Chapter 78, P.L. 2011: Pension and Health Care Benefit Changes

The Chapter 78 law makes various changes to the manner in which the Teachers’ Pension and Annuity Fund (TPAF), the Public Employees’ Retirement System (PERS), the Police, and Firemen’s Retirement System (PFRS) operate and to the benefit provisions of those systems. It also requires all public employees and certain public retirees to contribute towards the cost of health care benefits coverage based upon a percentage of the cost of coverage.

Major changes mandated under this law are detailed below:

Pension Changes for PERS and TPAF:

Under the provisions of Chapter 78, the Public Employees Retirement System (PERS) and the Teachers Pension and Annuity Fund (TPAF) contribution rates will increase from 5.5% to 6.5% of base salary effective October 1, 2011.  The change will be reflected in the October 14, 2011 paycheck.

An additional increase will be phased in over the next seven years until the rate reaches 7.5% of base salary.  Beginning July 2012 the contribution rate will increase by 0.14% each year with the first payroll of July and 0.16% in July 2018 to reach the 7.5% contribution rate (6.64% July 2012, 6.78% July 2013, 6.92% July 2014, 7.06% July 2015, 7.20% July 2016, 7.34% July 2017, and 7.5% July 2018).

The increase in the PERS or TPAF employee contribution rate will also increase the minimum repayment amount for pension loans or the cost to purchase service credit.

A new Tier 5 membership has been created for PERS participants enrolled in the plan on or after June 28, 2011.  The following changes have been made to retirement benefits for PERS Tier 5 members:

  • Service Retirement – the age of retirement for PERS members in Tier 5 increased to age 65.  The Service Retirement formula is:  Annual Benefit = Years of Service/60 X Final Average Salary
  • Deferred Retirement – a PERS member, with at least 10 years of service, who terminates covered employment and applies for a Deferred Retirement would become eligible to receive a benefit starting the 1st day of the month after reaching age 65.
  • Early Retirement – available to PERS members in Tier 5 with at least 30 years of service credit.  The Early Retirement  benefit uses the Service Retirement formula, but is permanently reduced by 3% for each year that the Tier 5 member is under age 65 at the time of retirement.

A member enrolled in PERS prior to June 28, 2011, who transfers employment, will retain his or her original membership tier status provided that there has not been a break in service.

Enrollment and retirement provisions for current employees enrolled in PERS Tiers 1, 2, 3, or 4 remained unchanged.

Pension Changes for PFRS:

The pension contribution rate for members enrolled in the Police and Firemen’s Retirement System (PFRS) will increase from 8.5% to 10% of base salary effective October 1, 2011.  The change will be reflected in the paycheck of October 14, 2011.

A new Tier 3 was created for employees enrolled on or after June 28, 2011.  The following change has been made to the retirement benefits for PFRS Tier 3 members:

Special Retirement – the benefit calculation for a PFRS Tier 3 Special Retirement is changed to 60% of Final Compensation for 25 years of service plus 1% of Final Compensation for each year of creditable service over 25 years, but not to exceed 30 years.  The maximum Tier 3 benefit is 65% of Final Compensation.

Enrollment and retirement provisions for current employees enrolled in PFRS Tiers 1 and 2 remain unchanged.

PERS, TPAF and PFRS Cost of Living Adjustments (COLA) Changes:

The automatic cost-of-living adjustments will no longer be provided to current and future retirees and beneficiaries, unless the COLA is reactivated as permitted by law.

Health Benefits Changes:

The new health/prescription drug contribution is based on the following three factors:

1. Annual salary

2. A percentage of the State’s health premium costs, and

3. The selected level of coverage.

The rates will be phased in over a 4-year period; employees hired before June 28, 2011 will pay one-quarter of the full contribution rate during the first year, one-half  in the second year, three-quarters  in the third year and the full rate in year 4.  Employees hired on or after June 28, 2011 must pay the full 4th year rate.  Based on preliminary projections we anticipate that the contribution will remain at 1.5% during the first year for most employees who were on the payroll prior to June 28, 2011.

The changes will commence October 1, 2011 and will be reflected in the October 14, 2011 paycheck.  The second, third and fourth year rates will be effective in the first pay of July each year.

Use this calculator to estimate your bi-weekly contribution under the new law.