The Pension Reform Act (Chapter 176 of the Acts of 2011: An Act Providing for Pension Reform and Benefit Modernization) affects current active and retired members, as well as new members hired on or after April 2, 2012 or those who took a refund of their contributions and re-entered service on or after April 2, 2012.

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 membership 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%). 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%). This applies to repayments and service purchases made on or after April 2, 2012.

Group Classification Pro-Ration – This provision is mandatory for all those who became members on or after April 2, 2012. Those who became members prior to April 2, 2012 and retiring thereafter may elect to have their benefits prorated based on their group classification. 

Anti-Spiking Provision – All members / beneficiaries retiring or who start to receive a benefit on or after April 2, 2012, and who has a benefit calculated under Sections 5 or 10(1) (superannuation), 6 (ordinary disability), or 12(2)(d) (in-service death) is affected by these provisions.

The two anti-spiking provisions are summarized as follows:

  1. If in the last 5 years of creditable service your rate of regular compensation increased by more than 100% between two consecutive years, then the Board must use the average of your last 5 years of compensation in calculating your retirement benefit rather than a thirty-six year month average.
  2. In determining the thirty-six month salary average of regular compensation used to calculate your retirement allowance (or 60 month salary average if you became a member on or after April 2, 2012), if that rate of regular compensation in any year exceeds the average of the regular compensation of the two previous years by more than 10%, then retirement boards are not permitted to use any regular compensation in excess of 10% of the average of your two previous years. 

If a member is found to have violated these provisions a retirement board is required to return any retirement payroll deductions related to the excess compensation. 

If your salary increase was attributable to one of the following exceptions, then a retirement board may utilized the higher rate of compensation in your benefit calculation:

  • Increase in the number of hours worked.
  • Overtime wages (not regular compensation, but included in #2).
  • Bona fide change in position.
  • Modification in salary attributable to a collective bargaining agreement.
  • From an increase in salary for a member whose salary amount is specified by law.

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 were allowed to change their retirement option to Option C retroactive to date of retirement. This also applied to a surviving spouse of a deceased member who met the above criteria. Members were responsible for repaying any overpayments as a result of the option change. Eligible members who wished to change their option must have informed 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 increased from $12,000 to $13,000.

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 took effect on April 2, 2012.

Increased Retirement Benefit – The minimum retirement benefit for a retiree with 25 years of creditable service increased from $10,000 to $15,000 per year.

Increased Survivor Benefit – The minimum monthly member-survivor benefit increased from $250 per month to $500 per month. This provision took effect on April 2, 2012.
 

For New Members (Entering MSERS on or after April 2, 2012)

Age Factor Increased – The minimum retirement age increased for all new members. New age factors were also introduced for new members who earn more than 30 years of creditable service. Contribution rates for new members with more than 30 years of creditable service also changed.

Salary Average Period Increased – The period for computing the salary average for the superannuation retirement increased from 3 years to 5 years.
  
Section 10 Eliminated – Members joining the system on or after April 2, 2012 no longer have the option to retire under the Section 10(2) Termination Allowance.