RETIREMENT PAYMENT OPTIONS;

GENERIC BUY-IN



House Bill 4173 as enrolled

Public Act 205 of 1998

Sponsor: Rep. Kim Rhead

House Bill 4897 as enrolled

Public Act 213 of 1998

Sponsor: Rep. Eileen DeHart


Third Analysis (7-6-98)

House Committee: Public Retirement

Senate Committee: Appropriations



THE APPARENT PROBLEM:


Under both the Public School Employee Retirement System and the defined benefit provisions of the State Employees Retirement System, a member may retire with a regular retirement allowance payable throughout his or her life, or may receive the actuarial equivalent of that amount in a reduced retirement allowance payable throughout the lives of the retiree and his or her beneficiary (generally, a spouse). (This is intended to provide a continuing retirement benefit for the retiree's spouse if the retiree predeceases the spouse. If the spouse predeceases the retiree, however, the retirement allowance reverts ["pops-up"] to the regular retirement allowance amount.) Currently, the retiree chooses among several options for the reduced retirement allowance, including a continuation of retirement benefits at the same rate as paid before the retiree's death, or ½ of the reduced benefit to be payable to the beneficiary after the retiree's death, or "equated" versions of both of those, which allow a retiree to coordinate benefits with the onset of Social Security payments. (All options are based on the actuarial equivalent of the regular retirement allowance.) It has been suggested that some couples would prefer a third option that would provide for 3/4 of the reduced allowance to continue after the retiree's death.

In addition, the State Employees Retirement System Act allows members to purchase service credit for time spent in other types of public employment, for military service, for parental leave, and for other specific circumstances listed in the act that cause interruption or delays in state employment. Typically, the act requires that the member present evidence to substantiate such time and to pay to the retirement system an amount that will "pay" for the added benefits the additional service credit will produce; the member is said to "purchase" service credit at "actuarial cost". The list of allowable reasons for purchasing service credit has steadily grown, and with it the complexity of administering the transaction. Additionally, it is sometimes very difficult for a member to produce evidence of employment that took place decades earlier, and for the retirement board to verify such service. It's been suggested that a "generic" buy-in provision be added to the act, as was done in the Public School Employees Retirement System several years ago.


Finally, several amendments to the State Employees Retirement Act have been proposed that can be considered to be technical in nature. The retirement system's actuary reportedly has suggested amending the statute's definition of "actuarial cost" (used to calculate the cost to members to purchase service credit) to more closely reflect the actual cost to the system of providing the additional benefits that result. And, though certain employees have qualified for five-year vesting in the system since 1987, not all references in the act were updated to reflect that change.


THE CONTENT OF THE BILLS:


House Bill 4173 would amend the State Employees Retirement Act (MCL 38.1a et al.) in the following ways.