Quolke's Corner #146

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QUOLKE’S CORNER #146
STRS/SERS UPDATE
  

This week , a letter was enclosed with our pay stubs informing everyone of a series of 2 hour meetings hosted by CMSD to inform and answer question regarding the changes to STRS andSERS Retirement Systems. Also in the letter was notification that the District is offering a $300 gift card to employees who intend to retire between March 1 and July 1 and notify Human Resources by March 28. The letter states: "Early notification of retirement, especially during a time when greater numbers of retirees are anticipated, will help meet the District's staffing needs, and will ensure that we can attract the best candidates before they find alternative employment."

Details are provided in the letter. Below is an outline of the changes to STRS and SERS which come directly from the STRS and SERS websites.

For members of STRS everyone, whether or not they have already retired, will see changes beginning this July 1, 2013 that affect their COLA (Cost-of-Living Adjustment). Likewise, changes continue in 2014 and 2015, that all of our members need to be aware when either planning for retirement or making those retirement decisions. Active members in STRS will also see changes beginning this July including a 1% annual increase in the amount of member contribution to their pension through 2016 (a 4% overall increase). Likewise, significant changes to the benefit formula and increases to service requirement to be eligible to retire take effect in 2015.

SERS also has changes to age and service credit requirements that are effective Jan. 7, 2013, but will be implemented on Aug. 1, 2017. To protect the benefits of longtime members, SERS included a grandfather provision that allows members who reach 25 years of service on or before Aug. 1, 2017, to retire under the current age and service credit eligibility requirements. While, there are additional changes to SERS, our paraprofessional WILL NOT see a change in their contributions to SERS, nor will they see a reduction in their COLA benefit.

Please note, CTU is neither your retirement nor your financial advisor. Retirement is unique for each and every one of our members. However, it could be beneficial to discuss this with your personal consultants and contact an STRS or SERS retirement consultant to see how these changes may impact your situation.

In Union,
David

Below are the changes to STRS followed by the changes to SERS.

STRS Changes to Pension Plan Components Based on 2012 Legislation
The new benefit plan:

• Provides retired teachers a reasonable and reliable defined benefit pension they should not outlive, reducing the likelihood they will have to turn to taxpayer-funded public assistance, Medicaid or social services in retirement. Further, these pensions can continue to provide a stable source of revenue for local economies and provide tax revenues to support needed government services (more than $4 billion in STRS Ohio pensions are paid annually to Ohio residents).

• Continues to offer a retirement plan that will help Ohio’s public schools, colleges and universities recruit and retain quality educators.
 

• Provides a transition period for those teachers who are close to retirement, while recognizing that those further out from retirement have more time to plan for their future financial security.

• Preserves all past cost-of-living adjustments (COLAs) and ad hoc increases for current retirees.

• Allows retirees’ pensions to continue to grow in the future, but at a slower rate.

Changes to Pension Plan Components Based on 2012 Legislation
Changes to the Cost-of-Living Adjustment (COLA), Effective in Fiscal Year 2013

• Members who retire anytime BEFORE July 1, 2013, will not receive a COLA during the 2014 fiscal year (July 1, 2013–June 30, 2014). For example, a member who retired on Aug. 1, 1997, would not receive a COLA on Aug. 1, 2013.

• Members who retire effective July 1, 2013, will not receive a COLA on July 1, 2014.

• After missing one COLA, retirees will resume COLAs at 2% per year.

• Members retiring AFTER July 1, 2013, will also receive a 2% COLA, but it will not begin until the fifth anniversary of retirement. For example, a member who retires Aug. 1, 2013, will receive his or her first COLA on Aug. 1, 2018, and that COLA will be 2%.

Increase in Member Contributions Beginning July 1, 2013

Increase member contributions by 4%, phased in 1% per year beginning July 1, 2013, through July 1, 2016

Members will contribute 14% of their salary to STRS Ohio beginning July 1, 2016. Currently, members contribute 10%.

Change in Final Average Salary (FAS) Years Beginning Aug. 1, 2015

New FAS calculation is the average of the five highest years of earnings Pension benefits are determined by a member’s age, years of service and FAS.

Change in Benefit Formula Beginning Aug. 1, 2015

New formula is 2.2% for all years of service

The current 35-year enhanced benefit formula will be eliminated after July 1, 2015. Teachers retiring with 35 years of service as of Aug. 1, 2015, or later will receive 77% (35 x 2.2%) of their final average salary as a pension. Beginning Aug. 1, 2026, members will need to be age 60 to receive an unreduced benefit with 35 years of service. Members who are eligible to retire on July 1, 2015, will maintain retirement eligibility if they continue working, and the benefit will be the greater of:
(a) The benefit calculated upon retirement under the new benefit formula, or
(b) The benefit as of July 1, 2015, under the current formula.

Change in Eligibility for Retirement Beginning Aug. 1, 2015

Increases age and service requirements for retirement

Service credit requirements for retirement with an unreduced benefit will increase to 35 years of service by Aug. 1, 2023. A minimum age 60 requirement will be added beginning Aug. 1, 2026. This change will be phased in, based on the timeline shown below. Members may also still retire at age 65 with a minimum of five years of qualifying service credit.

Unreduced Benefit for Retirement Between: Minimum Age and Years of Service
Now–7/1/2015 Any Age and 30 yrs.; or age 65 and 5 yrs.
8/1/2015–7/1/2017 Any Age and 31 yrs.; or age 65 and 5 yrs.
8/1/2017–7/1/2019 Any Age and 32 yrs.; or age 65 and 5 yrs.
8/1/2019–7/1/2021 Any Age and 33 yrs.; or age 65 and 5 yrs.
8/1/2021–7/1/2023 Any Age and 34 yrs.; or age 65 and 5 yrs.
8/1/2023–7/1/2026 Any Age and 35 yrs.; or age 65 and 5 yrs.
8/1/2026 Age 60 and 35 yrs.; or age 65 and 5 yrs.
The service credit requirements for an actuarially reduced benefit* will be phased in beginning \Aug. 1, 2015, gradually increasing to 30 years of service by Aug. 1, 2023. This change will be phased in based on the timeline shown below. Members may also still retire at age 60 with a minimum of five years of qualifying service credit; however, the benefit would be actuarially reduced beginning Aug. 1, 2015. Benefits will be reduced to be actuarially neutral. Members can use the Service Retirement Benefit Estimate Calculator to estimate early retirement benefits.

Actuarially Reduced Benefit* for Retirement   Between: Minimum Age and Years of Service
Now–7/1/2015 Age 55 and 25 yrs.; or age 60 and 5 yrs.
8/1/2015–7/1/2017 30 yrs. or Age 55 and 26 yrs.; or age 60 and 5 yrs.
8/1/2017–7/1/2019 30 yrs. or Age 55 and 27 yrs.; or age 60 and 5 yrs.
8/1/2019–7/1/2021 30 yrs. or Age 55 and 28 yrs.; or age 60 and 5 yrs.
8/1/2021–7/1/2023 30 yrs. or Age 55 and 29 yrs.; or age 60 and 5 yrs.
8/1/2023 30 years of service.; or age 60 and 5 yrs.
* An actuarially reduced benefit reflects a reduction for each year that a member retires before meeting eligibility for an unreduced benefit.

Board Authority to Make Adjustments in the Future

The new law also provides the Retirement Board with authority to make future adjustments to the member contribution rate, retirement age and service requirements, and the COLA as the need or opportunity arises, depending on the retirement system's funding progress.

Additional Items Contained in Sub. Senate Bill 342

  • Elimination of purchased service subsidies — Effective Jan. 1, 2014, members will pay the full projected liability created by the purchase of service. This could result in costs two-to-four times higher than under the current rates. For service credit certified with STRS Ohio by Dec. 31, 2013, members will have until June 30, 2014, to purchase the credit at current cost. Members currently purchasing under a payroll deduction plan can continue to complete their payoff at their current rate.
  • Reemployment at retirement — Effective July 1, 2014, members who hold more than one position with STRS Ohio, OPERS or SERS and who plan to retire from one employer while continuing to work in the secondary position with another employer may do so only if they have continuously held that position for at least 12 consecutive months immediately prior to retirement.  Elimination of retirement incentive credit — Effective July 1, 2014, the provision that allows employers to establish a Retirement Incentive Plan will be eliminated for retirements after July 1, 2014. 
  • Elimination of retirement incentive credit — Effective July 1, 2014, the provision that allows employers to establish a Retirement Incentive Plan will be eliminated for retirements after July 1, 2014.
  • Interest paid for purchasing past leave of absence — Effective Feb. 1, 2013, the cost to purchase a past leave of absence will include interest on both member and employer payments compounded annually beginning the first year following the year in which the absence or leave is terminated and ending the last day of the month in which the payment is made. 
  • Changes for new members after July 1, 2013 — Educators who begin membership with STRS Ohio July 1, 2013, or later will have to work longer to be eligible for disability and survivor benefits.

SERS Changes to Pension Plan Components Based on 2012 Legislation

Pension Reform: Changes You Need to Know
In June 2009, at the depth of the financial crisis, the Ohio Retirement Study Council (ORSC) asked all five Ohio retirement systems to examine their financial condition. State law required that Ohio’ s pension systems had enough money to pay off all pension promises within 30 years. While SERS was within the 30-year requirement, changes needed to be made to stay within that time frame in coming years.
To accomplish this, the SERS Board, with input from member and retiree stakeholder groups, developed and approved a pension reform plan that protected the benefits of current retirees, and focused on increased age and service requirements to address the longer life expectancy of members.

In February 2012, at the request of Senate leadership, SERS’ Board added a grandfather provision for longtime members and added a buy-up option that gives members outside of the grandfather period an opportunity to keep current age and service requirements.
In May 2012, S.B. 341 was introduced. All of SERS’ Board-approved pension reform changes were included along with Board-approved modifications that had been awaiting legislative action, some for several years. In most cases, these modifications modernize existing SERS statutes, and add language that clarifies interactions between SERS, Ohio Public Employees
Retirement System (OPERS), and State Teachers Retirement System of Ohio (STRS). On Sept. 12, 2012, SERS’ pension reform bill, S.B. 341, passed the House and Senate of the Ohio legislature. It was signed into law by the governor on Sept. 26, 2012.
The majority of the pension reform changes and modifications in S.B. 341 take effect on Jan. 7, 2013; however, the implementation dates of the changes vary.
Service Retirement Eligibility and Grandfather Provision The pension reform changes to age and service credit requirements are effective Jan. 7, 2013,
but will be implemented on Aug. 1, 2017.
To protect the benefits of longtime members, SERS included a grandfather provision that allows members who reach 25 years of service on or before Aug. 1, 2017, to retire under the current age and service credit eligibility requirements.

[Read More...]
SERVICE RETIREMENT ELIGIBILITY REQUIREMENTS
Current Eligibility Eligibility Changes
Applies to:
• Members Who Retire Before Aug. 1, 2017
• Members with 25 Years or More of Service On or Before Aug. 1, 2017 (Grandfathered)
Applies to:
• Members with Less than 25 Years of Service on Aug. 1, 2017 
Retire with Full Benefits
Age 65 with 5 years, or Any age with 30 years
Age 67 with 10 years, or Age 57 with 30 years

Retire Early with Reduced Benefits
Age 60 with 5 years, or Age 55 with 25 years
Age 62 with 10 years, or Age 60 with 25 years

 

Please keep in mind that your pension will vary considerably depending on your age when you retire. It makes good sense to consider the difference in the retirement income available to you based on an early retirement date versus one a few years away. SERS is unable to provide an estimate of your benefits under the new provisions until after Jan. 7, 2013. If you would like to receive an estimate for a retirement effective Aug. 1, 2017 or later, please submit a pension reform estimate request now and SERS will send an estimate to you once they are available.
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Buy-up Option
Members who will have fewer than 25 years of service credit as of Aug. 1, 2017, can retire under current retirement eligibility requirements if they pay the actuarial difference between the benefit they would have received under the new requirements and the benefit they may receive under the current requirements.
[Read More...]
Members who want to buy-up must complete their one-time payment on or before Aug. 1, 2017. Once SERS receives payment from a member that wishes to buy-up, the purchase is final and the option cannot be changed at a later date. Members interested in the buy-up may estimate their cost using the Buy-Up calculator, now available by logging in to their secure Member Account.
The calculation you make on this website is just an estimate. If the estimate you run on the website is something you might like to pursue, contact SERS toll-free at 800-878-5853 and ask the representative to schedule a final Buy-up calculation by SERS’ actuary. Once this final calculation is received, full payment of the amount is due in one lump-sum within six months. If payment is not received within six months, a new calculation must be performed using updated age, service credit, and salary information.
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Disability
Current and future disability recipients who return to contributing service for two years after their disability ends will be limited to two years of free disability-period service credit. However, they will be allowed to purchase service credit for the remaining period of disability.
[Read More...]
Future disability applicants and recipients also may be affected by the following
modifications:
• Clarifying that a member is not eligible to apply for a SERS disability benefit if the person is receiving a disability benefit from another Ohio retirement system.
• Not allowing application if a condition resulted from the commission of a felony or occurred after SERS-covered employment ended.
• Requiring a disability recipient to apply for Social Security disability benefits if he or she is eligible.
• Changing the effective date of disability from the later of the last day of compensation or the date the member was first unable to perform their job duties, to the date the most recent application was filed.
• Suspending or ending a disability benefit if a member does not obtain vocational rehabilitation as recommended by the Board physician or other consultant.
• Changing the standard for ending disability – after three or five years on SERS’ disability – disability recipients could be removed from disability if they are capable of performing the duties of a job other than their previous job with pay at or above 75% of the annual compensation of their previous school job that can reasonably be found and for which they are qualified.
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Survivor Benefits
Beginning Feb. 1, 2013, future survivor benefits for children will be paid up to age 19 with no requirement that the child be attending school. This does not apply to children currently receiving a survivor benefit.
[Read More...]
Early Retirement Incentive (ERI) An employee must be age 57 to participate in an early retirement incentive.
[Read More...]
Purchasing Leave of Absence Service Credit An employee is required to pay both the employee and employer contributions plus interest to purchase Leave of Absence service credit. Service credit may be purchased for multiple leaves
of absence. The total years purchased cannot exceed five years, and the maximum amount of service that may be purchased for a period of leave is two years.
[Read More...]
Board Authority
The Board has authority to determine the amount of Medicare Part B reimbursement with the current $45.50 monthly reimbursement rate as the base.
[Read More...]
Employer Penalties
Four employer penalties for failure to submit required paperwork and  contributions by established deadlines were included in the modifications. These penalties go into effect Jan. 7, 2012.
[Read More...]
What Did Not Change
Pension reform did NOT change the following:
Employer or employee contributions – employee contributions remain at 10%; employer contributions remain at 14% Cost-of-Living Adjustment (COLA) – the COLA remains at 3% Final Average Salary (FAS) – the FAS remains the average of the three highest years of salary