Preliminary Recommendations for a Modified Public Employees' Retirement System
(Revised as of the July 10, 1998 CPERS meeting)
The MPERS consists of two plans, the current PERS defined benefit (DB) plan with two modifications and a new Defined Contribution (DC) plan. |
| Issues and Plan Features | Defined Benefit Plan | Defined Contribution Plan |
| Plan choices and transfers to the DC plan | Nonvested PERS members and new employees may choose to participate in the DC plan or remain in the DB plan with the modification described below in this column. Choices must be made within 6 months of the effective date of the MPERS or of the employee's hire date. Vested members remain in the current PERS without modification. | Nonvested PERS members would have 6 months from the effective date of the MPERS to choose the DC plan.
New members would initially be enrolled in the DB plan and have 6 months to choose the DC plan. |
| Portability | No change. Employee contributions plus interest may be withdrawn or rolled over to another qualified plan. | Account balances, which include employee and employer contributions plus investment earnings, may be rolled over to another qualified plan. Restrictions may apply under certain federal guidelines or be applied by the plan. CPERS has not yet specifically addressed these restrictions. |
| Contribution amounts | No change. Statutory contribution rate will be 6.9% on 7/1/99 for both employees and employers. Participation in a voluntary deferred compensation 457 plan allows for additional retirement savings. | Members would contribute 6.9%. Employer contributions would also be 6.9%, with a portion going to pay for current DB plan unfunded liabilities and new costs created in the DB plan when a DC choice is offered. The rest of the employer contribution would be deposited to the member's DC account. Participation in a voluntary deferred compensation 457 plan allows for additional retirement savings. |
| Investment control | No change. | Members may direct investment of the DC account within the range of investment choices offered by the plan. |
| Vesting | No change. 5 years. | 5 years. |
| Eligibility for normal (unreduced) retirement | No change. 30 years service regardless of age, 5 years service and age 60, or age 65. | Standard guidelines allow plan members to begin withdrawing benefits at the time of separation from public service, but with penalty if prior to age 59 ½; payments are required after age 70 ½. Plan may set other criteria, which CPERS has not yet specifically addressed. |
| Pay out options | No change. Benefits are paid monthly. | May purchase an annuity from the DB plan; other payout options will be offered by the DC plan, but are not yet specified. |
| Health plan benefits | Nonvested and new DB plan members may allocate 2% of their retirement contributions to a VEBA account to pay, tax-free, postretirement health insurance premiums for coverage in the employer's group plan. Approval of this VEBA feature is tentative, subject to change after further study. | No plan feature specifically for health benefits. Retired members, like current and future DB plan retirees may choose to remain in the employer's group health insurance plan if they pay the full premium. |
| Unused sick leave payout at retirement | Nonvested and new DB plan members may designate any sick leave payout due at retirement to be deposited to a VEBA account for paying postretirement health insurance premiums in the employer's plan. | No change. Current sick leave payout provisions would apply. |
| Disability benefits | No change. | All members would be required to participate in a pooled disability insurance plan costing about 0.6% of DC plan contributions. Amount available for investment would be reduced 0.6%. |
| Death benefits | No change. | The member's account balance is paid out to the beneficiary and is taxable. |
| Loans | No change. No loans. | After 5 years of covered employment, members may take a loan of up to ½ of their account balance, but no more than $50,000. Must be paid back within 5 years with interest based on the prime rate adjusted yearly. Payback must be by automatic payroll deduction. |
| Part-time employees | No change. Membership will be determined based on hours worked. | Same as DB plan. |
| Plan costs | No additional contributions are assumed. VEBA options, when chosen, will reduce the amount paid as monthly retirement benefits. | No additional contributions are assumed. Employer contributions would be 6.9% with a portion going to pay for current DB plan unfunded liabilities and new costs created in the DB plan when a DC choice is offered. The rest of the employer contribution would be deposited to the member's DC plan account. |
| Administrative costs | New administrative costs will be incurred to pay for administration of two plans, administration of the VEBA options for health insurance premiums, DC plan administrative fees, and educational programs. CPERS has not yet addressed how these costs would be covered. |
| Effective date(s) | CPERS voted to delay the effective date for these changes but has not yet set one. This would allow for necessary administrative changes and time to address IRS qualification issues and legal concerns. |
