By Lowell L. Kalapa
We are constantly reminded that the “baby boomers” are getting older, a fact that we can’t dispute. Like the many challenges that the aging of this generation of workers presents, taxpayers and lawmakers will be faced with the tremendous burden of insuring that the state’s retirement system can meet its obligations.
While changes have been made to the employees’ retirement system over the years, it remains one of the most generous benefits of being a public employee. For those people who joined the ranks of state and county government prior to July 1, 1984 as “contributory” participants, the benefit is equal to 2% of the employee’s average final compensation – the average of the highest compensation paid during any three years times the number of years.
Thus, under what is called the “contributory” plan, a public employee who has worked 30 years will be entitled to 60% of what was his three highest years of compensation. Say this employee had an average final compensation of $50,000 during the 30 years of service. The maximum retirement allowance would be $30,000 a year for rest of his or her life. Of course, under this “contributory” plan the employee contributes 7.8% of his salary into the system. This is the benefit that those who will be retiring in the next 10 years will receive as “baby boomers” near age 55, which is the normal retirement age.
Normal retirement requires only 5 yeas of credited service, however, if a “contributory” employee has a minimum of 25 years of service, he or she can retire at any age with slightly diminished allowances for each year of age under 55. Thus, an employee who joined state or county government in 1977 at age 25 could retire this year and receive a benefit equal to 25% of average final compensation (the benefit is reduced by 5% for every year under the age of 55).
Those who joined the public workforce after June 30, 1984 get a sizably smaller benefit which is equal to 1.25% of average final compensation times the number of years of credited service. So the employee who will retire with the same 30 years of service as above and an average final compensation of $50,000 will receive an annual benefit of $18,750. Of course, as the plan name notes, this employee will make no contributions into the plan. More than 81% of all active employees in state and county government are now in the non-contributory plan, leaving about 19% of the public workforce in the contributory plan.
Although that might seem to spell some relief to the system and ultimately to the taxpayer, it should be noted that there are other contributory employees who will receive generous benefits and who must continue to be contributory members. These include elected officials, judges and certain hazardous duty personnel like police officers, fire fighters and other law enforcement personnel like investigators of the attorney general’s and prosecutor’s offices.
Judges and elected officials receive 3.5% of their average final compensation, however, the benefit cannot exceed 75% of their average final compensation. Elected officials and judges can retire at age 55 with 5 years of service or at any age with 10 years of elected service, however, judges appointed or hired after June 30, 1999 must have at least 25 years of service to be able to retire before age 55.
Hazardous duty personnel must contribute 12.2% of their monthly salary and their benefit is based on 2.5% of their average final compensation for each year of service up to a maximum of 80% of that average final compensation. They can also retire at age 55 with only 10 years of service or if they have 25 years of service they can retire at any age.
In addition to these retirement benefits, public employee retirees receive life insurance, medical, dental, vision and drug coverage from the public employees’ health fund. For those employees who were hired before July 1, 1996, all they need is 10 years of credited service to enjoy health benefits at no premium cost to them. Those hired after that date will be required to co-pay the premium if they have less than 25 years of service at the time they retire. Note well, that these health benefits are extended to both the retiree as well as the spouse of the retiree. What is even more amazing is that when the retiree qualifies to participate in Medicare, the Medicare premium that is deducted by the Social Security administration is reimbursed to the retiree by the public employees’ health fund.
Next week we will look at some of the problems and abuses of the retirement system.