Calculations
There are two types of benefit calculations for service retirement:
the salary-related calculation and the money-purchase calculation.
When you retire, your benefit will be calculated using both calculations;
you will be paid the higher of the two amounts.
Salary-Related Benefit
The salary-related benefit is calculated by multiplying your first
30 years of contributing service credit and
all of your noncontributing service credit
(including Ohio-valued purchased credit) by 2.2% of the final
average salary (average of your three highest years of Ohio public
earnings).
The 31st year of contributing service credit is multiplied by
2.5% of the final average salary. An additional one-tenth of a
percent is added to the calculation for every year of contributing
service over 31 years (2.6% for the 32nd year, 2.7% for the 33rd
year and so on) until 100% of the final average salary is reached.
For STRS Ohio members with 35 or more years of contributing
service credit, the benefit is calculated by multiplying the first
31 years of contributing service by 2.5% of the final average
salary. All noncontributing service is multiplied by 2.2% of the
final average salary. Contributing service credit over 31 years
continues to be calculated at the escalating formula noted above.
A member with 35 years of contributing service credit will receive
88.5% of the final average salary.
The salary-related calculation provides 66% of your final average
salary if you have 30 years of service. A
reduction factor is applied to the base percentage if you retire
with less than 30 years of service and before age 65.
Click here for a PDF
of the Salary-Related Calculation chart.
Definitions
Contributing Service Credit
Contributing service includes contributing service for which
contributions were made to STRS Ohio, OPERS or SERS at the time
of employment and withdrawn service that has been restored in
any of those systems is also included. Also included is:
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military service,
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police, fire and state highway patrol service,
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service purchased as a result of resignation due to pregnancy,
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leaves of absence purchased under 3307.77 R.C.
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credit purchased for public teaching in Ohio after July
1978, purchased under 3307.72 R.C. and former section 3307.73
R.C.
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City of Cincinnati Retirement System service acquired under 3307.763
R.C.
Noncontributing Service Credit
Service credit that does not contribute toward the enhanced
calculation. Noncontributing service credit is calculated at
2.2% of the final average salary. A reduction
factor is applied if the member retires before age 65 and with
less than 30 years of service.
Ohio-Valued Purchased Service Credit
Credit that is purchased for private teaching and other public
service to be used in the calculation of retirement, disability
or survivor benefits. For more information
go to Purchasing Service Credit.
Non-Ohio-Valued Service Credit
Credit that is purchased for the sole purpose of qualifying
for benefits. This credit is not used in the calculation of
the benefit. For example, a 55-year-old member with 22 years
of service may purchase three years of non-Ohio-valued service
to qualify for benefits; however, the benefits will be calculated
on 22 years of service. Go to Purchasing
Service Credit for service that qualifies as non-Ohio-valued
credit.
Money-Purchase Benefit
This calculation is often more beneficial to an STRS Ohio member who has not taught for a number of years. Under the money-purchase calculation, your lifetime contributions,
plus interest, are matched by employer funds to provide an annuity
reserve. The annuity reserve is divided by an annuity value, which
is a factor that considers the payments over your life expectancy
and the interest earned on the remaining reserve.
| Your Lifetime Contributions |
+ Annual Compound Interest |
+ Matching Employer Fund |
÷ Annuity Value |
= Annual Single Life Annuity Benefit |
Interest is calculated at 6.5% through June 1982, 7.75% from July
1982 through June 30, 1994, 6.0% from July 1, 1994, through June
30, 1999, and 5.0% beginning July 1, 1999. Interest rates are
subject to change without notice.
Final Average
Salary (FAS) Limitations
The FAS is the average of the member’s three highest years of earnings. Under certain conditions, the law limits the amount of earnings used in calculating FAS for retirement purposes. Ohio retirement law requires salary limits to protect the stability of the system. The contribution rate is set, based on the assumption of a steady level of earnings growth for each individual member. When a member’s level of increase during the two highest years of earnings goes above those assumptions, the lifetime benefit for the member is not fully funded by the contributions.
If the percentage increase in compensation in the highest two years exceeds the highest percentage increase in the three preceding years, the excess is not included when calculating the FAS. The limit may effect either or both of the two highest years. Compensation for a partial year may also be limited.
As a result of the FAS calculation, a member’s FAS will not be lower than it would have been if the member had not taken a new position, had the increase in salary or performed additional work. And in many cases, at least a portion of the earnings for additional duties is included in a member’s FAS, resulting in a higher FAS than if the member had not received the increase or performed the additional work.
Contributions on any earnings not used in determining FAS are used to calculate a monthly annuity that is included in the regular pension benefit.
Examples that can trigger a limitation include:
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A supplemental contract or summer school was offered to all qualified teachers in your last two years of teaching and you accepted the extra duties.
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You assumed extra duties in addition to those in your contract, which required working extra days or hours.
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If you stopped working a few days before the end of the school year or work only part of your final year, this year may also be limited in addition to the two highest years of earnings.
Your FAS will be limited in these examples if the extra earnings cause the increases in your last two years to be greater than the increases in the three preceding years. While these are common reasons for FAS limitations, these are not exclusive examples.
Exception — FAS will not be limited if you received an increase that was applied to all members employed by your employer.
Examples where limitations will not apply:
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Teachers from a financially troubled district do not receive a raise in base contract earnings for two years due to a salary freeze. In the third year, the district grants an increase in base contract salary to all teachers in the district the year following the salary freeze. A teacher is paid according to the new salary schedules adopted.
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A teacher earns a master’s degree, which puts the teacher into a different category of the teacher salary schedule and causes a significant increase in salary for that year.
If the increases in the above examples are your only increases in the highest two years of earnings, the FAS limitation will not apply.
Appeals — Retired members whose accounts are affected by the FAS limitation will receive a letter outlining their FAS calculation. They will also be provided instructions for appealing the limitation. The State Teachers Retirement Board has the authority to include for FAS up to $7,500 of previously excluded compensation for “good cause.”
