirement, but forget about the
next phase: spending their money once they retire. It may sound a lot
easier and more fun than the saving part, but it’s no less important. If
you’re nearing retirement, you need a plan to figure out the best way
to turn your retirement savings into income.

If you participate in the Kansas Deferred Compensation Plan and
you’re planning to retire in the near future, ING can help. ING’s re-
tirement income specialists can meet with you to discuss your specif-
ic situation and options for turning your retirement savings into in-
come. Many other plans offer similar services. If you participate in a
different plan, check with your plan provider about your options.

These specialists will help you understand each payout option and
how it fits with your KPERS benefits to find the solution that makes
the most sense for you.

ING offers a variety of payout options ranging from lump-sum withdrawals to periodic payments and lifetime
annuities. Each is designed to meet different needs, and you can also choose a combination of options to best fit
your situation. Be sure to consider factors such as your current and future income needs, your health and life
expectancy, and whether you wish to provide for survivors or heirs.

It’s your money so if you later decide a payout option is not right for you, ING can help you make adjustments
or select a different option. (Note: You cannot change an annuity option.)

Contact the ING Service Center at 1-800-232-0024, 785-296-7095 in Topeka, to schedule a visit with your lo-
cal representative.
Watch for Your Redesigned Annual Statement This Spring
It’s almost time again for member annual state-
ments. Each spring the Retirement System sends
you a snapshot of your account for the previous
year. It’s a great tool for you to use in your fi-
nancial planning.

Last year’s statement had major changes in de-
sign and content. So we surveyed to find out
what members thought. Based on survey res-
ponses, we’ve made some changes for a new and
hopefully improved member annual statement.

New Look
Many suggested our design should look more
“official.” We decided to move your account
information to the front and provide a summary
at a quick glance. It now looks more like a bank
statement or a credit card bill. Benefit informa-
tion and explanations about your statement are on the inside for your reference. The new layout provides room
to list a few more beneficiaries, something else members asked for.

About the Estimates
Vested members have retirement estimates on their annual statements. The most important thing to remember
about estimates is just that. They are estimates. Their purpose is to give you a ballpark idea of what your re-
tirement benefit will look like when you get there. Estimates are to help you plan ahead. They are not an exact
promise of what your benefit will be. If you are nearing retirement, we encourage you to contact us for some-
thing more detailed and concrete.

Last year, we calculated estimates differently than in the past. We are keeping the same estimate criteria, but
we’d like to do a better job of explaining where the numbers come from.

If you were vested but not eligible for retirement on December 31, you will have two estimates on your
statement. The first estimate is what your benefit is worth if you don’t earn any more service credit. That
means you could leave employment and your benefit would be about that much per month when you become
eligible. If you are already eligible for retirement, this is the only estimate on your statement.

The second estimate is a little more complicated. It gives you an idea of what your benefit could be if you kept
working until you were eligible for full retirement. To project into the future, we need to make some assump-
tions. The first is that you’ll keep working between now and then without any breaks. We also assume you
don’t have any increases in pay. We really can’t know what your pay will look like in the years to come. You
can use the online benefit calculator at www.kpers.org to see how different salaries affect your benefit. You
can also see the effect of choosing survivor options.

As for the age on your second estimate ... the computer system finds the first birthday that you have enough
service credit to retire. You may actually earn enough service credit between birthdays to be eligible, but the
system doesn’t know that. That’s why it’s important that you contact us when you get closer to retirement. We
can help you pick a retirement date that benefits you the most.

Statements Available Online
In survey results, members asked to have statements available online. KPERS is currently developing a secure
member web portal where you will be able to access account information, including your annual statement. We
are in the early stages, but plan to have it available to active members later this year. You’ll hear more about
the member web portal when we are closer to rollout.

Divorce May Affect Your Benefits
KPERS contributions that you have accumulated during marriage are considered marital assets. If you divorce
before or after retiring, a former spouse may be able to receive part of your benefit or contributions. A former
spouse can receive payment from the Retirement System under a Qualified Domestic Relations Order when
you withdraw, retire or die. Please seek legal counsel if this situation applies to you.
If you end employment before you retire and withdraw your contributions, your former spouse may be awarded
part of your payment.

When you retire, your former spouse may be awarded either a lump-sum payment or a percent of each monthly
benefit. If you are already retired when you divorce, a QDRO may become effective immediately, with your
former spouse receiving part of your monthly benefit.

If you die before retirement, your former spouse may be awarded part of your contributions and life insurance
or death benefit.

General information about QDROs and suggested formats can be found at www.kpers.org. Seek legal counsel if
you have additional questions or concerns.

Rollovers Keep Your Retirement Plan on Track
During Career Turns
It’s estimated that the average worker changes jobs ten times in his or her life-
time. If you leave KPERS-covered employment, you have the option to with-
draw your contributions and interest after 31 days. Withdrawing means you for-
feit your service credit and any benefit you may be entitled to in the future.

The temptation to take your retirement dollars in cash, however small the
amount, could set you back now and in the long run. Without a pension, your
savings are going to be crucial in retirement. You can stay on track by rolling
your contributions over into another eligible retirement plan or a traditional IRA.

Reasons to Roll Over
    Avoid paying taxes right away so your money grows tax-deferred.
    Avoid paying costly federal penalties for early distribution.
    Resist the temptation to use the money for something other than
      your retirement savings.

Types of Rollovers
Direct Rollover: KPERS rolls your tax-deferred funds directly to another eligible retirement plan or traditional
IRA. A direct rollover avoids the 20-percent federal tax withholding if the funds are paid directly to you.
                                                       60-Day Rollover: Your account is paid directly to you, and
        Plans That Accept Rollovers
                                                       you have 60 days to transfer the funds into an eligible re-
                                                       tirement plan or traditional IRA. KPERS must withhold 20
        457(b) deferred compensation plan
                                                       percent for federal taxes, even if you intend to roll it over.
        403(b) tax-sheltered annuity                  To roll over the entire payment, you must find other money
        401(k) plan                                   to replace the 20 percent withheld. If you roll over only the
        Traditional IRA                               80 percent that you received, you are taxed on the 20 percent
                                                       that was withheld and not rolled over. Early distribution pe-
                                                       nalties may also apply if you are under age 59 1/2.

Retirement requires planning throughout your career, no matter which direction it takes you. Rollovers are one
of the best ways to avoid setbacks and keep your retirement savings on track.

Fiscal Year 2007 – A Snapshot for Members
This information provides a few highlights on Retirement System operations and finances for fiscal year 2007.
For a more detailed overview, please see our Summary Annual Report or the full Comprehensive Annual Fi-
nancial Report. Both are available at www.kpers.org or by calling 1-888-275-5737.

The amount of retirement benefits paid to retirees and beneficiaries increased
by 7.6 percent to $868 million. In total, the Retirement System paid out near-
ly $1 billion in benefits during the fiscal year.
     Retirement, $868 million
     Retiree death, $9.1 million
     Death/disability, $55.5 million
     Withdrawal, $46.1 million

Investment Performance
KPERS overall investment return rate for fiscal year 2007 was 18.0 percent, compared to the 17.0 percent returned
by the benchmark. Our benchmark is the standard used to measure performance. It is a weighted average of market
indexes from each asset class. The System’s assets are spread across asset classes that react differently in different eco-
nomic periods. This diversification helps us withstand short-term volatility and profit from long-term market returns.

                                                While individual returns each year are important, positive returns
                                                over time are critical to solid funding. For the last decade, KPERS
                                                has a ten-year annual return average of 8.8 percent, exceeding our
                                                assumed rate of 8.0 percent. For more information about KPERS’
                                                diversified and disciplined approach to executing our investment
                                                strategy and policies, please see the Investment Section in our
                                                Comprehensive Financial Annual Report.
Investment Update for the Current Fiscal Year
A considerable January downturn in the financial markets sent KPERS portfolio returns tumbling. While we
posted an 18 percent return for fiscal 2007, the portfolio slipped to a -2.2 percent return in this first seven
months of fiscal 2008. By comparison, the S&P 500 stock index returned -6.9 percent over the same period,
with most of that endured in January. KPERS plans for difficult periods like this. We ride them out with a
carefully diversified portfolio and a steady, long-term investment strategy. Over time, this approach helps
keep benefits secure for members.

Finances and Funding
Net assets increased by $1.83 billion or 14.8 percent.

Plan Net Assets
Cash and Deposits              $        270,888
Receivables                         72,712,123
Net Investments                 14,107,840,432
Capital Assets/Supplies               5,978,120
Payables                            (3,728,601)
Net Assets                     $14,183,072,962

Changes in Plan Net Assets
Contributions           $ 655,813,288
Net Investment Income      2,162,081,472
Misc Income                       228,986
Total Additions            2,818,123,746
Benefits                   (979,047,708)
Administrative expenses       (8,893,544)
Total Subtractions         (987,941,252)
Net Increase               1,830,182,494
Net Assets:
 Beginning of Year      $12,352,890,468
 End of Year            $14,183,072,962

During the last fiscal year, KPERS’ overall funded ratio was 69 percent. The funded ratio is the ratio of actuarial assets
to actuarial liabilities.

The unfunded actuarial liability (UAL) is the gap between the actuarial value of assets and the actuarial liability for
the service already earned by members. The UAL increased, as expected, from $5.152 billion to $5.364 billion. The UAL
will continue to increase for the next ten to 15 years until employer contributions reach the actuarially-required rates.

Regardless of funding status, retirees and current members need to remember that their benefits are safe and guaranteed by
the State of Kansas.
Breaking Even on Social Security
One of the most debated issues among retirees is when to start Social Security benefits. Should you start re-
duced benefits early or wait until full retirement age? What about delaying your benefits even beyond full re-
tirement age?

You can receive reduced Social Security benefits as early as 62, at your full retirement age without reduction,
or as late as age 70 with special delayed retirement credits added on.

Full Retirement Age
Your full retirement age depends on the year you were born. For those born after 1938, full retirement age
gradually increases from age 65 to age 67.

Year of Birth             Full Retirement Age

1937 or earlier           65

1938                      65 and 2 months

1939                      65 and 4 months

1940                      65 and 6 months

1941                      65 and 8 months

1942                      65 and 10 months

1943–1954                 66

1955                      66 and 2 months

1956                      66 and 4 months

1957                      66 and 6 months

1958                      66 and 8 months

1959                      66 and 10 months

1960 or later             67

Early Retirement
Regardless of your full retirement age, you can receive reduced benefits as early as age 62. Benefits are re-
duced for each month you are under your full retirement age.

The Break-Even Point
The Social Security Administration’s Break-Even Age calculator at www.ssa.gov/retire2/breakeven.htm can
help you decide whether a larger monthly benefit is worth the wait. You can use your most recent Social Secu-
rity estimate to fill in the needed information.

The break-even point is when the value of receiving a higher benefit for a shorter time (later retirement) ex-
ceeds the value of receiving a smaller benefit for a longer period of time (early retirement).
Break-Even Point Example

John was born in February 1946 and will turn age 62 in
2008. He will reach full retirement age in 2012. For this
example, we’ll assume an unreduced benefit of $1,000.

When Benefits Start                        Benefit Amount

Age 62 (reduced)                           $750

Age 66 (full retirement age)               $1,000

Age 70 (delayed)                           $1,320

Using the Break-Even Age calculator, John estimates that if he waits until full retirement age to start benefits
instead of at age 62, he will break even at age 77 and 11 months. At that time, he will have collected about
$143,000 in benefits either way. If he lives longer than age 78, he will receive more in benefits by waiting until
full retirement age.

On the other hand, if he waits until age 70 to start benefits instead of at age 66, he will not break even until age
82 and 5 months. If he expects to live beyond that age, he may benefit by delaying his benefits.

Other Points to Consider
The break-even point is not the only thing you should consider when planning your retirement date. Several
factors could influence when you’ll need what, like:
     A long or short life expectancy.
     Pacing resources to keep up with expenses.
     Working after retirement and earnings limits.
     Health concerns.
     Marital status and survivor benefits.

For More Information
    Visit www.ssa.gov
    Social Security Administration: 1-800-772-1213
    Contact your local Social Security office
Target Date Funds Offer a More Simple Approach for Investors
For the inexperienced investor, deciphering financial terms
and choosing from numerous investment funds can be
mind-boggling. Fortunately, investing your retirement sav-
ings doesn’t have to be complicated. Many 403(b) and de-
ferred compensation plans offer a simpler approach to in-
vesting: target date or life-cycle funds.

These types of funds allow you to select a single fund with
the target date closest to the year you expect to retire. For
example, if you expect to retire in 15 to 20 years, you might
choose a fund with a target date of 2025.

Target date funds typically invest in a broad mix of stocks
and bonds. How aggressively the funds are invested de-
pends on the target year. Funds for younger investors have
a more aggressive investment mix to take advantage of the
long-term growth potential of stocks. On the other hand,
funds for people closer to retirement have a shorter time
horizon and a more moderate investment mix.

Once you select a fund, you usually don’t have to change it
again. The funds are managed by investment professionals
who set the asset allocations, select the investments, manage
the risk and monitor performance – all based on a future
retirement date. These funds are rebalanced periodically and
automatically become more conservative as you get closer
to retirement.

An Example
If you participate in the Kansas Public Employees Deferred
Compensation Plan, you have five target date funds availa-
ble. The charts at right show how the investment mix for
these funds adjusts as people near retirement. Funds with a
longer time horizon invest primarily in stock funds. While
stocks generally have a higher risk of loss, they also have a
higher potential return over time. As the time horizon short-
ens, the percentage invested in stocks decreases.

Within five to ten years after the target date is reached, the
funds typically have a conservative investment mix similar
to the Target Retirement Income fund shown at right. The
Target Retirement Income Fund is appropriate for those
currently in retirement who need a relatively stable source of income.

Before investing in a target date fund, be sure that you are comfortable with the risks associated with investing
in mutual funds. Although target date funds can simplify investment selection, all mutual fund investing is sub-
ject to risk.

Important Information for Your Taxes
Tax Reminder: Report Retirement System Contributions on Your Kansas Income Tax Return
The amount you contribute each year from your salary to the Retirement System is subject to Kansas income
tax. Your contributions are deducted from your pay on a pre-tax basis for federal income tax purposes. Because
of this, you need to make a specific entry on your Kansas income tax return. All members of KPERS, KP&F
and the Retirement System for Judges are included.

You can calculate the amount of your contributions from your W-2 form. Some employers will provide this
amount for you in Box 14 (labeled KPER).

See the “Schedule S Line-by-Line Instructions” in the Kansas Income Tax Booklet for more information or
contact the Kansas Department of Revenue.
     E-mail: tac@kdor.state.ks.us
     In Topeka: 785-368-8222

Get a Federal Tax Credit for Your Retirement Savings
Saving for retirement has an added bonus: it can also help you save on taxes. For low- and moderate-income
taxpayers, the Savers’ Credit provides a tax credit of up to $1,000 ($2,000 if filing jointly) if you:
     Contributed to an eligible retirement plan such as a traditional or Roth IRA, 403(b)
        or governmental 457.
     Purchased service credit by making voluntary after-tax contributions to KPERS.

To qualify for the credit, your adjusted gross income on your 2007 federal tax return cannot be more than:
     $52,000, if married filing jointly
     $39,000 if head of household
     $26,000 if single, married filing separately or qualifying widow(er)

For more information and to calculate the credit, download IRS Form 8880, Credit for Qualified Retirement Savings
Contributions, at www.irs.gov. A qualified tax advisor can help you determine if you qualify for the credit.
KPERS 2008 Legislative Agenda
The 2008 Kansas Legislative Session began January 14. This year, the KPERS legislative agenda primarily
focuses on technical changes needed to improve benefits administration and ensure Internal Revenue Service

During the session, bills that affect the Retirement System are typically introduced from various sources.
KPERS will provide a summary of all KPERS-related legislation throughout the session at www.kpers.org.
Click on “Kansas Legislation” found on the left-side navigation bar.

Mission Statement of the Retirement System: The Kansas Public Employees Retirement System, in its fiduciary capacity, exists to
deliver retirement, disability and survivor benefits to its members and their beneficiaries.

KPERS Board of Trustees: Jody Boeding, Chair             Doug Wolff, Vice Chair       Duane Anstine
                             Michael Braude              John Edmonds                 Tammy Edwards

                             Lynn Jenkins                Lon Pishny                   Rachel Lipman Reiber

KPERS Papers is published by the Kansas Public Employees Retirement System.
611 S. Kansas Ave., Suite 100, Topeka, KS 66603-3869
E-mail: kpers@kpers.org
Web Site: www.kpers.org
Phone: 785-296-6166
Toll-Free: 1-888-275-5737
Fax: 785-296-6638

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