End of Session Update: State Employee and Teacher Pensions

A previous post provided an overview of the many pieces of legislation introduced during the session dealing with pension reform generally or teacher pensions.  The one bill  missing from this list is HB 1344, the pension reform plan endorsed by the Republican Caucus, which was introduced after this post.  This bill would establish a 401k or a cash balance option for employees. With exception of HB 72, the Governor’s Budget Reconciliation Act, these bills were voted unfavorable or not acted upon and recommendations from DLS to shift teacher retirement costs to the counties were rejected by the budget committees.

HB 72, as introduced, included a number of cost-saving reforms for current and future employees.  As this bill worked its way through the budget process, the House and Senate approved differing approaches, which were ultimately worked out in conference committee.  Below is a summary of final actions taken with respect to pension reform.

  • All current members of Employees’ Pension System and Teachers’ Pension System who are in the Alternate Contributory Pension Selection (including governmental units), have their employee contribution increased to 7% of pay for service on and after July 1, 2011, and retain the 1.8% benefit multiplier.
  • New hires in the EPS and TPS contribute at 7% to receive a 1.5% benefit multiplier.
  • Eligibility for full service retirement for EPS and TPS members enrolled on and after July 1, 2011 is Rule of 90 – age and service must equal 90 – or age 65 with at least ten years of eligibility service.
  • Early service retirement is age 60 with at least 15 years of eligibility service (maximum reduction is 30%).
  • Average Final Compensation for benefit calculations goes from the average of the three highest to five highest years for new members enrolled on or after July 1 2011 for all systems, except the Judges’ Retirement System and Legislative Pension Plan.
  • Vesting for new members enrolled on or after July 1, 2011 goes to 10 years from 5 years for all systems, except JRS and LPP
  • New members of the State Police Retirement System enrolled on or after July 1, 2011, will be eligible for service retirement at age 50 or 25 years of service (up from 22 years of service).
  • Cost-of-living Adjustments (COLAs) for all current active members (for service earned on and after July 1, 2011) as well as new members enrolled on or after July 1, 2011 will be capped at 2.5% when the System earns its assumed rate of return (currently 7.75%) or capped at 1% in  years when the interest assumption is not met.  This revised COLA cap does not apply to the Employees’ Retirement System, Teachers’ Retirement System, JRS or LPP
  • Law Enforcement Officers’ Pension System member contributions increases from 4% to 6% in FY2012, and then to 7% in FY2013 (applies to current and new members, including participating governmental units).
  • DROP continues for the SPRS and LEOPS with interest at 6% compounded monthly for current members, but decreases to 4% compounded annually for new accounts established on or after July 1, 2011. (For the SPRS, DROP period is extended to 29 years of membership service in order to retain maximum four year participation).

With respect to funding, the bill directs $120M from reform savings to the General Fund in FY2012 and FY2013, and caps the savings reinvestment of reform savings in the System at $300M per year.

 

 

 

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