PENSION Changes WHAT H 6319 and S 1111 DID TO US Modified RIFTH Presentation Rhode Island Federation of Teachers and Health Professionals 356 Smith Street, Providence, RI 02908 Phone: 401-273-9800 www.rifthp.org Fax:401-331-8815 Original Plan After a series of pension improvements, by the end of the 1980s the teachers and state workers had a benefit
package that consisted of the following benefits. The cost for these benefits is an employee contribution of 9.5% of salary for teachers and 8.75% for state workers. Benefit Formula 1-10 yr = 1.7 11-20 yr = 1.9% 21-34 yr = 3.0% 35th yr = 2.0% Maximum Benefit Final Average Salary Eligibility
Cola 80% 3 highest consecutive years *28 years of service at *3% compounded any age annually or *Age 60 with 10 years *3rd January after contributing service date of retirement 2005 - Creation of Schedule B
Impact: The General Assembly created a second tier of pension benefits for teachers and state workers who were not vested (ten years of contributing service) as of July 1, 2005. The original tier was labeled Schedule A and the second tier was labeled Schedule B. The benefits Schedule B were as follows: Benefit Formula 1-10 yr = 1.6% 11-20 yr = 1.8% 21-25 yr = 2.0% 26-30 yr = 2.25% 31-37 yr = 2.5% 38th yr = 2.25%
Maximum Benefit Final Average Salary Eligibility Cola 75% 3 highest consecutive years *Age 59 with 29 years *Lesser of 3% or CPI-U of service compounded annually or *Age 65 with 10 years *Month after 3rd contributing service
anniversary date of retirement 2009 Reduction of Benefits of Vested State Workers Impact Schedule B members: Final Average Salary The pension calculation was changed to the 5 highest consecutive years of service instead of the 3 highest consecutive years of service Eligibility - After 29 years of service, the ability to retire at age 59 was increased to age 62, phased in proportional to how
close the employee was to retire. 2010 COLA Cap The General Assembly capped the COLA for all Schedule A and Schedule B members not eligible to retire as of June 12, 2010. Impact: The COLA is only applied to the first $35,000 of pension benefits. The $35,000 cap increases by the CPI-U or 3%, whichever is lower. The COLA is not paid until the retiree turns age 65, or on the third anniversary of the date of retirement, whichever is later. 2011 Changes - WHAT DO YOU KEEP?
Any service credit earned as of June 30, 2012 based on Schedule A formula or Schedule B formula is preserved. Vesting is changed from 10 years to 5 years of service Purchases must be made within three years of hire or three years from leave WHEN CAN YOU FINISH? The new age of retirement for those not eligible to retire prior to July 1, 2012 is age 67 (the current Social Security normal retirement age). Exception #1 New Proportionality Chart
A member with five (5) or more years of contributory service as of June 30, 2012 with an age 67 retirement age will have service reduced based on how close the member is to their retirement age Minimum retirement age is age 59 Calculator can be obtained at www.pensionreformri.com WHEN CAN YOU FINISH? Exception #2 Actuarial Reduction If member has 20 or more years of service and is within 5 years of retirement, member can retire with an actuarial reduction This reduction is significant
Exception #3 Current Status If member has 10 or more years of service as of June 30, 2012, member can retire with their current retirement date as of June 30, 2012 No additional service credit (1% per year of service or Final Average Salary recalculation) will be awarded HOW MUCH DO YOU EARN? Future service will be earned as one percent (1%) of Final Average Salary for each year of service worked after July 1, 2012 Final Average Salary based on highest five
consecutive years Final Average Salary not changed for those eligible to retire as of September 30, 2009 WHAT DO YOU CREATE? In addition to the amended defined benefit plan, members will participate in a defined contribution plan after July 1, 2012 Each member will have her/his own account managed by third party vendors yet to be determined
HOW MUCH DO YOU PAY? You will contribute 5% of pay into the private account after July 1 2012 if your district participates in Social Security You will contribute 7% of pay into the private account after July 1, 2012 if you work in a non-Social Security district You will manage your private account investment options HOW MUCH DOES YOUR EMPLOYER PAY?
Your employer will pay 1% if in a Social Security district Your employer will pay 3% of pay if in a non-Social Security district into your private account Your employer will still also continue to fund the defined benefit plan through significant employer contributions WHY PAY EXTRA? You can volunteer to pay more into your private account than the required 5% or 7% contribution This provision must be approved by the State
Investment Commission Employee contributions are done on a pre-tax basis HOW MUCH WILL IT INCREASE? COLA Provision for all state workers (including Judges), teachers, and MERS members is based on stock market performance The COLA (or Dividend) is based on 5 year average investment return minus 5.5%. The COLA can range from 0% to 4% The COLA only is applied to the first $25,000 (indexed) of pension benefit
WHEN DOES IT INCREASE? The COLA is suspended while the aggregate state funding ratio is below 80% All state plans, including teachers, state workers, state police and judges are included in determining when the COLA returns COLA may be awarded every five years while suspension is in effect
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