2010 Pension Reform Legislation

2010 Pension Reform 2010 Pension Reform LegislationLegislation

Impacts of Act 120Impacts of Act 120

AgendaAgenda

Funding changesFunding changes Impacts on all membersImpacts on all members Impacts on new membersImpacts on new members Employer’s roleEmployer’s role What’s next What’s next

Act 120 – Formerly H.B 2497Act 120 – Formerly H.B 2497Enacted November 23, 2010Enacted November 23, 2010

Purpose was to curtail the employer Purpose was to curtail the employer contribution rate from rising too high, contribution rate from rising too high, too fasttoo fast Employer contribution rate capsEmployer contribution rate caps Actuarial changes to the funding Actuarial changes to the funding

methodology of the systemmethodology of the system Creation of new benefit classes with Creation of new benefit classes with

reduced benefits for new members of reduced benefits for new members of PSERS PSERS

Why Now?Why Now?

Funding Changes - Employer Funding Changes - Employer ContributionsContributions

Funding Changes Funding Changes Employer ContributionsEmployer Contributions

Suppressed employer contribution rate by Suppressed employer contribution rate by using rate caps in future yearsusing rate caps in future years

The rate caps limit the amount the pension The rate caps limit the amount the pension component of the employer contribution component of the employer contribution rate can increase rate can increase over the prior year’s rateover the prior year’s rate as follows:as follows: FY 2011/12 - not more than 3%*FY 2011/12 - not more than 3%* FY 2012/13 - not more than 3.5%*FY 2012/13 - not more than 3.5%* FY 2013/14 - not more than 4.5%*FY 2013/14 - not more than 4.5%* Thereafter - not more than 4.5%*Thereafter - not more than 4.5%*

*plus the premium assistance contribution rate*plus the premium assistance contribution rate

Funding Changes Funding Changes Employer ContributionsEmployer Contributions

Rate cap remains at 4.5% until the rate Rate cap remains at 4.5% until the rate cap no longer appliescap no longer applies

After that, the rate is what is calculated After that, the rate is what is calculated by PSERS actuary and approved by the by PSERS actuary and approved by the PSERS Board, subject to a new minimum PSERS Board, subject to a new minimum employer contribution rate that will be employer contribution rate that will be the employer normal cost (currently the employer normal cost (currently about 8%), plus the premium assistance about 8%), plus the premium assistance contribution ratecontribution rate

Shared RiskShared Risk

Every 3 years, the System will compare the actual Every 3 years, the System will compare the actual investment rate of return with the assumed rate of investment rate of return with the assumed rate of return for the prior 10 year period return for the prior 10 year period

If the investment rate of return (less investment If the investment rate of return (less investment fees) is equal to or exceeds the assumed rate of fees) is equal to or exceeds the assumed rate of return, the member’s contribution rate will return, the member’s contribution rate will decrease by .5% decrease by .5%

If the earnings during the ten-year period are 1.0% If the earnings during the ten-year period are 1.0% or more below the assumed rate ofor more below the assumed rate of

return, the member’s contribution return, the member’s contribution rate would increase by .5%rate would increase by .5%

Shared RiskShared Risk

If the System is fully funded at the time of the If the System is fully funded at the time of the comparison, then the member contribution rate comparison, then the member contribution rate reverts back to the base rate for the Classreverts back to the base rate for the Class

The investment return measurement return The investment return measurement return period will begin on July 1, 2011 period will begin on July 1, 2011

The rate could never go below the base rate of The rate could never go below the base rate of 7.5% for T-E and 10.3% for T-F members, nor 7.5% for T-E and 10.3% for T-F members, nor above 9.5% for T-E and 12.3% for T-F membersabove 9.5% for T-E and 12.3% for T-F members

If the employer rate is below the final If the employer rate is below the final contribution, the shared risk rate will revert contribution, the shared risk rate will revert back to the base back to the base

If the employer rate has not increased in the If the employer rate has not increased in the prior 3-year period, then the shared risk rate prior 3-year period, then the shared risk rate will not increase will not increase

Benefit Changes Benefit Changes General InformationGeneral Information

The The benefit reductionsbenefit reductions contained in contained in this legislation will only impact this legislation will only impact individuals who become individuals who become new membersnew members of PSERS on or after July 1, 2011 of PSERS on or after July 1, 2011

Any existing or former members of Any existing or former members of PSERS who return to service on or PSERS who return to service on or after July 1, 2011 will retain their old after July 1, 2011 will retain their old membership status membership status

The current pension benefit that a The current pension benefit that a PSERS retiree receives is also not PSERS retiree receives is also not impacted by the legislationimpacted by the legislation

Benefit Plan ChangesBenefit Plan ChangesImpacts on Impacts on AllAll Members Members

Did away with Non-Qualifying Part-Time Did away with Non-Qualifying Part-Time (NQPT) service(NQPT) service Exception, members have one opportunity to Exception, members have one opportunity to

purchase NQPT servicepurchase NQPT service Three-year window beginning July 1, 2011 for Three-year window beginning July 1, 2011 for

current active members to file an NQPT applicationcurrent active members to file an NQPT application Current members who are inactive but return to Current members who are inactive but return to

active service after July 1, 2011, will have a one-active service after July 1, 2011, will have a one-year window from their date of return to file an year window from their date of return to file an NQPT applicationNQPT application

New members after July 1, 2011, will have a New members after July 1, 2011, will have a one-year window from their entry date into one-year window from their entry date into the System to file an NQPT application the System to file an NQPT application


Once a member qualifies for Once a member qualifies for membership all service earned membership all service earned after the initial qualification will after the initial qualification will be considered qualifiedbe considered qualified

Previously hourly and per diem Previously hourly and per diem members had to qualify each members had to qualify each year (500 hours or 80 days for year (500 hours or 80 days for hourly and per diem employees)hourly and per diem employees)


What is a member? What is a member? Any person that is Active, Inactive, Any person that is Active, Inactive,

Vestee, or Annuitant. Vestee, or Annuitant. Membership status for an inactive Membership status for an inactive

member is retained for two full school member is retained for two full school years from the last qualifying year. years from the last qualifying year.

A vestee or annuitant does not have A vestee or annuitant does not have their membership status expire.their membership status expire.


Members who break membership do Members who break membership do have to re-qualify to receive retirement have to re-qualify to receive retirement credit for service upon their return.credit for service upon their return. The The following constitutes a break in following constitutes a break in membership:membership: terminate and refund their contributions and terminate and refund their contributions and

interest, orinterest, or terminate without refunding their terminate without refunding their

contributions and interest and return to contributions and interest and return to service service afterafter a period of two FY years, or a period of two FY years, or

are not reported as being employed by a are not reported as being employed by a public school employer for a period of two FY public school employer for a period of two FY years or more, regardless of refunding their years or more, regardless of refunding their contributions and interest.contributions and interest.


So, if a person was a full time employee who has not So, if a person was a full time employee who has not earned five years of credited service therefore the earned five years of credited service therefore the member is non-vested, their member status in FY member is non-vested, their member status in FY 09/10 is active. Member goes on unpaid leave 09/10 is active. Member goes on unpaid leave September 15, 2009 and stopped working and was September 15, 2009 and stopped working and was no longer reported by an employer.no longer reported by an employer.

FY EndingFY Ending Member StatusMember Status 09/10 09/10 Active Member until 9/15/09. Active Member until 9/15/09.

Inactive as of 9/16/09Inactive as of 9/16/09 10/11 10/11 Inactive MemberInactive Member 11/12 11/12 Inactive MemberInactive Member

12/13 12/13 Non-Member at start of fiscal yearNon-Member at start of fiscal year


Qualification in a fiscal year is met in Qualification in a fiscal year is met in one of two waysone of two ways Salaried or FT per diem or FT hourly Salaried or FT per diem or FT hourly

from the first day of contributing servicefrom the first day of contributing service Part time hourly or part time per diem it Part time hourly or part time per diem it

is rendering the minimum of 500 hours, is rendering the minimum of 500 hours, 80 days or the equivalent combination80 days or the equivalent combination


Determining whether or not a person Determining whether or not a person has qualifying time:has qualifying time:

FY EndingFY Ending StatusStatus

10/11 Qualified (723 hours)10/11 Qualified (723 hours)





Any Any membermember who works between who works between 11/23/2010 and 06/30/2011 is 11/23/2010 and 06/30/2011 is considered qualified for FY 2011, considered qualified for FY 2011, regardless of whether or not the member regardless of whether or not the member met the current qualification rules, if the met the current qualification rules, if the member:member: Was vested (meets the 5/10 vesting rules or Was vested (meets the 5/10 vesting rules or

superannuation rules such as age 62 and 1 superannuation rules such as age 62 and 1 year of service) as of 11/23/2010 or earlier oryear of service) as of 11/23/2010 or earlier or

Qualified in FY 2009 or 2010 Qualified in FY 2009 or 2010


Determining whether or not a person has Determining whether or not a person has qualifying time for 10/11 fiscal year:qualifying time for 10/11 fiscal year:

FY EndingFY Ending StatusStatus 08/09 Qualified (700 hours)08/09 Qualified (700 hours) 09/10 Did Not Qualify (200 hours)09/10 Did Not Qualify (200 hours) 10/11 Qualified even if works only 10/11 Qualified even if works only

one day on or after 11/23/10one day on or after 11/23/10


If a vestee or superannuated If a vestee or superannuated member returns to service on or member returns to service on or after November 23, 2010, that after November 23, 2010, that service will be qualifying service, service will be qualifying service, regardless of the nature of the regardless of the nature of the employment (salary, hourly or employment (salary, hourly or per diem, or full time or part per diem, or full time or part time). time).


Are you going back to 2008-09 to tell Are you going back to 2008-09 to tell us who qualified or do we have to do us who qualified or do we have to do that?that? No, we are sending out info. on vested No, we are sending out info. on vested

members. We will begin notifying members. We will begin notifying Employers after July 1, 2011 when Employers after July 1, 2011 when someone is qualified and being reported. someone is qualified and being reported.

Do we need to go back and collect Do we need to go back and collect contributions for the 2010-11 school contributions for the 2010-11 school year if we reported wages as WNC year if we reported wages as WNC prior to the qualification rule changes?prior to the qualification rule changes? No. PSERS will process these billings as

Purchases of Service.


An annuitant can still work in an An annuitant can still work in an emergency return to service emergency return to service capacity or a return in an extra capacity or a return in an extra curricular positioncurricular position

There are no changes to waiver There are no changes to waiver eligibility ruleseligibility rules

Benefit Cuts for New Benefit Cuts for New Members After July 1, Members After July 1,

20112011

New Membership ClassesNew Membership Classes Two new classes (Class T-E and T-F) Two new classes (Class T-E and T-F)

for school employees who become for school employees who become new members of PSERS on or after new members of PSERS on or after July 1, 2011July 1, 2011

All new members will automatically All new members will automatically become Class T-E members. New become Class T-E members. New members have a one-time members have a one-time opportunity to elect Class T-Fopportunity to elect Class T-F Failure to elect Class T-F at time of Failure to elect Class T-F at time of

original eligibility will make the original eligibility will make the member ineligible for Class T-F forevermember ineligible for Class T-F forever

Once the election is made either by Once the election is made either by action or inaction, the election is action or inaction, the election is permanentpermanent

Pension Multipliers and Pension Multipliers and Contribution RatesContribution Rates

Class T-EClass T-E Pension multiplier is 2%Pension multiplier is 2% Contribution base rate is 7.5% with Contribution base rate is 7.5% with

“shared risk” contribution levels “shared risk” contribution levels between 7.5% and 9.5%between 7.5% and 9.5%

Class T-FClass T-F Pension multiplier is 2.5%Pension multiplier is 2.5% Contribution base rate is 10.3% with Contribution base rate is 10.3% with

“shared risk” contribution levels “shared risk” contribution levels between 10.3% and 12.3%between 10.3% and 12.3%

Class T-E and T-F MembersClass T-E and T-F Members Cannot withdraw contributions and Cannot withdraw contributions and

interest when retiring interest when retiring Have a ten year vesting periodHave a ten year vesting period For normal retirement, employees For normal retirement, employees

must:must: Work until age 65 with minimum of 3 Work until age 65 with minimum of 3

years of service, or years of service, or Attain a total combination of age and Attain a total combination of age and

service that is equal to or greater than 92 service that is equal to or greater than 92 with a minimum of 35 years of servicewith a minimum of 35 years of service

One year window for new members to One year window for new members to apply for NQPT service (apply for NQPT service (at full at full actuarial costactuarial cost))

Class T-E and T-F MembersClass T-E and T-F Members Pension benefit cannot exceed the Pension benefit cannot exceed the

member’s final average salarymember’s final average salary The cost to purchase most types The cost to purchase most types

of nonschool or nonstate service of nonschool or nonstate service credit (other than military service) credit (other than military service) will be the full actuarial costwill be the full actuarial cost

No projection of service for No projection of service for determining superannuation age determining superannuation age

Employees starting after July 1, Employees starting after July 1, 2011 will contribute based on 2011 will contribute based on “shared risk” rate in effect at date “shared risk” rate in effect at date of hireof hire

How to Determine How to Determine Membership ClassMembership Class

A contract record should be entered with the A contract record should be entered with the first day of paid service as the start datefirst day of paid service as the start date

It is not the hire date, but the date in which It is not the hire date, but the date in which the member begins performing work and the member begins performing work and receiving remuneration for itreceiving remuneration for it

If the employee has never been a member of If the employee has never been a member of PSERS and is not actually providing services PSERS and is not actually providing services until after July 1, then the contract record until after July 1, then the contract record should have this employee at a 7.5% should have this employee at a 7.5% contribution rate as a Class T-E membercontribution rate as a Class T-E member

Class T-F Election ProcessClass T-F Election Process

New membersNew members will have a one-time will have a one-time opportunity to elect Class T-F within opportunity to elect Class T-F within 45 days of receiving written 45 days of receiving written notification from PSERS notification from PSERS (Class T-C/T-D (Class T-C/T-D members do not have this opportunity)members do not have this opportunity)

T-F election form only has to be T-F election form only has to be returned if member wants to elect returned if member wants to elect Class T-FClass T-F

Decision whether to elect or not is final Decision whether to elect or not is final and bindingand binding

Election of Class T-FElection of Class T-F

If a member elects to become Class If a member elects to become Class T-F, the employer will be notified the T-F, the employer will be notified the following month and should begin following month and should begin withholding at the Class T-F ratewithholding at the Class T-F rate

If member is terminated prior to If member is terminated prior to PSERS processing the election, PSERS processing the election, member will be responsible for member will be responsible for remitting the payment to PSERSremitting the payment to PSERS

Employer’s Role In Employer’s Role In Class T-F Election ProcessClass T-F Election Process

Collection of owed retirement Collection of owed retirement contributions from the membercontributions from the member Owed contributions are retroactive to the Owed contributions are retroactive to the

first day of qualifying membership in PSERSfirst day of qualifying membership in PSERS Collected through employer so they remain Collected through employer so they remain

as “pickup or non-taxed” contributions as “pickup or non-taxed” contributions Notification to employer will only be Notification to employer will only be

based on PSERS’ recordsbased on PSERS’ records

Collection ExampleCollection Example

Full time salaried employee, earning $50,000 Full time salaried employee, earning $50,000 a year elects Class T-Fa year elects Class T-F

Employer has reported two months of Employer has reported two months of earnings before the election occurs and earnings before the election occurs and PSERS is able to notify employerPSERS is able to notify employer Employer had collected $625 in retirement Employer had collected $625 in retirement

contributions from member due to 7.5% ratecontributions from member due to 7.5% rate At the higher rate of 10.3%, the member owes an At the higher rate of 10.3%, the member owes an

additional $233.34 for the two reported monthsadditional $233.34 for the two reported months PSERS will notify employer how much is owed, not PSERS will notify employer how much is owed, not

including subsequent pays the employer has provided to including subsequent pays the employer has provided to the memberthe member

Class T-F Election for Members Class T-F Election for Members with Multiple Employerswith Multiple Employers

The money should come from the employer The money should come from the employer with the current payroll streamwith the current payroll stream If the member has multiple current employers:If the member has multiple current employers:

If only one employer is full time and the other(s) is part If only one employer is full time and the other(s) is part time, it will be the employer with the FT positiontime, it will be the employer with the FT position

If more than one employer is full time, it will be the full If more than one employer is full time, it will be the full time employer who most recently reported the time employer who most recently reported the member. This is defined as the full time employer that member. This is defined as the full time employer that most recently submitted a work report for the membermost recently submitted a work report for the member

If all employers are part time, it will be the employer If all employers are part time, it will be the employer with thewith the

hourly Contract Recordhourly Contract Record if none; then the employer with a per diem Contract if none; then the employer with a per diem Contract

RecordRecord if none, then the employer with a salaried contract recordif none, then the employer with a salaried contract record

Class T-F Election for Members Class T-F Election for Members with Multiple Employerswith Multiple Employers

For example Employer has submitted and approved their

February Work Report (WR) through January. We will know from July through January 31 Class T-F cost based on WR. That due amount will be in the billing to the current employer (hierarchy previously shared)

Concurrently, all employers for the member will receive the Class T-F notification and will be expected to collect the additionally owed Class T-F contributions for the subsequent pays not yet reported

What’s Next for Employers?What’s Next for Employers?

Four areas of possible updates to Four areas of possible updates to softwaresoftware New Class T-F member contribution rate, New Class T-F member contribution rate, Tracking employee contribution rates so they Tracking employee contribution rates so they

can be applied to the appropriate class can be applied to the appropriate class Collecting additional contributions that are Collecting additional contributions that are

owed due to the election of Class T-F owed due to the election of Class T-F Ability to update the rate for Class T-E and T-Ability to update the rate for Class T-E and T-

F members every three years based on the F members every three years based on the shared risk program shared risk program

PSERS ChangesPSERS Changes

Continuing with the enhancements to Continuing with the enhancements to the Employer Web. Phase 1 was the Employer Web. Phase 1 was implemented this past November. implemented this past November. Phase 2 with additional validations and Phase 2 with additional validations and enhancements will be incorporated this enhancements will be incorporated this summer along with Act 120 changessummer along with Act 120 changes

Additional notifications and reports will Additional notifications and reports will be made availablebe made available

More to ComeMore to Come

New employee orientation informationNew employee orientation information Updated manualsUpdated manuals T-F election information on the PSERS T-F election information on the PSERS

websitewebsite Additional information in employer Additional information in employer

bulletins and member newslettersbulletins and member newsletters Online seminars in the SpringOnline seminars in the Spring

Questions?

2010 Pension Reform Legislation

Documents

Transcript of 2010 Pension Reform Legislation