How Participants Draw Retirement Benefits from ORP
Participants are eligible to draw funds from the ORP any time after they have terminated employment with the Commonwealth.
To apply for retirement benefits, Participants must:
- Complete their Provider's application form, found in the Provider enrollment kit, and
- Send the form(s) to the Plan Administrator for review and, if appropriate, authorization.
The Plan Administrator will send the authorized benefit application to the Provider(s) and a copy of the signed form to the Participant for their records.
The ORP generally accepts any benefit payment method allowed under the Providers' products. Participants may draw benefits using multiple payment methods, utilizing different methods at different times. Participants may contact their Provider for assistance with these options.
Common payment methods include:
- Annuity: Annuity income is payable for the lifetime of the Participant and, if selected, another person (annuity partner). The income may be either fixed or variable. The annuity partner may be any other person. Once begun, the Participant does not maintain much control over the payments.
- Systematic Withdrawals: “SWAT” payments are set by the Participant and are always subject to the Participant’s control. The Provider will make these payments until the sooner of:
- the Participant changes the amount;
- the Participant discontinues the SWAT payments; or
- the Participant’s account balance is exhausted.
- Lump Sum Payments: Full or partial lump sums are payable to Participants over age 55. Participants younger than age 55 generally are not eligible to receive lump sum distributions.
More information about these payment methods is available in the Participants' section of this website.
The potential complexity of these distributions compels Participants to work with their Provider(s) to ensure their understanding of the methods available to them and to use these methods to their greatest advantage. Campus Administrators should facilitate this process by inviting Provider Representatives to campus throughout the year to discuss benefit payment and retirement issues with Participants.
Providers making payments from the ORP provide tax withholding and reporting on behalf of the Commonwealth.
State Income Tax
State pension benefits paid to a recipient residing in Massachusetts are not subject to state income taxation. Participants should elect no (tax) withholdings from their benefits in these cases. ORP benefits paid to a Participant residing in another state will likely be subject to that state’s income tax.
Federal Income Tax
Amounts paid directly to either a Participant or beneficiary are subject to federal income tax for the year in which the distribution was made.
Mandatory Withholding (Federal)
Payment methods structured to be paid over a period of less than 10 years are generally subject to mandatory withholding of federal income tax (20%).
Early Withdrawal Penalty (Federal)
Payments structured for periods less than the recipient’s life expectancy and received prior to attaining age 59 ½ are generally subject to an Early Withdrawal Penalty (10%).
Payments from the ORP that are structured for periods of less than ten years are generally eligible for rollover treatment. This means that funds paid directly to another retirement plan or Individual Retirement Account (IRA) are not subject to income taxation when distributed from the ORP.