TMRS education manager outlines retirement choices, survivor rules, taxes and return-to-work limits for McKinney employees

A TMRS education manager told McKinney employees during a roughly two‑hour information session that choices made at retirement — including survivor elections, guaranteed-term options and whether to take a lump-sum payment — determine who gets ongoing pension income and how much tax is withheld.

The presentation explained why retirees must designate beneficiaries, how survivor and guaranteed-term options alter monthly annuities, and the tax and penalty consequences of taking a portion of a pension as a lump-sum payment instead of annuitizing it.

The session focused first on payment options. The presenter said retirees can choose “retiree life only,” which pays the retiree for life and leaves any remaining account balance to a named beneficiary if the retiree dies shortly after retirement. Survivor options let a retired member name one survivor to continue receiving 100%, 75% or 50% of the retiree’s monthly check for the survivor’s life. The presenter noted spousal consent is required if a retiree does not name a spouse as survivor because “Texas is a community property state.”

The education manager warned that the choice is binding once the retiree receives the first monthly check: “Once you have chosen that survivor and you have received your first check, you are locked in.” She added that if a survivor dies before the retiree, TMRS increases the retiree’s payment to the retiree-life-only amount; a retiree cannot replace the survivor after the first check is issued.

The presenter described guaranteed-term options (5, 10 or 15 years) as different from survivor options: a retiree continues to receive a check for life, and if the retiree dies within the guaranteed period the retiree’s beneficiary receives the remaining payments until the term ends. She cautioned that guaranteed terms do not guarantee lifetime payments to beneficiaries unless the retiree dies early in retirement.

On the lump-sum payment, the manager said the Internal Revenue Service requires TMRS to withhold 20% of any portion paid directly to the retiree and that an early-withdrawal penalty of 10% can apply unless the retiree terminates employment in the calendar year they turn 55 (the exception is age 50 for police, fire and EMS). “Any money paid directly to you, 20% right off the top,” she said, and noted rollover into another qualified plan avoids immediate tax withholding and the 10% penalty.

The presenter also reviewed how TMRS calculates monthly benefits: each member’s annuity reflects the account’s employee contributions, interest and the city’s match, plus any updated service credit the city funds. She used an anonymized example in which a member’s current account balance grew into the mid six figures after prorated interest and an updated service credit; in a separate example she said an updated service-credit deposit could be about $42,000 for someone in that situation. She said the member-side interest credit is 5% at present and the city-side assumed rate of return is 6.75%.

Cost‑of‑living adjustments (COLAs) were described as a local policy rather than an automatic, perpetual entitlement: the presenter said McKinney’s COLA is set at 70% of the CPI change, applied on the January check after a retiree has been retired for a full year. She warned that a city could change or discontinue COLAs later and that amounts tied to other cities’ prior COLA decisions are handled proportionately in the background.

On death benefits, the session summarized two separate payouts: a supplemental death benefit (SDB) that pays a $7,500 tax‑free check to the retiree’s beneficiary if the retiree dies after retirement, and a pre‑retirement death benefit that, for active employees, pays a lump sum equal to annual salary. The presenter explained how beneficiary designations and vesting affect the options available to survivors (for example, a surviving spouse of a vested, pre‑retirement member receives a letter outlining four options, including leaving the account in TMRS until the deceased would have reached age 60; nonspouse beneficiaries generally have fewer options).

Practical issues covered included minors and custodians (the presenter recommended naming a custodian for minor beneficiaries), the effect of multiple beneficiaries (all must agree to split or cash‑out options), and return‑to‑work rules. The presenter said retirees may work outside the TMRS system without affecting their TMRS annuity, but if they return to the same city within one year their pension payments will be suspended and any months of suspended payments are not made up when the retiree departs again.

The education manager closed by urging employees to review beneficiary designations and to schedule a 30‑minute counseling session through TMRS for personalized planning. She gave TMRS’s member services number and said longer one‑on‑one counseling is available by appointment.

Requests for additional or formal plan details — including exact calculation formulas, McKinney’s official COLA policy text, updated service‑credit calculations and city match amounts — should be directed to TMRS or McKinney human resources; the presenter said those items are handled “in the background” and recommended scheduling a counseling session to see the member’s individualized estimate.