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Employers Manual

Service Retirement for Defined Benefit Plan Members

Retirement Formulas
There are two types of benefit calculations for service retirement: salary-related formula and money-purchase formula. Members automatically receive the higher of the two.

Salary-Related Formula
The salary-related formula is calculated by multiplying final average salary (FAS) by 2.2% for the first 30 years of service credit (including Ohio-valued purchased credit).

This formula provides 66% of the member’s FAS if the member has 30 years of service credit. A reduction factor is applied when the member retires with less than 30 years of service and before age 65.

The 31st year of earned Ohio service credit is calculated at 2.5%. An additional one-tenth of a percent is added to the calculation for every year of earned Ohio service over 31 years (2.6% for 32 years, 2.7% for 33 years and so on) until 100% of FAS 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 FAS. All noncontributing service is multiplied by 2.2% of the FAS. Contributing service credit of more than 31 years continues to be calculated at the escalating formula previously noted. A member with 35 years of contributing service credit will receive 88.5% of the FAS.

In general, FAS is the average of a member’s three highest years’ earnings. However, pursuant to Section 3307.501, Revised Code, the maximum allowable percentage increase in compensation is limited to the greater of (1) the individual member’s highest percentage increase in the three preceding years, or (2) the percentage increase generally applicable to STRS Ohio members employed by the same employer. As such, a member’s FAS may be limited.

For example, a member’s earnings prior to retirement are as follows:

Year
Compensation
% Change
2002
$43,689
2003
$45,000
3.00%
2004
$47,250
5.00%
2005
$50,085
6.00%
2006
$54,092
8.00%
2007
$57,338
6.00%
2008
$63,071
10.00%

The member’s two highest years of compensation are reviewed in accordance with Section 3307.501, Revised Code, for possible FAS limitations.

Year
Earnings
Highest Allowable Percentage Increase
Allowable Maximum Earnings
FAS Limitation
2007
$57,338
8.00%
$58,419
$0
2008
$63,071
8.00%
$61,925
$1,146

Explanation: This is an earnings pattern with earnings progressively increasing each year and a higher-than-usual increase in the last year.

  1. The first year to be tested is 2007, which is the second highest earnings year.  
  2. The highest percentage increase in the three years preceding 2007 is 8%.
  3. The 8% is added to the third highest earnings year which, in this case, is 2006. The maximum compensation for FAS in 2007 is $58,419. Since the maximum is greater than actual earnings, there is no limitation in 2007.  
  4. The second year to be tested is 2008, which is the highest earnings year.
  5. The highest allowable percentage increase in the three years preceding 2008 is 8%.
  6. The 8% is applied to the second highest year of earnings of $57,338.
  7. The maximum allowable compensation for FAS in 2008 is $61,925.  
  8. The 2008 actual earnings of $63,071 are higher than the maximum of $61,925. Therefore, a reduction of $1,146 is applied.

The FAS for this member would be:

2006 $54,092
2007 $57,338
2008 $61,925
Final $57,785

An exception to the FAS limitation is permitted under Section 3307.501, Revised Code, if the percentage increase paid to a member was part of an increase applicable to all members employed by the same employer.

When FAS is limited, the member is given written notice of the right to appeal. Requests for appeal should be made in writing within 15 days of receiving notice. The member is given the opportunity to appear before a review committee designated by the Retirement Board. After consideration of the case by the Retirement Board, the Retirement Board has authority to reduce the limitation up to a maximum of $7,500 in earnings.

Contributions made by a member and an employer on amounts that are not included in determining FAS are used to provide additional annuity income for the member.

Money-Purchase Formula
Under the money-purchase formula, a member’s contributions, plus interest, are matched by employer funds to provide an annuity reserve.  The annuity reserve is then used to pay an equal monthly benefit over the member’s life expectancy. Interest rates are established by the Retirement Board pursuant to Section 3307.19, Revised Code.