On November 18, 2011 Governor Deval Patrick signed Chapter 176 of the Acts of 2011, “An Act Providing for Pension Reform and Benefit Modernization.” This is the third pension reform measure passed in the last three years, and significantly changes the benefit structure for all newly hired Massachusetts public employees. In addition, the law increases benefits for certain retired members and survivors. The law also changes certain rules affecting current employees. Below is a summary of the significant modifications under the new law.
Changes Affecting Current Active Public Employees
- Anti-Salary Spiking: The new law limits the annual increase in pensionable earnings Individuals who retire on or after 4/2/2012. Increases of more than 10% in salary will not be included in calculating the average pensionable earnings over the previous two year prior to retirement. This provision does not apply to bona fide job changes, payments for additional services that are otherwise eligible for inclusion, and other exempted payments.
- Buyback Increase: Interest charged on buybacks and certain other service purchases increases if the employee does not make the payment within the first year of membership or within one year from 4/2/2012.
Changes Affecting Current Retirees:
- Cost of Living Increases: Future COLA increases for retirees will be based on the first $13,000 instead of $12,000.
- Minimum Pension Benefit: Effective 4/2/2012, the minimum pension for members who retired with at least 25 years of creditable service is increased from $10,000/year to $15,000/year.
- Surviving Spouse: Effective 4/2/2012, the minimum benefit paid to the surviving spouse of a member who dies while in service increases from $250/month to $500/month.
- Post-Retirement Earnings: Effective 4/2/2012, members retired for at least one year may earn an additional $15,000/year in post-retirement earnings.
Changes Affecting New Public Employees Hired on or after April 2, 2012:[i]
- Minimum Retirement Age: The minimum retirement age is raised from 55 to 60 for Groups 1 and 2
- Group 4 Retirement Age: The minimum retirement is raised from 45 to 50 for Group 4
- Age Factors: The new law reduces the age factors in the retirement formula.
- Average Salary for Calculation of Pension Benefit: The salary average period used in the retirement benefit calculation formula is lengthened from 3 years to 5 years.
- Contribution Rate: Reduces the contribution rate by 3% (e.g., from 11% to 8%) once a member has 30 years of creditable service.
[i] These changes also affect employees who re-enroll in the retirement system (after taking a refund) after April 2, 2012