Video description:
Video opens with no sound and an aerial image of the Massachusetts State House, the state seal, and the title Public Employee Retirement Administration Commission. This image fades and is followed by a slide "Ask PERAC, we'll answer that for you" and then a slide with the question, "Why do we have such a TINY interest rate?." The video transitions to PERAC Actuary, John Boorack, sitting at a table.
Transcript:
John Boorack begins speaking at the 14:15 mark of the video.
What we're trying today is something new. We’re presenting a video today to hopefully answer some questions that come up as we issue new memorandum. PERAC recently issued its annual memo stating that the regular interest rate for 2026 is 0.1%. Every year, PERAC receives the same questions or concerns about this interest rate.
Today, I'm going to address the three primary questions or concerns.
First question is why is the interest rate so low?
So why is the rate so low? The way the rate is determined is set by statute. Section 22 (6)(B) of Chapter 32 provides that PERAC sets the rate in consultation with the Commissioner of Banks. The rate is equal to the average rate on individual savings accounts from a representative sample of at least ten financial institutions. The final rate is rounded to the nearest one tenth of 1%.
The second question is can I take my money out and invest it myself?
And unfortunately, the answer is no. As an active member of the retirement system, you must keep your money in the retirement system. If your money were to be withdrawn from the retirement system, you would no longer be a member and would no longer be eligible for a benefit at a later date.
The third question is what is the impact of the interest rate being so low?
Well, at the end of the day, the impact is de minimis. If you voluntarily withdraw from service with less than ten years of creditable service pursuant to section 11(1)(a), the interest rate credited to your account is 3%. This means that the refund is calculated assuming your money had earned 3% each year.
If you are involuntarily terminated, or if you have ten or more years of creditable service, then your refund is calculated using the low regular interest rate.
If you have at least ten years of creditable service, you are eligible for a benefit either immediately or at some point in the future, depending upon your age. And the low interest rate is meant to discourage people from withdrawing their money.
Lastly, if you collect the benefit from the retirement system, your benefit is set by formula, and in most cases, the amount of the benefit does not depend upon your accumulated deductions. The accumulated deductions are used to determine the annuity portion of your benefit.
The difference between the total benefit in the annuity portionis the pension portion. In most cases, when the annuity portion increases, the pension portion decreases and vice versa. However, the total amount of the benefit of your benefit remains unchanged. I hope this clears up some of the questions or concerns regarding the interest rate.
Thank you.