STATE EMPLOYEES
RETIREMENT COMMISSION
COMPTROLLER'S SEAL STATE OF CONNECTICUT 55 ELM STREET
HARTFORD, CONNECTICUT
06106-1775
TELEPHONE: (860) 702-3480
TELEFAX:(860) 702-3489
MEDICAL EXAMINING BOARD
for DISABILITY RETIREMENT
HEALTH CARE COST
CONTAINMENT COMMITTEE
STATE OF CONNECTICUT
RETIREMENT AND BENEFIT SERVICES DIVISION
OFFICE OF THE STATE COMPTROLLER

RETIREMENT & BENEFIT SERVICES DIVISION MEMORANDUM

September 28, 2001

TO ALL MUNICIPALITIES PARTICIPATING IN THE
MUNICIPAL EMPLOYEES RETIREMENT SYSTEM
AND/OR
THE POLICE OFFICER AND FIREFIGHTERS
SURVIVORS' BENEFIT FUND

ATTENTION: Personnel and Payroll Officers

SUBJECT: Public Act No. 01-80

I. Introduction

The purpose of this memorandum is to describe in summary fashion the provisions of Public Act No. 01-80, which make several significant revisions to the benefit structure of the Municipal Employees Retirement System and the Police Officer and Firefighters Survivors' Benefit Fund.

II. Discussion

MUNICIPAL EMPLOYEES RETIREMENT SYSTEM (MERS)

Section 3 of Public Act No. 01-80 adds subsection (e) to CGS, Section 7-436 and thereby changes the benefit formula for determining the retirement allowance of MERS members covered by Social Security when such members become eligible for Social Security effective on and after January 1, 2002.

The current formula of 1 1/6 % of final average pay (FAP) up to a member's Social Security Earnings Base (maximum 80,400 for 2001) plus 2% of FAP over such Social Security Earnings Base multiplied by the member's years and completed months of service will be utilized for any member reaching age 62 or receiving a Social Security Disability Award (SSDA), if earlier, through December 31, 2001.

The revised formula will no longer utilize a member's Social Security Earnings Base. Instead the formula will employ the breakpoint which is provided for in the State Employees Retirement Systems' Tier II and IIA plans. The breakpoint was established in 1982; the breakpoints from 1982 through 2009 are:

1982 - 10,700 1989 - 16,100 1996 - 24,300 2003 - 36,400
1983 - 11,300 1990 - 17,100 1997 - 25,800 2004 - 38,600
1984 - 12,000 1991 - 18,100 1998 - 27,300 2005 - 40,900
1985 - 12,700 1992 - 19,200 1999 - 28,900 2006 - 43,400
1986 - 13,500 1993 - 20,400 2000 - 30,600 2007 - 46,000
1987 - 14,300 1994 - 21,600 2001 - 32,400 2008 - 48,800
1988 - 15,200 1995 - 22,900 2002 - 34,300 2009 - 51,700

For each year after 2009, the breakpoint increases by 6% rounded to the nearest $100.

The revised formula is: 1 1/2 % of FAP up to the breakpoint (in the calendar year in which the member severs municipal service) plus 2% of the member's FAP in excess of such breakpoint multiplied by years and completed months of service.

The following examples will illustrate the difference between the current and revised formulas.

Note that the formula for determining benefits before a member is eligible for Social Security remains: 2% times FAP times years and completed months of service.

Assume a member retired June 1, 1999 with 15 years and 5 months of service credit, a Social Security Earnings Base of $39,000 and a FAP of $43,000 and a straight life annuity payment form; the member will reach age 62 on December 1, 2001 and will be subject to the current formula effective December 1, 2001 as follows:

1 1/6%  $39,000.00  $  455.13
(Social Security Earnings Base)  plus
2%   X $ 4,000.00  $  80.00
(FAP minus Social Security Earnings Base)
Equals pension per year of service:  $  535.13
Times years and completed months of service  15.4167
Equals annual pension:  $ 8,249.94
Divided by 12 = monthly pension:  $  687.50

Assume another member also retired June 1, 1999 with 15 years and 5 months of service credit, a FAP of $43,000, and a straight life annuity payment form, but this member will reach age 62 on January 15, 2002. Because this member turns age 62 after the effective date of the revised formula (January 1, 2002), the member's benefit will be computed as follows:

1 1/2%  X  $28,900.00   = $  433.50
(FAP up to $28,900 -the 1999 breakpoint)  plus
2% $14,100.00  = $  282.00
(FAP in excess of 1999 breakpoint)
Equals pension per year of service:  $  715.50
Times years and completed months of service: x 15.4167
Equals annual pension: $ 11,030.65
Divided by 12 = monthly pension: $  919.22

In this example, the 1999 breakpoint was used because the member severed municipal employment in 1999.

These examples illustrate that the revised formula softens the reduction for MERS members covered by Social Security when such members reach age 62 or receive a SSDA, if earlier.

Section 4 of Public Act No. 01-80 revises CGS, Section 7-439b to include subsections (a), (b) and (c) to produce Cost of Living Adjustments (COLAS) for all MERS retirees. This amendment is effective January 1, 2002; on and after that date MERS retirees will be entitled to COLAS as follows:

  1. For current retirees who are age 65 or older (and receive a COLA each July first), the COLA will remain at least 3 % but will not exceed 5 % and will be dependent on the fund's investment performance.
  2. For municipal members retiring on and after January 1, 2002, Section 4 provides for a new COLA ranging from a minimum of 2.5 % to a maximum of 6 % based on the following formula: 60 % of the annual increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) up to 6 % plus 75 % of the annual increase in the CPI-W above 6 %. Such COLA will be payable on the first July first following the retirement date and on each subsequent July first.
  3. For those members who retire prior to January 1, 2002 and are not 65 years of age, Section 4 provides for a temporary COLA in the amount of 2.5 % payable effective July 1, 2002; this COLA will be payable on each subsequent July first until the July first following the members' 65th birthday at which time the COLA will revert to the 3 % - 5% percent formula, specified in (a) above, which is tied to investment performance.

Sections 5, 6, 7 and 8 of Public Act No. 01-80 revise CGS, Sections 7-425(5), 7-428, 7-431, and 7-436b(a), respectively, and provide for the reduction of the vesting requirement for active MERS members from 10 continuous years to 5 continuous years of service effective October 1, 2001. A member must be employed on October 1, 2001 to be covered by this provision. Police officers or firefighters who will reach the compulsory retirement age after less than 5 years of continuous service cannot be members of MERS.

(Please note: Non-service connected disability retirements still require 10 years of continuous or 15 years of active aggregate service.)

Section 9 of Public Act No. 01-80 creates a new statute, effective January 1, 2002, which provides for participating municipalities to pay the member contributions, required by CGS, Section 7-440, on a pre-tax basis. This statute gives each participating municipality the option of an employer "pick up" of mandatory member contributions under Internal Revenue Code, Section 414h for all compensation earned on and after January 1, 2002.

Where a participating employer exercises this option, employee contributions will be made on a pre-tax basis; accordingly, no federal or state income taxes will be withheld from mandatory, payroll-deducted employee retirement contributions. The employer pick-up applies exclusively to mandatory retirement contribution deductions; it will have no effect on purchase of retirement credit payments or retroactive contribution payments made through the municipal payroll system or on any other basis.

For affected MERS members, this change will increase the amount of their net paychecks while reducing the taxable wages reported at the end of the year to the Internal Revenue Service and the Department of Revenue Services; it will not, however, lower gross wages for determining retirement and social security (if applicable) benefits.

Municipalities will be provided with a separate memorandum from the Division addressing specific changes in contribution reporting for those municipalities who opt for the pre-tax contribution method for all their MERS members.

POLICE OFFICER AND FIREFIGHTERS SURVIVORS' BENEFIT FUND

Section 2 of Public Act No. 01-80 revises Connecticut General Statutes (CGS), Section 7-323e, to provide increased benefits from the Police Officer and Firefighters Survivors' Benefit Fund. This fund is separate and distinct from the MERS. Police officers and firefighters, who are separately covered by this fund when their municipalities participate, contribute 1% of compensation to the fund and are entitled to additional benefits at death. Effective October 1, 2001, Section 2 raises by 20 percent the monthly survivor benefits from the Police Officer and Firefighters Survivors' Benefit Fund payable to surviving spouses and eligible dependents. The Retirement & Benefit Services Division (Division) is responsible for making these payments.

The changes in the monthly benefit payments to eligible survivors are as follows:

III. Conclusion

The Division is in the process of revising the summary plan description (SPD) for MERS; our plans call for mailing a revised SPD to the home address of each MERS member during the first quarter of 2002. Further communication on this matter will be forthcoming.

Questions concerning the information contained herein may be directed to the Division's Municipal Employees Retirement System Unit at (860) 702-3501 and 702-3503.

Very truly yours,

STATE EMPLOYEES RETIREMENT COMMISSION
NANCY WYMAN, SECRETARY EX OFFICIO

BY:

Steven Weinberger, Director
Retirement & Benefit Services Division

SW/LD/la 

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