Targeted Replacement Ratio Formula

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Targeted Replacement Ratio Formula

The Targeted Replacement Ratio, or TRR, method seeks to provide a pension benefit that, when added to Social Security and other benefits, is a percentage of the income you earned before you retired. If you have the full 29 years of service, the TRR formula is designed to approximate your after-tax spendable income in retirement by replacing that income with all available resources.

The plan’s targeted replacement ratios are based on average final compensation as follows:

Targeted Replacement Ratios
If your annual average final compensation is... Your targeted replacement ratio is...
$36,000.00 or less 80%
$36,000.01 to $48,000.00 77%
$48,000.01 or higher 72%

The formula for calculating your benefit using the Targeted Replacement Ratio is shown below. This formula uses your average final compensation, which is the average of your two highest years of compensation from the county. Compensation includes your regular wages or salary, overtime and bonuses.

[(TRR x Average Final Compensation) – Primary Social Security Benefit] x Years of Service (up to 25) ÷ 25 Years + (1% x Average Final Compensation x Years of Service greater than 25 but no more than 29) = Annual CERF Pension Benefit

NOTE: Formula uses a Primary Social Security benefit at age 62, which is based on a projection and regression of county-related income.

To illustrate how your benefit is calculated, assume you are a non-LAGERS participant who is near retirement with 27 years of service and $35,000 as average final compensation. Under the TRR formula, your benefit is calculated as follows:

([80% x $35,000 - $12,000] x 25 ÷ 25) + (1% x $35,000 x 2) = $16,700 (Annual Benefit)

If you are a LAGERS participant, you will receive two-thirds of this amount, or:

$16,700 x 2/3 = $11,133.34 (Annual Benefit)