PENSIONS AND RETIREMENT PLAN ENACTMENTS IN 2011 STATE LEGISLATURESJune 30, 2011 - NCSL ABOUT THIS REPORTABOUT THIS REPORT. This report summarizes selected state pensions and retirement legislation enacted from January 2011 through the date of publication. Its goal is to help researchers and policy makers know how other states have addressed issues that could arise in any state. In keeping with that goal, the report excludes most clean-up legislation, cost-of-living adjustments, administrative procedures and technical amendments. This report is organized according to the topics that legislatures addressed in 2011, listed at the end of this introduction. FINDINGS. Even more state legislatures enacted significant retirement system changes in 2011 than did so in 2010—25 in 2011 compared to 21 in 2010. Since some states revisited the topic, in all, 39 of the 50 states enacted significant revisions to at least one state retirement plan in 2010 or 2011. At the end of June, pending legislation on pension reform remained before the Massachusetts and Ohio legislatures, and the governors of California and New York had proposed changes that are likely to be considered later in 2011 or in 2012. These have been some of the major developments of 2011, all of which are described in detail in the report. Employee contributions. Fifteen legislatures enacted increased employee contribution requirements in 2011 (compared to 11 states in 2010). The 2011 increases applied to at least some, and in most cases all, current employees in 12 states and only to new employees in three states. In eight of the 15 states that increased employee contribution requirements, they will be offset, in part or wholly, by reduced employer contributions. Thus these changes are a shift toward equalization of employee and employer retirement contributions, and testimony to continuing pressure on state budgets. Eligibility for retirement benefits. Fourteen legislatures increased age and service requirements for normal retirement for state employees, teachers or both groups of employees. The legislation generally applies only to people hired after the effective date of the legislation, but also in a few states to non-vested employees. As a rule, the changes move the age of retirement to or closer to 65, and increase the minimum amount of service credit a person must have for any alternative earlier age of retirement. Minimum eligibility requirements, or vesting, also increased in seven states in 2011 (five states in 2010). The changes generally were from five or six year vesting to eight or ten year vesting. Calculation of retirement benefits. In 2011, five legislature lengthened the period over which final average salary is averaged to provide the base on which pension benefits are calculated. Eight states made similar changes in 2010. In most cases, the change was from a personfs highest 36 months to the highest 60 months (three years to five years). Florida changed its provision from the highest five years to the highest eight. Such changes applied in all cases to people hired after the effective date of the legislation. The measure is usually the highest paid-months or years rather than the latest to avoid penalizing people who move to part-time employment before retiring. Post-Retirement Benefit Increases (COLAs). In 2011, nine states revised their provisions for automatic cost-of-living adjustments, as eight other states had done in 2010. An automatic COLA is one that is made annually, usually pinned to a measure of inflation like the Consumer Price Index. Their purpose is to reduce inflationary erosion of the purchasing power of retirement benefits. In all cases in 2011, as in 2010, state action reduced future commitments. State actions in 2011 affect current benefit recipients in three states, but more frequently were designed to affect people who will retire in the future or, in six states, only people who will be hired in the future. Oklahoma, which does not provide automatic COLAs, enacted legislation requiring future COLAs to be funded at the time of enactment. SOURCES AND ACKNOWLEDGMENTS. The sources of this report are StateNet searches of current and enacted legislation, retirement systemsf websites, state legislatures' reports of enacted legislation, and information provided by legislative and retirement system staff. I am indebted to the many legislative staff who write and share summaries of their legislatures' acts, the many retirement system staff throughout the United States who have posted legislative summaries on their web sites, and the staff of legislatures and retirement systems who have taken time to identify and explain legislation and its context to me. LIST OF TOPICS
1. Contribution Rates and Funding IssuesAlabama. Act 676 of 2011 (House Bill 414) increases employee contribution rates for the Alabama Retirement System in two steps. The increases affect current and future employees. • Justices,
judges and district judges: Contributions will
increase from the current rate of 6% to 8.25%
beginning on October 1, 2011 and to 8.5%
beginning on October 1, 2012. According the fiscal note that accompanies the legislation, employer contributions to the retirement funds will be reduced to offset the increased employee contributions. Arizona. Chapter 26, Laws of 2011 (Senate Bill 1614) revises employee and employer contribution rates for the Arizona State Retirement System (ASRS). Beginning on July 1, 2011, employee contributions will rise from 50% of the total contribution to 53% and employer contributions will fall from 50% of the total to 47%. Chapter 357, Laws of 2011 (Senate Bill 1609) establishes an Alternative Contribution Rate for employers whose employees are members of the ASRS for retired members who perform services that otherwise would be performed by an employee—that is to say, retired members who return to employment as an employee either as a direct employee, leased employee or contractual employee. The contribution level will be based on the amount required to amortize the unfunded liability of the ASRS. It will begin on the employeefs first day of employment. Contribution rates for members of the Elected Officials Retirement Plan are increased as follows: • 7% of
member's gross salary through June 30, 2011, as
under existing law; For members of the Public Safety Personnel Retirement System, employee contributions will increase in stages from 8.65% of compensation in FY2012 to 11.65% of compensation in FY2016 and thereafter. [The goal of the rate increase is eventually to achieve a contribution division such that the employee contributes 1/3 and the employer 2/3 of the requirement. In the future when the employerfs required contribution decreases, the employee contribution will also move down in tandem to maintain the 1/3-2/3 split.] Colorado. Chapter 204, Laws of 2011 (Senate Bill 76) continues a shift of contributions to the Public Employee Retirement Association (PERA) from employers to employees of state government for FY2012. For the state and judicial divisions, it temporarily shifts 2.5% of the total contribution from employers to employees for FY2012 only. State Employee
Division This bill continues the provisions of Senate Bill 146 of 2010, which shifted 2.5% of the state's PERA contributions to state and judicial division employees for FY2011. Employees of institutions of higher education who are PERA members also were included in the contribution swap for FY2011. However, the American Recovery and Reinvestment Act of 2009 prohibits the state from reducing appropriations to institutions of higher education during FY2011. By increasing their share of PERA contributions, this bill will reduce taxable income for state employees by $58.3 million and state income tax collections by $1,750,123 in FY2012. The bill will decrease state expenditures by approximately $58.3 million in FY2012. The General Assemblyfs fiscal note for the bill points out that, due to the funding structure of PERA and depending on the actuarial valuation of the assets of the affected division, each member dollar is worth between 70% and 80% of an employer dollar. A member dollar is deposited into a member's account and earns interest. If a member leaves or withdraws his or her money, PERA must provide a 50% match on the combined amount of the member's contributions plus interest. Shifting the payment of a portion of the employer contribution decreases the amount of funding available to the affected division and increases the amount payable to members who choose to leave the plan. The increase in unfunded liabilities is estimated to be $6.6 million for the state division, and $40,000 for the judicial division. Delaware. Chapter 14, Laws of 2011 (House Bill 81) increases the employee contribution to the Pension Fund from 3% to 5% of annual compensation after the first $6,000 for employees hired on or after January 1, 2012. Florida. Chapter 68, Laws of 2011 (Senate Bill 2100) requires all members of the Florida Retirement System (FRS) to make contributions to FRS of 3% of salary, effective July 1, 2011. DROP participants will not be required to contribute. The bill also reduces required employer contributions to FRS for FY2012 and FY2013 in general, although not for all classes of employees. For the Regular Class, employer contributions for FY2012 will fall from the previously scheduled 8.69% to 3.77% for FY2012, and from 9.63% to 5.44% for FY2013. Hawaii. Chapter 163, Laws of 2011 (House Bill 1038) increases required employee contributions to the Hawaii Retirement System for those hired after June 30, 2012. General employeesf contribution rate will increase from 7.8% of compensation to 9.8%. The rate for firefighters, police officers and corrections officers will increase from 12.2% to 14.2%. Employer contribution rates will also increase. For general employees, they will increase in annual steps from the current rate of 15% to 17% in FY2016. The comparable increase for firefighters, police and corrections officers will be from 19.7% to 25%. Kansas. House Bill 2194 (signed by the governor May 25, 2011) increases employee and employer contributions to the Kansas Public Employeesf Retirement System (KPERS), contingent upon each chamberfs voting on recommendations a study commission has been instructed to submit to the Legislature on January 6, 2012 (See Kansas under gStudiesh for details of this requirement). Kansas has long capped the statutory annual contribution rate from state, school and local employers, which has prevented employers from making contributions at the rate actuarially-required to amortize the KPERS UAAL. Under this bill, the statutory state, school and local employer contribution annual rate caps of 0.6% would increase as follows: • 0.9% in
FY2014 (and January 1, 2014 for local
employers); The legislation also makes adjustments in employee contribution adjustments, contingent upon the 2012 legislative votes mentioned previously. These add two options applicable to all active KPERS Tier 1 members: • Tier 1
members as the default option would have an
employee contribution increase from 4% to
6% and also would be given an increase in
multiplier from 1.75% to 1.85% for future years
of service; or if an election is permitted by
the IRS, then the alternative option could be
chosen: Tier 1 members would be able to elect
freezing the employee contribution rate at
4% and reducing their future multiplier
from 1.75% to 1.4%. Inactive KPERS members upon return to covered employment will be offered an election for alternative options in their respective tier before July 1, 2013. After that date, or if there were no election approved, inactive members would be given the default option in their tier upon returning to covered employment. The bill also provides that 80% of the proceeds from the sale of surplus state real property will transferred to KPERS for reducing the unfunded actuarial liability. Maryland. House Bill 72, the Budget Reconciliation and Financing Act, included extensive changes to Maryland retirement plans. The bill became law without the governorfs signature on April 8, 2011. The legislation increases employee contribution requirements for most current and future members of state plans. Current Members • Employeesf
Pension System (EPS) and Teachersf Pension
System (TPS): Increase member contribution from
5% to 7%; Future Members (as of July 1, 2011) • EPS and TPS:
Member contribution is 7%. The legislation also establishes the goal of reaching 80% actuarial funding within 10 years by reinvesting a portion of the savings generated by the benefit restructuring into the pension system in the form of increased state contributions above the contribution required by statute. In fiscal years 2012 and 2013, all but $120 million of the savings generated by the benefit restructuring will be reinvested, with the $120 million dedicated to budget relief each year. Beginning in FY2014, the amount reinvested in the pension fund will be subject to a $300 million cap, with any savings over that amount dedicated to budget relief. Montana. Chapter 369, Laws of 2011 (House Bill 122) revises contribution rates and other Montana Public Employee Retirement System provisions for members who join the system on or after July 1, 2011. The contribution rate for such new members will be 7.9%. It will remain at 6.9% for those hired before July 1, 2011. Nebraska. Legislative Bill 382 (approved by the governor May 4, 2011) increases employee and employer contribution requirements for the School Employees Retirement System, the State Patrol Retirement System and the Omaha School Employees Retirement System. • Beginning
September 1, 2011, the member contribution rate
in the School Employees Retirement System
increases from 8.28% to 8.88% and to 9.78% on
September 1, 2012. It will return to 7.28%
beginning on September 1, 2017. The employer
match continues at 101% of the employee
contribution. New Hampshire. House Bill 2, the Budget Trailer Bill (to the governor June 22, including the retirement provisions formerly included in Senate Bill 3, which the governor vetoed) increases employee contribution requirements for the New Hampshire Retirement System as well as making extensive additional changes. • For all
Group I members (general state and local
government employees and teachers), the employee
contribution will be 7% of salary beginning July
1, 2011. This is the rate in effect for state
employees hired after June 30, 2009; for all
others, it represents an increase from
5%. New Jersey. Senate Bill 2937 (signed by the governor on June 28, 2011) makes various changes to the manner in which the Teachersf Pension and Annuity Fund (TPAF), the Judicial Retirement System (JRS), the Public Employeesf Retirement System (PERS), the Police and Firemenfs Retirement System (PFRS), and the State Police Retirement System (SPRS) operate and to the benefit provisions of those systems. The bill provides for increases in the employee contribution rates: • For TPAF and
PERS, including legislators, Law Enforcement
Officer (LEO) members, and workers compensation
judges), from 5.5% to 6.5% plus an additional 1%
phased-in over 7 years beginning in the first
year, after the billfs effective date;
New Mexico. Chapter 178, Laws of 2011 (HB 628) makes three primary changes for pension contributions for state employee plans administered by the Public Employees Retirement Association (PERA) and the Educational Retirement Board (ERB). The legislation: • Extends the
two-year 1.5% contribution shift implemented for
FY2010 and FY2011from the employer to the
employee for those employees making more than
$20,000 for another two years (FY2012 and
FY2013), but provides for the cancellation
of the extension to FY2013 contingent upon
specified levels of General Fund revenue and
state reserves; The purpose of the legislation is to prevent additional costs the state general fund would incur for employer contributions to the retirement funds. Those costs are estimated at $49.2 million in FY2013 and $61.5 million in FY2014. The Legislaturefs fiscal impact report on the bill notes gThe fiscal impact to employees of an additional 1.75% contribution shift will be offset by the 2011 reduction in the federal social security tax of -2%. Assuming normal pretax deductions, the 18-month impact is minimal when compared with the baseline salary as of December 2011.h Source: New Mexico Legislature, Fiscal Impact Report, HB 628, March 15, 2011. North Dakota. Senate Bill 2108 (signed by the governor on April 26, 2011) increases member and employer contributions for the North Dakota Public Employee Retirement Systemfs main retirement system, judgesf plan, defined contribution and Highway Patrol systems by one percentage point each in January of 2012 and 2013. The law enforcement plan increase is 0.5% for the member and 0.5% for the employer. For the main retirement plan, the two-year increases will be from 10.3% for employees to 12.3%, and for employers, from 16.7% to 18.7% of compensation over the two years. North Dakota. House Bill 1134 (signed by the governor on April 28, 2011) increased contribution requirements for the Teachersf Retirement Fund from the present level of 7.75% of annual salary to 9.75% beginning on July 1, 2012 and 11.75% beginning on July 1, 2014. Employersf contributions will increase from the current rate of 8.75% to 10.75% and 12.75% on the same dates. The legislation provides that the member and employer contributions will be reduced to 7.75% effect for the first July that follows an actuarial valuation that indicates that the actuarial value of assets for the teachersf fund is equal to or exceeds a ratio of 90%. Texas. Senate Bill 1664 (signed by the governor June 17, 2011) amends current law to maintain the member contributions for the Employees Retirement System and the Law Enforcement and Custodial Officer Supplemental Retirement System at 6.5 percent and 0.5 percent, respectively, for fiscal year 2012 regardless of the state contribution level. It is expected that the state contribution rates will decrease from the current contribution rates of 6.95 percent for ERS and 1.59 percent for LECOS for the 2012-13 biennium. The bill would therefore prevent an expected loss of member contributions to the ERS fund estimated to be $29.4 million, and a loss of member contributions to the LECOS retirement fund estimated to be $7.5 million. Wisconsin. Act 10 of 2011 (Assembly Bill 11 of the January 2011 Special Session) amended provisions affecting employer and employee contributions to the Wisconsin Retirement System (WRS). Under current law, the Employee Trust Funds (ETF) Board, in consultation with actuaries, annually determines the total actuarial contribution required to fund the WRS. This total contribution is the sum of three components: the employee rate; the employer rate; and the benefit adjustment contribution (BAC). Employer contributions to the WRS vary depending upon the type of position held by the employee. Employee contributions are currently required as follows: • For general
employees, 5% of earnings; Employer contributions (currently 5.1%) are generally paid by the employer, except that any contribution increase after 1989 is required to be distributed between the employer and the employee, with one-half of the increase paid by the employer and the other half of the increase added to the BAC portion of the total contribution. The BAC was created to fund WRS retirement improvements established under 1983 Wisconsin Act 141. The employee is responsible for paying BAC contributions unless the employer agrees to cover the cost (generally through collective bargaining). Currently, state employers are responsible for 1.3% of the BAC and general employees, 0.2%. A BAC is not necessary for the protective or elected official and executive categories. While current law requires an employer to pay the full employer contribution, it also provides that an employer may pay all or part of the employee required contributions. This is generally derived through bargaining or the compensation plan. At this time, most state employers have agreed to pay the employee contribution (up to 5%) and 1.3% of the BAC for general employees. Protective occupations pay the portion of the employee contribution that exceeds 5%. The bill eliminates the BAC as a separate contribution, and adds the BAC costs to the total actuarially defined contribution. The bill requires that the contribution rate for general employees and elected officials and executive employees must equal one-half of all actuarially required contributions, as approved by the ETF Board. Protective occupation employees are required to pay a contribution equal to the percentage of earnings paid by general employees. The bill requires that members of the Milwaukee County and City Employees Retirement Systems pay all of the employee required contribution. The bill also prohibits any local governmental unit from establishing a defined benefit pension plan for its employees unless the plan requires the employees to pay half of all actuarially required contributions for funding plan benefits. It also prohibits the local governmental unit from paying, on behalf of an employee, any of the employeefs share of the actuarially required contributions. These provisions were intended to take effect on the first pay period following March 13, 2011, for non-represented employees, elected officials, and judges and justices, and on the expiration, termination, extension, modification, or renewal of the collective bargaining agreement, whichever occurs first, for represented employees. [Legal challenges have suspended the changes as of the date of this report.] Source: Wisconsin Legislative Council Amendment Memo, Assembly Bill 11, published February 25, 2011. 2. Cost-of-Living Adjustments.Please note: This section does not attempt to track all post-retirement benefit increases or cost-of-living adjustments; it reports changes in the enabling legislation for such benefits. Arizona. Chapter 357, Laws of 2011 (Senate Bill 1609) revises the structure of cost-of-living adjustments for members of the Elected Officialsf, the Public Safety Personnelfs and the Correction Officersf retirement plans. • The new provisions require a total return of more than 10.5% for the prior fiscal year to allow for a cost of living increase, and limit that increase to:
• States that
the amount available to fund the increase to be
100% of the earnings of the fund that exceed
10.5% of the total return of the fund for the
fiscal year ending June 30 of the calendar year
preceding the July 1 of the increase. If that
100% is insufficient to fully fund the present
value of the appropriate percentage increase,
the increase is limited to the percentage that
can be fully funded. Florida. Chapter 68, Laws of 2011 (Senate Bill 2100) eliminates the cost-of-living adjustment (COLA) for service earned on or after July 1, 2011. Subject to the availability of funding and the Legislaturefs enacting sufficient employer contributions specifically for the purpose of funding the reinstatement of the COLA, the new COLA formula will expire effective June 30, 2016, and the current 3% cost-of-living adjustment will be reinstated. Hawaii. Chapter 163, Laws of 2011 (House Bill 1038) reduces the annual post-retirement benefit increase for those who become members of the Hawaii Retirement System after July 1, 2012, from 2.5% to 1.5%. Maine. Chapter 380, Public Laws of 2011 (L.D. 1043, the Biennial Budget Bill for fiscal years 2012 and 2013) makes changes that affect state employees, legislators and judges. The retiree cost-of-living adjustment will be frozen for three years, and then capped at 3% in future years based on the Consumer Price Index (CPI). Retirees will receive a COLA on their first $20,000 of benefits. The cap amount will be indexed, or increased, each year by the CPI for that year. A non-cumulative, one-time COLA may be awarded if funds are available, but such payments would not become a permanent part of the retireefs benefit. Maryland. House Bill 72, the Budget Reconciliation and Financing Act, included extensive changes to Maryland retirement plans. The bill became law without the governorfs signature on April 8, 2011. Under current law, all SRPS retirement benefits are adjusted automatically to account for annual inflation, but the size of the adjustments varies by plan. Retirees of the Employeesf Pension System (EPS) and Teachersf Pension System (TPS), as well as the Law Enforcement Officersf Pension System (LEOPS), receive automatic annual COLAs linked to inflation, subject to a 3% cap. The State Police Retirement System (SPRS) and the Correctional Officersf Retirement System (CORS) also receive COLAs linked to inflation, but they are not subject to a cap. The changes in House Bill 72 do not affect COLAs for individuals retired as of July 1, 2011, but do affect COLAs that current active members in EPS, TPS, LEOPS, SPRS, and CORS will receive when they retire. For service credit earned after June 30, 2011, the COLA will be linked to the performance of the SRPS investment portfolio. If the portfolio earns its actuarial target rate (7.75% for fiscal 2011), the COLA is subject to a 2.5% cap. If the portfolio does not earn the target rate, the COLA is subject to a 1% cap. For service credit earned before July 1, 2011, the COLA provisions in effect during that time still apply for each plan. The COLA provisions do not apply to current or future retirees of the Judgesf Retirement System (JRS) or the Legislative Pension Plan (LPP) because their benefit increases are linked to the salaries of current judges and legislators, respectively, and not limited to inflation rates. Mississippi. Chapter 469, Laws of 2011 (Senate Bill 2439), Section 2, changes COLA provisions for people who join the retirement system on or after July 1, 2011. For people who became members of the system before July 1, 2011, the COLA is equal to the sum of 3% for each full fiscal year in retirement before the member reaches age 55, plus 3% compounded for each full fiscal year in retirement after the member reaches age 55. For those hired on or after July 1, 2011, the COLA will remain at 3% but the age at which the compounding begins will increases from age 55 to age 60. New Jersey. Senate Bill 2937 (signed by the governor June 27, 2011) makes numerous changes to the operations and benefit provisions of state-administered retirement plans. it terminates post-retirement cost-of-living adjustments for current and future retirees, and provides a mechanism for their potential reactivation when the retirement plans meet specified funding ratios in the future. The mechanism is described below in Section 10: Governance and Investment Policy. Oklahoma. Chapter 199, Laws of 2011 (House Bill 2132) amends the Oklahoma Pension Legislation Actuarial Analysis Act (OPLAAA), so that cost of living adjustments (COLAs) are considered fiscal retirement bills for purposes of OPLAAA procedures, thus requiring COLAs to be funded by the Legislature at the time of enactment. According to the legislative fiscal analysis of the legislation, the practical application of the concurrent funding requirement would suggest the retirement systems remove their unfunded COLA assumption. According to the legislative actuaryfs calculations, removal of COLA assumptions will affect the UAAL and the funded ratios of the pension systems as follows: • Teachers
Retirement system: UAAL will decrease by
approximately $2.9 billion and increase OTRSfs
funded ratio from 48% to 56%; Washington. Chapter 362, Laws of 2011 (House Bill 2021) eliminates further increases of Public Employees' and Teachers' Retirement Systems Plan 1 (PERS Plan 1 and TRS Plan 1) benefits through the annual increase, or "Uniform COLA" above the amount in effect on July 1, 2010, unless a retiree qualifies for the minimum benefit. It reduces the minimum employer contribution rates for the PERS Plan 1 unfunded liability from 5.75 to 3.5%, and for the TRS Plan 1 unfunded liability from 8.0 to 5.75%. The bill also increases the alternative minimum benefit to $1,500, and continues to index the alternative minimum benefit by 3% per year. [The two plans were closed to new members in 1977. Employers are responsible for amortization of the UAAL in the plans.] 3. Deferred Retirement Option Plans (DROP)Alabama. Chapter 27, Laws of 2011 (Senate Bill 72) prohibits new membership in the DROP for state employees and teachers on and after April 1, 2011 and limits the interest payable on existing accounts. Arizona. Chapter 357, Laws of 2011 (Senate Bill 1609) limits eligibility for the deferred retirement option plan in the Public Safety Personnel Retirement System to those who become a member of the system before January 1, 2012. The bill limits the amount credited monthly for a participant of DROP who has fewer than 20 years of credited service on January 1, 2012 to interest at a rate equal to the average annual return of the system over the period of years established by the Board for use in calculation of the actuarial value of assets for the previous year, but not to exceed the systemfs assumed investment rate of return but at least 2%. It also requires a member who has fewer than 20 years of credited service on January 1, 2012 and who elects to participate I the DROP on or after January 1, 2012, to make employee contributions to the system equal to a regular employee who participates in PSPRS. Florida. Chapter 68, Laws of 2011 (Senate Bill 2100) reduces the rate of interest to accrue on accounts of members who enter the DROP on or after July 1, 2011. For current members and those who join before that date, the interest rate remains at 6.5%. For new members it will be 1.3%. 4. Defined Benefit Plan ChangesArizona. Chapter 26, Laws of 2011 (Senate Bill 1614) provides that a new state employee hired after the effective date of the bill who is regularly scheduled to work must wait at least six months before being eligible for and enrolled in the Arizona State Retirement System. Arizona. Chapter 357, Laws of 2011 (Senate Bill 1609) makes numerous changes in state retirement plan provisions. Some of the changes are summarized under other topic headings in this report. The bill removes the Rule of 85 for calculating age and service requirements for normal retirement for all members of the Arizona State Retirement System. The bill leaves in place the Rule of 80 for members hired before July 1, 2011. For those hired after the effective date of the legislation, retirement options will be 55/30; 60/25; 62/10 and age 65. The legislation makes a number of changes in plans for elected state officials, summarized under that heading. The legislation also makes changes to the structure of the Public Safety Personnel Retirement System and the Correctional Officersf Retirement Plan by implementing a new tier for new hires. The new tie (known as the 2nd Tier) combines the requirement for 25 years of service to achieve normal retirement with five year gsalary smoothingh to determine the pension benefit. Delaware. Chapter 14, Laws of 2011 (House Bill 81) changes the normal retirement age for employees hired on or after January 1, 2012. Under current law, employees are eligible to retire at age 62 with five years of service, at age 60 with 15 years of service, or at any age with 30 years of service. Under this act, post-2011 employees will be eligible to retire at age 65 with 10 years of service, at age 60 with 20 years of service, and at any age with 30 years of service. The act increases the early retirement reduction factor for employees who retire prior to normal retirement age. Under current law, an employee may retire at age 55 with 15 years of service with a benefit reduction of 2/10th of one percent for each month the employee is under the age of 60. Under this act, the employeefs pension would be reduced by 4/10th of one percent for each month the employee is under the age of 60. The act increases the vesting requirement for employees hired on or after January 1, 2012 from five years to 10 years. The act excludes overtime payments from the definition of final average compensationh for employees hired on or after January 1, 2012. Section 8 of the Bill declares the intent of the General Assembly to prevent the limited abuse of the State Employeefs Pension Plan when employees voluntarily work overtime in order to inflate their final pension calculation, and recognizes that to protect the health and safety of employees and the citizens they serve, agency management should limit the assignment of mandatory overtime. This section requires each cabinet secretary to devise a written policy by June 30, 2012 to limit the use of mandatory and voluntary overtime. Florida. Chapter 68, Laws of 2011 (Senate Bill 2100) changes vesting requirements and age and service requirements for normal retirement for employees initially enrolled in the pension plan on or after July 1, 2011. Such members will vest in 100% of employer contributions upon completion of 8 years of creditable service. For existing employees, vesting will remain at 6 years of creditable service. The base for computing final average compensation will increase from the five highest years to the eight highest years, for new employees. For employees initially enrolled on or after July 1, 2011, the legislation increases the normal retirement age and years of service requirements, as follows: • For Special
Risk Class: Increases the age from 55 to 60
years of age; and increases the years of
creditable service from 25 to 30. Hawaii. Act 29 of 2011 (House Bill 1035) prohibits any retirement benefit enhancements, including any reduction of retirement age, until the actuarial value of the systemfs assets is 100% of its actuarial accrued liability. Hawaii. Chapter 163, Laws of 2011 (House Bill 1038) changes age, service and vesting requirements for new members of the Employeesf Retirement System as of July 1, 2012. Current provisions allow employees hired between June 30, 1984 and June 30, 2006, to retire at 62 with at least 10 years of service, or at 55 with 30 years of service. Employees hired after June 30, 2006 can retire at 62 with five years of service, or at 55 after 30 years of service. Under this legislation, eligibility for normal retirement benefits will be at age 60 with 10 years of service or age 55 with 25 years of service. Police and firefighters will continue to be eligible for normal retirement after 25 years of service. The legislation increases the vesting requirement from five years to 10 years, and changes the calculation of final average compensation from the highest three to the highest five. For new employees, the retirement multiplier will be reduced from 2% to 1.75%. Kansas. House Bill 2194 (signed by the governor May 25, 2011) increases employee and employer contributions to the Kansas Public Employeesf Retirement System (KPERS), contingent upon each chamberfs voting on recommendations a study commission has been instructed to submit to the Legislature on January 6, 2012 (See Kansas under gStudiesh for details of this requirement). [This summary is copied from Section 1,h Contribution Rates and Funding Issuesh because of the way contribution and other policy decisions are intertwined.] The legislation makes adjustments in employee contribution adjustments, contingent upon the 2012 legislative votes mentioned previously. These add two options applicable to all active KPERS Tier 1 members. [Tier 1 members are those who joined KPERS before July 1, 2009.]: • Tier 1 members as the default option would have an employee contribution increase from 4% 6% and also would be given an increase in multiplier from 1.75% to 1.85% for future years of service; or if an election is permitted by the IRS, they could choose an alternative option: Freeze the employee contribution rate at 4% and reduce their future multiplier from 1.75% to 1.4%. Additional employee contribution adjustments, that would be triggered by the 2012 Session dual votes, include adding two options that would apply to all active KPERS Tier 2 members. • The default option would freeze the employee contribution rate at 6% and eliminate future cost-of-living adjustments. If the IRS permits the election of an alternative option, Tier 2 members could freeze the employee contribution at 6% and reduce their multiplier from 1.75% to 1.4% in order to retain their COLA. Inactive KPERS members upon return to covered employment will be offered an election for alternative options in their respective tier before July 1, 2013. After that date, or if there were no election approved, inactive members would be given the default option in their tier upon returning to covered employment. Maine. Chapter 380, Public Laws of 2011 (L.D. 1043, the Biennial Budget Bill for fiscal years 2012 and 2013) enacts changes affecting state retirement plans. It changes the normal retirement age for most participants with less than five years of service on July 1, 2011 from 62 to age 65. This provision applies to retirement plans for Teachers, State Employees, Legislators and Judges but not to the members of the local government plan that the state administers nor to public safety personnel. It also changes provisions for post-retirement benefit increases and establishes new provisions for return to covered service after retirement (discussed in those sections of this report.) Maryland. House Bill 72, the Budget Reconciliation and Financing Act, included extensive changes to Maryland retirement plans. The bill became law without the governorfs signature on April 8, 2011. Current Members • All plans
except Employeesf Pension System (EPS) and
Teachersf Pension System
(TPS): • Employeesf
Pension System (EPS) and Teachersf Pension
System (TPS): • Law
Enforcement Officersf Pension System
(LEOPS): • Judges: no change Future Members (as of July 1, 2011) • All plans
(except Legislators and
Judges): • Employeesf
Pension System (EPS) and Teachersf Pension
System (TPS): • Law
Enforcement Officers Pension System (LEOPS) and
State Police: Funding Provisions Mississippi. Chapter 469, Laws of 2011 (Senate Bill 2439) changes eligibility for retirement benefits and the formula for them. For people who become members of the Mississippi Public Employees Retirement System on or after July 1, 2011: • Age and
service requirements for benefits will be age 60
with 8 years of service (unchanged from 2007
legislation) or 30 years of service (25 years in
2007 legislation). Montana. Chapter 369, Laws of 2011 (House Bill 122) changes various provisions of the Montana Public Employee Retirement System for people hired on or after July 1, 2011. The employee contribution rate for such members will be 7.9% of compensation and will remain at 6.9% for those hired before that date. Also for people hired after that date: • Highest
average compensation will be based on the
highest average of 60 consecutive months of
employment (36 months for members before that
date); Chapter 154, Laws of 2011 (House Bill 134) alters the formula for computing the final average salary of game wardens from the highest consecutive 36 months to 60 months for members hired on or after July 1, 2011. Chapter 155 (House Bill 135) makes a similar change for the sheriffsf retirement system. Nebraska. Legislative Bill 509 (approved by the governor April 14, 2011) increases the 7% annual salary cap in the School Employees Retirement Plan to 9% beginning July 1, 2012 and eliminates the current salary cap exemptions for purposes of calculating benefits on annual compensation during each of the last five years of employment prior to actual retirement. The cap is further reduced to 8% beginning July 1, 2013. Current exemptions include: • Members who
experience a substantial change in employment
position (job or duty change; New Hampshire. House Bill 2, the Budget Trailer Bill (to the governor June 22) makes numerous changes to provisions of the New Hampshire Retirement Plan. Changes in contribution rates are reported in that section of this report. • For members
vested before July 1, 2012, the definition of
average annual compensation (the base for
benefit calculation) remains at the three
highest years of creditable service. However,
new language provides that the amount of pay for
special or extra duty service included in each
of the three highest years cannot exceed the
average for the last seven years of
service. New Jersey. Senate Bill 2937 (signed by the governor June 27, 2011) makes various changes to the manner in which the Teachersf Pension and Annuity Fund (TPAF), the Judicial Retirement System (JRS), the Public Employeesf Retirement System (PERS), the Police and Firemenfs Retirement System (PFRS), and the State Police Retirement System (SPRS) operate and to the benefit provisions of those systems. New members of TPAF and PERS will need 30
years of creditable service and age 65 for
receipt of the early retirement benefit without
a reduction of 1/4 of 1% for each month that the
member is under age 65. TPAF and PERS members
enrolled before November 1, 2008 are A new PFRS memberfs special retirement
benefit will be 60% of final compensation, plus
1% of final compensation multiplied by the
number of years of creditable service over 25
but not over 30, instead of the current benefit
of 65% of final compensation plus 1% for
each North Carolina. Chapter 232, Laws of 2011 (House Bill 1134) increases vesting requirements for people who become members of the North Carolina Teachersf and State Employeesf Retirement System and the Consolidated Judicial Retirement System on or after August 1, 2011. It does not affect those who became members before that date. The vesting requirement is increased from five years to 10 years. North Dakota. House Bill 1134 (signed by the governor on April 28, 2011) increased age and service requirements for members of the Teachersf Fund for Retirement. The new provisions will not affect Tier 1 employees who are vested (3 years of service credit) and who are at least 55 years of age OR who have a total of age plus years of service that equal 65 as of June 30, 2013. Current retirement eligibility requirements continue to apply to them. Those are the Rule of 85 for Tier I members. For other Tier 1 members and all Tier 2 member (now subject to the Rule of 90), eligibility requirements for normal retirement are amended. The new requirement for members of both tiers will be the Rule of 90 with a minimum age of 60, or a minimum age of 65 for those who do not meet the Rule of 90. The reduction factor for early retirement, available according to the earlier of age 60 and Rule of 90 or age 65 will increase from 6% to 8% per year. Oklahoma. Chapter 203, Laws of 2011 (Senate Bill 377) increases age and service requirements for normal retirement for members of the Teachers Retirement System (TRS). For those whose membership began before November 1, 2011, the requirements remain age 62 or the Rule of 90 with no minimum age. For new employees on or after November 1, the bill increases requirements to age 65 or the Rule of 90 with a minimum age of 60. The bill provides a schedule of percentages of benefit reductions for such new members who take early retirement (available at age 60), which provides for a benefit reduction to 65% of normal benefits at age 60 ranging up year by year to 93% at age 64. Chapter 206, Laws of 2011 (Senate Bill 794) similarly changes age and service requirements for retirement for members of the Oklahoma Public Employee Retirement System (OPERS) for those who are new members as of November 1, 2011 from 62 or the Rule of 90 to 65 or the Rule of 90 with a minimum age of 60. Chapter 206 also increases normal retirement requirements for elected officials who first serve in elective office on or after November 1, 2011, from age 62 to age 65 or age 62 with 10 years of service in an elective office (age 60 or the Rule of 80 previously). Elected officials with 10 years of service may choose early retirement at age 60 with reduced benefits. The schedule of reductions is increased from the previous schedule. Vesting for elected officials is increased from six years to eight years of service. Contribution requirements for elected officials are changed from a choice tied to different benefit packages to the same 3.5% that is required of other members of OPERS. The benefit provisions were changed from the variety of choices open to current members to 2% of final average compensation times years of service. Chapter 190, Laws of 2011 (House Bill 1010) increases the age and service requirements for retirement for members of the Uniform Retirement System for Justices and Judges whose initial service as a member of the system is on or after January 1, 2012 . For previous members, eligibility requirements for normal retirement are 65/8, 60/10 or the Rule of 80 with eight years of service. The new requirements are 67/8 or 62/10. The Rule of 80 was not continued. Texas. Senate Bill 1664 (signed by the governor June 17, 2011), 10, changes the provision for retirement under the Rule of 80 for members of the Employee Retirement System hired on or after September 1, 2009. This change increases the minimum service requirement for such employees from five years to 10. The alternative provision, age 64 with 10 years of service, was not changed. Washington. Chapter 5, Laws of the First Special Session of 2011 (House Bill 2070) provides that pensions from specified Washington retirement systems based on salaries earned during the 2011-13 biennium will not be reduced by compensation forgone by a member due to reduced work hours, mandatory leave without pay, temporary layoffs, or reductions to current pay if the measures are an integral part of a state or local government employer's expenditure reduction efforts. The bill applies this change to the Law Enforcement Officers' and Fire Fighters' Retirement System, the School Employees' Retirement System, the Washington State Patrol Retirement System, the Teachers' Retirement System, the Public Safety Employees' Retirement System, and the Public Employees' Retirement System. West Virginia. Act 150 of 2011 (HB 2939) provides that for people who join the Public Employees Retirement System on or after July 1, 2011, the existing provision for retirement when a person meets the Rule of 80 is amended to require five or more years of contributory service. The bill also redefines final average compensation to exclude such lump-sum payments as attendance or performance bonuses, one-time flat fee or lump sum payments, payments paid as a result of excess budget, or employee recognition payments. Wisconsin. Act 32 of 2011 (Assembly Bill 40, the budget act for state fiscal years 2012 and 2013), establishes a vesting period for public employees hired after the date of the act to receive retirement benefits. Previous law provided for immediate vesting. New employees will be required to earn five years of creditable service to be entitled to a benefit. [The requirement as enacted demonstrates the
Wisconsin governorfs uniquely powerful item
veto. The language the Legislature sent the
governor established a scale of vesting by which
employees would be entitled to reduced pension
benefits according to a scale that would have
provided 50% of benefits (as calculated by the
usual formula) to those with less than one year
of service, 100% of benefits to those with five
years, and proportionate shares for intermediate
years of service. The governor used his veto
authority to strike letters and numerals to
change this
language: To this
language: See Section 40.23 of Assembly Bill 40. 5. Defined Contribution and Hybrid PlansIndiana. Public Law No. 22-2011 (Senate Bill 524) establishes a defined contribution (DC) plan as an option for new state employees. A state employee who does not make an explicit choice to become a member of the DC plan will become a member of the Public Employees' Retirement Fund (PERF). The bill requires the PERF Board of Trustees to establish the same investment options for the DC plan that are available for the investment of a PERF member's annuity savings account. It provides that a member's contribution to the plan will be 3% of the member's compensation and will be paid by the state on behalf of the member. It also provides that the state's employer contribution rate for the plan will be equal to the state's employer contribution rate for PERF. The amount credited from the employer's contribution rate to the member's account shall not be greater than the normal cost of PERF with any amount not credited to the member's account applied to PERF's unfunded accrued liability. The bill establishes a minimum state employer contribution of 3% of plan members' compensation. The bill establishes a five-year vesting schedule for employer contributions, and requires a member who terminates state employment before the member is fully vested to forfeit amounts that are not vested. It establishes provisions for the withdrawal of amounts in member accounts. The bill also authorizes rollover contributions to the plan. Utah. Chapter 439, Laws of 2011 (Senate Bill 308), makes numerous clarifying amendments to Utahfs 2010 legislation restructuring its public pension plans. In addition to other changes and clarifications, the bill: • Provides
that a person initially entering regular
full-time employment after July 1, 2011, has one
year instead of 30 days to make an irrevocable
election between a Tier II hybrid retirement
system and a Tier II defined contribution
retirement plan and that the election must be
submitted electronically; 6. DivestitureIowa. House File 484 (signed by the governor April 20, 2011) restricts the Treasurer of State, the State Board of Regents, the Iowa Public Employeesf Retirement System (IPERS), the Public Safety Peace Officersf Retirement System (PORS), the Statewide Fire and Police Retirement System and the Judicial Retirement System from directly investing in certain companies with active business operations in Iran. The act encourages the use of commingled funds (indirect holdings) that do not invest in scrutinized companies. The act requires each public fund to develop and maintain a list of scrutinized companies by March 1, 2012. The act permits IPERS to act on behalf of the system and other public funds to develop and issue a request for proposal for third-party services to identify and compile a scrutinized companies list. An annual report to the General Assembly is required on October 1, 2012, and each October 1 thereafter. New Hampshire. Chapter 53, Laws of 2011 (House Bill 491) relates to the statefs existing law requiring divestiture of retirement system assets relating to Sudan. This bill allows the New Hampshire Retirement System to cease divesting and/or to reinvest in certain scrutinized companies if the system concludes there would be economic harm to the system's trust fund as a result of divesture and/or lack of reinvestment. Utah. Chapter 352, laws of 2011 (S.B. 112), requires the Utah State Retirement Office to provide data in its annual report designed to explain the extent to which the retirement office is preventing the investment of public funds in scrutinized companies and, beginning July 1, 2011, requires the Utah State Retirement Office to prevent the investment of retirement funds in Iran's petroleum sector (scrutinized companies) by adjusting future investment practices within the office and by stipulating in future investment management contracts that no new investments may be made in a scrutinized company. 7. Early Retirement Incentives.Maine. Chapter 380, Public Laws of 2011 (L.D. 1043, the Biennial Budget Bill for fiscal years 2012 and 2013) authorizes the Commissioner of Administration to offer a retirement incentive program to employees who are eligible to retire and who have reached their normal retirement age, but not to employees who are eligible to retire under any special retirement plan [that is, public safety members]. Employees choosing to participate in this retirement incentive program must make application for participation in the manner specified by the commissioner, with retirements effective on or before November 1, 2011. The legislation budgets $5.5 million in expected savings.
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