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Benefits change for new state employees

Legislation secures retirement benefits for current, retired state workers

lock around stack of moneyIn simple terms, House Bill 2559 changes the retirement benefits package for new TDCJ employees and keeps things pretty much the same for current and retired agency staff.

All state employees hired before September 1, 2009, current retirees and former employees who maintained their retirement accounts with the Employee Retirement System (ERS) after leaving state employment are essentially “grandfathered” under the legislation passed during the regular session. The provision protects most of their present benefits and does not change their retirement eligibility or how their retirement benefit is calculated. Most of the bill’s provisions, in fact, will impact workers employed after September 1. They include an amendment to an age rule that could require them to work longer to avoid early retirement penalties.

“The primary benefit of the new legislation is that it protects current contributing members, so anyone we hire during the summer months would still be eligible for the current retirement provisions,” TDCJ Human Resources Director Carol Blair Johnston said. “So, if a former employee took his or her money out of the ERS and planned to come back to state employment assuming there would be no changes to their benefits, that person might want to take the opportunity to seek reemployment before the changes take effect. And I do believe that we will have some people who are aware of these changes and will seek employment or reemployment before Sept. 1.”

All employees, current and future, will contribute as much as 0.5 percent more, up to 6.5 percent of their wages, to the ERS Trust Fund as a means of strengthening the fund’s financial position in the coming years. The state will contribute a matching amount, and members of the Law Enforcement and Custodial Officers System (LECOS) will be contributing an additional 0.5 percent of their wages, up to 7 percent, to the fund. State employees have paid the same 6 percent contribution rate to the trust fund since 1971, and LECOS members, whose retirement annuity is calculated at a higher rate, have never been asked to provide an additional contribution in the past. The state has contributed 6.45 percent to the fund since 2005 but could raise it as much as half of a percent to strengthen it further.

“The final percentages are to be determined,” said Johnston. “State employees are going to contribute an additional amount. The employee’s contribution can’t be more than the state contribution, and the current maximum is 6.5 percent. The goal of this change is to ensure that the soundness of the fund is maintained and that our retirement benefits remain secure.”

House Bill 2559 also changes the amount of time employees who retire on or after May 31, 2009 must wait before returning to state employment from the current 30 days to 90 days. The provision is consistent with the ERS and Internal Revenue System rules that do not allow anyone to retire with a “promise of employment.”

Another provision of the bill affects all LECOS members under age 50 who plan to retire after September 1, 2009. In the past, those retirees received a reduced retirement annuity based on their age but had their benefit recalculated at age 50, and oftentimes their annuity increased. The bill does away with that “pop-up” recalculation for both the old and new plans.

“If you retire before age 50 with 20 years of service, they’re going to calculate LECOS benefits for each year of service, then factor in the reduction based on your age and the annuity will remain at this rate,” Johnston said. “You won’t get a ‘pop-up’ recalculation at age 50. That’s important for LECOS members to know. Also, under the new plan, eligibility will be based on 20 years of service at age 55.”

Provisions of the bill affecting employees hired after September 1, 2009 include one that sets a new Rule of 80 retirement at age 60 for those retiring under the regular service plan. Presently, as long as an employee’s age and years of service equal 80, the regular service plan allows the employee to retire under the Rule of 80 at any age without a reduction in their annuity. Under the new provision, employees can still retire under the Rule of 80 but will have their annuity reduced by 5 percent for each year they retire before age 60, up to five years. Because the maximum reduction is set at 25 percent, future employees would have to be at least 55 years old to retire and would have reduced benefits. In addition, future employees retiring under the LECOS plan will receive full benefits at age 55 with 20 years of service. LECOS members with 20 years of service may retire before reaching 55; however, their standard annuity will be reduced by 5 percent for each year they retire before age 55, with the reduction capped at 25 percent.

“This change will encourage employees to work longer, which means they contribute to the plan longer,” Johnston said. “Again, one of the goals in passing the legislation was to shore up the retirement fund to ensure the future soundness of the plan.”

Also, new employees will not be allowed to use accrued sick and leave time to meet retirement eligibility requirements as current employees can. They can still, however, use their accrued vacation and sick leave to enhance their retirement annuity.

“What’s really good is that the Legislature did not take that out of the new plan, so it still encourages people to save their leave,” Johnston said. “Those people who have the good fortune of health and excellent attendance would continue to benefit under the new plan. It wouldn’t make them eligible to retire at an earlier date, but it will enhance their benefits.”

In addition, annuities for new employees will be calculated based on the highest 48 months salary rather than on the current highest 36 months. Also, House Bill 2559 eliminates a provision that allowed people to retire with a small annuity but no health insurance at age 60 with five years of service. Vesting for retirement benefits will now require 10 years of service, allowing a new employee in the regular service plane to retire at age 65 after 10 years on the job.

Current employees who find it necessary to separate from employment should strongly consider leaving their accounts with ERS intact, Johnston said.

“This will protect their future vesting and retirement options, allowing them to take advantage of the retirement benefits currently available,” she said.

Given the economic hardships many states are facing, Johnston said Texas state employees fared well during the session that also produced a pay raise or one-time retention payment for employees.

“From a national perspective, our employees fared very favorably,” Johnston said. “Most employees were provided some type of pay enhancement, and compared to what’s going on nationwide in other state agencies and corrections departments where they’re actually reducing staff and having difficulties paying staff, we were able to increase compensation while strengthening our retirement fund. And in this economy, defined retirement plans like ours are very hard to come by. I believe that our retirement benefits, under both the old and new plans, are still some of the best anywhere.”

For more retirement options and details about other retirement changes in store for employees hired after September 1, 2009, visit the TDCJ Web site and read the “Summary of 81st Legislature’s Actions Impacting State Employees” or go to the Employees Retirement System of Texas Web site.

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