On November 18, 2011 Governor Patrick signed into law the Pension Reform Act (Chapter 176 of the Acts of 2011: An Act Providing for Pension Reform and Benefit Modernization). This law will affect current active and retired members, as well as new members hired after April 2, 2012 or those who took a refund of their contributions and reenter service after April 2, 2012. We are still reviewing the details of the law and will provide further educational materials and forms for you as soon as possible.
You can read more about the provisions of this legislation on the Public Employee Retirement Administration Commission’s (PERAC) website. They have published several memos (#’s 35, 36, 39, 40) outlining most of the provisions of this wide-reaching law. The final version of the law is also available on the legislature’s website. Some of the provisions may affect you, depending on your status. The following is a summary of some of those provisions:
For Current Active Members:
Buying Back Prior Service – If you have previous public service for which you took a refund of retirement contributions and that you are eligible to buy back, you will have one year after re-entering public service or one year after April 2, 2012, whichever is later, to complete the repayment at the buyback interest rate (currently 4.125%). If you do not complete the buyback of your prior service within that year the interest will increase to the assumed actuarial interest (currently 8.25%). This applies to repayments and service purchases made on or after April 2, 2012.
Group Classification Pro-Ration – This provision is mandatory for all members hired after April 2, 2012. Members retiring after April 2, 2012 but hired before that date may elect to have their benefits prorated based on their group classification. We expect PERAC to issue specific guidance on this section.
Anti-Spiking Provision – All members retiring after April 2, 2012 cannot include in their average rate of regular compensation any year that exceeds the salary rate for the two prior years by more than 10%. This does not include salaries negotiated in collective bargaining agreements.
For Retired Members and Survivors –
Option Change Allowance – Members in same gender marriages who retired prior to May 17, 2004 and selected Option A or Option B, and married a person of the same gender before May 17, 2005 may change their retirement option to Option C retroactive to date of retirement. This also applies to a surviving spouse of a deceased member who meets the above criteria. Members will be responsible for repaying any overpayments as a result of the option change. Eligible members wishing to change their option must inform the Board no later than July 1, 2012
Change to COLA Base – The base for any Cost of Living Adjustment (“COLA”) approved by the Legislature for members of the State Employees’ Retirement System will increase from $12,000 to $13,000 the next time a COLA is authorized.
Increased Earnings Limits – Retirees who work in the public sector may increase their earnings beyond the current limits by $15,000 after their first year of retirement. The limit of 960 hours per calendar year still applies. This provision takes effect on April 2, 2012.
Increased Retirement Benefit – The minimum retirement benefit for a retiree with 25 years of creditable service will increase from $10,000 to $15,000 per year.
Increased Survivor Benefit – The minimum monthly member-survivor benefit will increase from $250 per month to $500 per month. This provision takes effect April 2, 2012.
For New Members (Entering MSERS after April 2, 2012)
Age Factor Changing – The minimum retirement age will increase for all new members. New age factors will be also be introduced for new members who earn more than 30 years of creditable service. Contribution rates for new members will also change for members with more than 30 years of creditable service.
Salary Average Period Increasing – The period for computing the salary average for the superannuation retirement will increase from 3 years to 5 years.
Section 10 Eliminated – Members joining the system after April 2, 2012 will no longer have the option to retire under the Section 10(2) Termination Allowance.