On May 17, 2001, Act 2001-9 (Act 9) became law. Act 9 has important implications for all members of SERS. Changes are discussed in detail throughout the Handbook. The following are the major changes to the retirement plan.
Additional Classes of Services
Act 9 created two new classes of service, Class AA and Class D-4. All employees who are hired after July 1, 2001, excluding State Police, legislators, judges, or district justices, will be Class AA when they join SERS. As Class AA, they will pay contributions at the rate of 6.25 percent of their gross pay, and will receive a retirement benefit of 2.5 percent of their final average salary for each year of Class AA service at the time of their retirement. Legislators who are elected after July 1, 2001 will be Class D-4 when they join SERS. As Class D-4, they will pay contributions at the rate of 7.5 percent of their gross pay and will receive a retirement benefit of 3 percent of their final average salary for each year of Class D-4 service.
Both new classes of service apply only to State service. Nonstate service will be Class A when credited to a member’s account. A Class AA or Class D-4 member, who joined SERS on or after July 1, 2001, must work at least 3 years before any previous State service will be credited as either Class AA or Class D-4.
With certain provisions, Act 9 allowed eligible Class A members to elect Class AA or Class D-4, whichever applied. These provisions contained the election criteria and how previous State and nonstate service is treated. Eligible members who elected Class AA or Class D-4 during the election periods, which have expired, received Class AA or Class D-4 on all eligible credited Class A State service. Any uncredited Class A State service will not be converted to Class AA until the member purchases the service. Nonstate service credited to the member’s account will remain Class A. If you have any questions concerning the election of Class AA or Class D-4 by current members, please contact your retirement counselor at 1-800-633-5461.
Accelerated Vesting Period
The vesting period for all current SERS members has been reduced to 5 years. Return-to-service employees who are not annuitants and return after July 1, 2001 must earn 1 year of State service credit after July 1, 2001 in order for their prior State service to count towards the 5 year vesting requirement.
Multiple Service Election
Act 9 provides all active contributing members the opportunity to elect Multiple Service from July 1, 2001 to December 31, 2003 or within 365 days of the effective date of membership, whichever is later. Members must also meet all other requirements to elect Multiple Service under the Retirement Code.
Additional Purchase of Service Payment Options
With the passage of Act 9 and repeal of certain SERS regulations, active contributing members who wish to make a service purchase may now have an actuarial debt established to pay for the service instead of making payroll deductions. Actuarial debt allows members to receive credit immediately for the service without having deductions taken from their paychecks. The debt continues to accrue statutory interest at the rate of 4 percent per year throughout the member’s career. The debt will reduce the present value of the retirement account at the time of retirement. Members will continue to have the option to pay for the purchase of creditable service through payroll deductions or a lump sum payment.
Waiver of Member Contributions
Active members may elect to waive employee contributions for one fiscal year (July 1 through June 30) if their estimated maximum single life annuity on January 1 of that year exceeds 110 percent of their highest annual compensation. At the beginning of each year, SERS will review member accounts and send election forms to eligible members. Members must either make the election to waive contributions each year or continue to pay contributions for that year. The waiver of contributions will not reduce the annuity to which members are entitled, and members will continue to have service and compensation credited to their accounts. Employer contributions continue whether or not a member waives contributions.
Late Retirement Increase Factor
Employees who retire after age 70 have a guaranteed yearly increase in their benefit for each year they work after age 70. This provision is effective September 1, 2001. However, members who are already age 70 or over on September 1, 2001 must work at least 30 days past their first birthday after the effective date to be eligible. Members age 70 and over who are considering retirement should contact their retirement counselor at 1-800-633-5461.
Emergency Return to Service Provisions
(See also “Return to Service from Retirement” section of this Handbook)
The emergency return-to-service provisions have been changed to permit a 95 day return per calendar year rather than fiscal year without the termination of retirement benefits. Annuitants may also return to service as salaried members of independent boards or commissions without loss of their retirement benefits if all of the following conditions are met:
Appointed by the Governor subject to Senate approval
Have been annuitants for at least 6 months and
Will earn less than $35,000 annually as a member of the independent board or commission
Annuitants who return to service as salaried members of independent boards or commissions are not re-enrolled as active members of SERS and continue to receive their annuity.
Class D-3 Benefit Limit Changes
The benefit limits that applied specifically to Class D-3 legislators have been removed.
IRC Section 415(b) Limitations
(See also “Taxability of Benefits” section of this Handbook)
Act 9 provides for the Internal Revenue Service (IRS) Section 415(b) limit to apply to all members of SERS. Section 415(b) limits the amount of the retirement benefit that you may receive from SERS. However, Act 9 also provides that a member may not receive less of a retirement benefit than he would have been entitled to, prior to the passage of Act 9. If you retire during calendar year 2002, the benefit limit is $160,000. However, the limit is adjusted downward if you retire before age 62 and upward if you retire after age 70. The IRS reviews the limits annually and adjusts them for inflation in increments of $5,000. If any of the following apply to your personal situation, you may be affected by the IRS Section 415B limit:
You are currently less than age 50, and have more than 25 years of service or
You plan to retire before you reach age 62 or
Your current salary is greater than $110,000 or
You are a Judge, a District Justice, or a Legislative member, and have more than 25 years of service