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All About Your Massachusetts MTRS Pension

I wrote a similar blog post about the California pension system. This one is primarily for my former student-teacher, who currently lives in Massachusetts. Since he was hired after 2012, this post’s focus is on the RetirementPlus MTRS tier (Tier 2). Enjoy. 

General Overview

MTRS pension is a retirement program that pays retired employees a set monthly amount for the rest of their lives. Let’s dig into it.

Pensions work differently than most retirement accounts. Rather than putting money into a retirement account and hoping that the investments grow over time, the benefit you receive from MTRS comes from a formula which incorporates your age, maximum salary, and number of years of service. As stated above, if you earn a pension, you will receive a monthly paycheck for the rest of your life based on that formula. Four institutions contribute money to this fund: your own paycheck (11% of your salary), your district, Massachusetts taxpayers, and investment returns managed by Pension Return Investment Management (PRIM) Board.

You are eligible for this pension by putting in 10 years of service with Massachusetts public schools, although you cannot claim this pension until you read age 60 (although it may benefit you to wait longer to declare retirement).

Page 25 (page 27 of the pdf) of this booklet includes the table that will determine your retirement benefit. The numbers reflect a percent of your average maximum 5-year working salary that you will earn. The maximum value is 80, meaning that the maximum that you can earn in your pension is 80% of your maximum 5-year working salary.

Aim for 80%

Notice that that the chart includes two percentages for each year of service beginning with 30 years of service. The reason is the RetirementPlus formula. If you qualify for this formula, the speed with which you reach that 80% increases dramatically. To be eligible for the RetirementPlus formula, at retirement you must be both 60 years or older and have worked for 30 years with Massachusetts public schools.

Your Benefit Options

When you retire, you have three options for the benefits you receive as described on page 26 of this booklet (page 28 of the document). Since this is written by the government, they are creatively named Option A, Option B, and Option C. These options affect what happens to your pension when you die.

Option A: The simple one. This is the maximum pension benefit as described in the preceding paragraphs. Your family receives nothing when you die from MTRS.

Option B: Rather than receiving your entire benefit as described in Option A, you will receive 99% of that benefit. In return, when you die, your beneficiary (or numerous beneficiaries) will receive a “one-time, lump-sum payment of the remaining balance, if any, remaining in member’s annuity savings account.” In most cases, this account will be depleted roughly 10 years after your retirement, so this option seems reasonable if you are very worried that you will see the wrong side of a casket very soon after retirement. If you are in decent health, this is probably not the option for you.

Option C: Rather than receiving your entire benefit as described in Option A, you will receive a certain percentage of that as described in the paragraph below. Let’s call this amount your Option C annual allowance. In return, when you die, your beneficiary (which could be a parent, spouse, sibling, or child) will receive two-thirds of that Option C annual allowance for the rest of their lives. This may be an option if you are worried about your spouse’s financial situation when you pass.

The calculation of the Option C annual allowance is not too complicated. It only depends on the ages of you and your beneficiary at the date of your retirement. The table shown on page 28 (page 30 of the pdf) provides a number based on these ages. This number provides the percent of your Option A annual allowance that will be used for Option C.

For example, imagine that under Option A you have earned a $50,000 yearly retirement allowance. If you retire at 65, and your spouse is 55 (cradle-robbing), your Option C allowance is 84.36% of that $50,000 (aka $42,180). So during retirement, you will earn $42,180 each yer rather than the $50,000 if you had chosen option A. When you pass, your spouse would then receive two-thirds of that $42,180 Option C allowance each year, which comes out to $28,120.

Fun Facts

You most definitely pay taxes on your pension benefit.

Medical coverage is not included in your benefit. When you retire, you lose your district health coverage. Waiting to retire until MediCare benefits take into effect (age 65) can be wise to avoid paying for healthcare on the individual market.