Massachusetts Public Employee Benefit Changes Under Pension Reform
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
Im not quite understanding the » 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. Could you further de4fine this? does this also affect Disabled retirees> Thank you!
There are two provisions of the pension act which pertain to the $15,000 figure. One provision — whcih amends Chapter 32 Section 91 — allows teacher retirees to earn an additional $15,000 in post-retirement earnings by returning to teaching. That provision only applies to teacher retirees. It was enacted because of the teacher shortage. In additon, the new pension law amends the exisitng law by increasing the cap on the minimum amount of a retirment allowance for retirees wither 25 years of service from $10,000 to $15,000. That section is a local option law that must be adopted by the legislative body. This would apply to all types of retirements — superanuation, accidental disability and ordinary disability retirements.
What happens if a municipal employee changes jobs and moves to another pension board/town/county. Are they treated as a new hire, or does the previous employment constitute an exception to the rules for new hires?
Jennifer:
As long as the employee was an active member of the retirement system before April 2, 2012 and did not after that date take out his/her contributions, the employee would be treated under the old rules.
There is more information at: http://www.mass.gov/mtrs/1news/1ch176legis.htm.
Alan Shapiro