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Improved Money Purchase (IMP)

In November of each year, the TRA Board of Trustees approves an IMP interest rate.  This rate is used for the benefit calculation of those eligible for the Improved Money Purchase savings clause. 

IMP Rate History

What is IMP?   Improved Money Purchase (IMP) is simply a different method used for determining TRA retirement benefits based on member contributions, investment earnings and age at retirement for certain TRA members with service prior to July 1, 1969.  Earnings include interest, dividends and net capital gains realized by the TRA fund.  The plan works somewhat like a 401(k) or 403(b) plan in which an account balance accumulates and is annuitized into a monthly benefit amount at retirement. For most members, however, retirement benefits are calculated using the High-5 Formula method, which is based on salary, years of service and age at retirement.

What is the history of IMP at TRA?  The Teachers Retirement Improvement Act of 1969 permitted TRA members who worked during the 1968-69 school year to elect one of the retirement programs administered by TRA by completing an official election form. Their choices at that time were:  the Career Average Formula Program, the Variable Program, or a combination of the Variable Program with either the Formula Program or the Improved money Purchase (IMP) Program.  Members were instructed to complete the election form by June 30, 1972, if they wished to change from the IMP Program under which they were currently covered.

Four years later, the 1973 legislature replaced the Career Average Formula Program with the High-5 Formula Program which dramatically improved retirement benefits.  Members who had chosen the IMP option became unhappy because their program choices elected in 1972 were based on comparisons to the less generous Career Average Formula Program.  To address the concerns of these members, a law was enacted for members who were previously covered under the IMP Program and who taught after June 30, 1972, to transfer to the High-5 Formula Program as of July 1, 1974.  In addition, members who were previously covered under either the Combined IMP and Variable Program or the Total Variable Annuity Program and who performed teaching service after June 30, 1972 were transferred to the Combined High-5 Formula and Variable Annuity Program. In 1989, all members participating in the Variable Annuity Program were transferred to High-5 formula coverage.

I elected the Improved Money Purchase program by not returning my election form to TRA by the June 30, 1972 deadline. Why don't I remember making a switch to the High-5 Formula after my election?  You may not remember making the switch to the High-5 Formula Program because members who didn't make the above election were mandatorily transferred from the IMP Program to the High-5 Formula Program.  Because of this mandatory transfer, the 1973 Legislature provided a savings clause so if at the time of retirement the IMP Program was higher than the High-5 Formula Program, the member would receive the higher of the two benefits.  The purpose of this savings clause was to protect the pension rights of those teachers who did not make an election by June 30, 1972, and who were mandatorily changed to the High-5 Formula from the IMP Program.

How is the IMP rate calculated?  The Improved Money Purchase (IMP) interest rate is defined by Minnesota Statute Section 354.07, subd. 5 and is based on realized investment earnings which include gains/losses on the sale of equities and bonds, interest and dividends.  It does not include unrealized gains or losses on fund investments.  Therefore, the IMP rate will not exactly match what the State Board of Investment (SBI) reports as the investment return for the TRA Active Fund. TRA's assets are broadly diversified to minimize risk and volatility.   The SBI employs outside money managers to manage pension assets.  The buy/sell decisions of the outside money managers determine when gains or losses due to the sale of equities/bonds and other investments occur. For members eligible for the IMP provision, the new IMP interest rate is then applied to the balance of your accumulated contributions (the amount you have paid into your TRA account over the years) and the accumulated interest on that account as of June 30 of each year.

Will IMP always produce a higher benefit now? Since benefits under the IMP are very teacher-specific depending on your TRA salary and contribution pattern over the years, the IMP benefit will be better for some teachers while the Formula benefit will be better for others.  Please be aware that the IMP interest rate changes each year and that IMP benefits can go down, even though additional contributions have been made for teaching service. The new rate is usually announced in November.

What is the expected IMP rate for future years? TRA can not accurately predict prospective IMP rates as investment markets change rapidly. The State Board of Investment (SBI) employs outside money managers to manage its pension assets. Their buy/sell decisions determine when gains or losses occur due to the sale of equities/bonds and other investments. IMP-eligible members should be aware that the investment rate of return reported by the SBI for the TRA Active Member Fund may differ significantly from the IMP rate calculated by TRA. The overall investment rate of return reported by SBI for the TRA Active Member Fund includes unrealized gains and losses of portfolio assets, while the IMP rate includes only realized gains and losses.

My IMP estimates continue to vary tremendously from year-to-year. How can I factor these changes into my retirement planning? The Improved Money Purchase program produces variable retirement benefits depending upon volatility of the IMP interest rates near the time of retirement. The High-Five formula produces more predictable benefits as a member’s salary and years of service increase. IMP-eligible members are encouraged to schedule an individual pre-retirement counseling session if they have further questions.

I did not elect IMP, so what does this mean for me?  Fewer than 25 active and inactive members remain eligible for IMP because of the 1972 election. No member first hired after June 30, 1969, is eligible for the IMP benefit provision. All members, however, are covered by the High-5 Formula Program. The High-5 Program has been providing dependable retirement benefits for nearly 50 years.

 

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