Q:
What information must be included in our governing body's resolution
to adopt the ERI Program? Is there a set format we must use?
A:
The resolution must state that the governing body resolves to
offer its eligible employees the early retirement incentive program,
and pay for its costs, as provided in Chapter 127, 128, 129, or
130 (whichever is the appropriate law for your organization),
P.L. 2003. The resolution must also identify the effective date
of the resolution, as this sets the ERI window, that is, the dates
that employees must retire to receive benefits under this program.
If the employer will be taking advantage of the extension provision
of the law for its critical employees, the governing body may
wish to delegate approval authority for extensions to an administrative
official of the organization. Otherwise, extensions will have
to be specifically approved by the governing body. The resolution
to adopt the ERI program can be the resolution format normally
used by the governing body. A sample
resolution is provided for your use.
Q: Must we involve the bargaining representatives of our employees
in our deliberations on whether to adopt an ERI resolution?
A:
Each of the ERI laws contain a section that requires the employer
to "meet and consult with" the bargaining representatives of its
employees who would be covered under the act. This has to be
done within one year of enactment of the law, that is, before
July 15, 2004. The ERI laws clearly state that the decision to
adopt is to be made by the governing body of an employer. State
law also says that pensions are not a negotiable benefit. Therefore,
at a minimum, the employer must meet with and inform the bargaining
representatives of the law and, as a maximum, may solicit input
into the decision-making process. However, no agreement can be
struck with the bargaining units about the adoption decision.
Q: This
location has adopted the ERI? How and when will we be notified
of the actual pension costs?
A: Any
locations that have a window period that ends during FY 2004 (July
1, 2003 - June 30, 2004) will be notified of their actual costs
subsequent to the completion of the June 30, 2004 actuarial valuation
for the applicable retirement system. Those valuations will be
completed in the November-December 2004 timeframe. Any location
that has a window period that ends during FY 2005 (July 1, 2004
- November 1, 2004) will be notified of their actual costs after
the completion of the June 30, 2005 actuarial valuation, which
will be in the November-December 2005 timeframe. If retirements
are spread over two fiscal years because of the selection of the
ERI Window or because of extensions, complete costs will not be
calculated until the actuarial valuation that covers the final
ERI retirement.
Please note
that notification of actual costs does not coincide with the due
date of the first payment. For PERS and TPAF locations, if costs
are determined as of the 2004 valuations, the first payments will
be due in 2006 and for the 2005 valuation, first payment will
be due in 2007. For PFRS locations, if costs are determined as
of the 2004 valuation, first payment will be due in 2007 and for
the 2005 valuations, first payment will be due in 2008. Interest
does accrue, however, from the date of the valuation.
Q: We
have adopted the ERI and wish to bond our pension costs before
our first payment is due. What is the procedure for obtaining
our estimated pension costs for this purpose?
A: To
provide an estimate, we need you to provide us the estimated payoff
date, that is, the date you wish to pay the pension liability.
You will also have to update an electronic file that the Division
will provide you, which includes the name, social security number,
membership number, salary, retirement date, and early retirement
category of your ERI-eligible employees. Based on the information
on this return file, our actuary will calculate an estimated payoff
figure. However, since final ERI cost figures will not be available
until after completion of the actuarial valuation for the fiscal
year in which the last ERI retirement occurs, this figure is just
an estimate. Once final figures are available, it will probably
be necessary to adjust the final payoff figure, which in most
cases will be after you have bonded those costs.
Q: If we
wish to pay off our ERI liability in one lump sum payment, can
we do so?
A: Yes,
ask us for a pay off figure at the end of the fiscal year in which
your ERI window falls.
Q: One of
our employees who should be eligible for the ERI is not on our
cost sheet. Does this mean he is not eligible for the ERI?
A: Not necessarily. There are several possible explanations for
his not being on the work sheet. For example, the employee would
not appear if he were not active at you location in June 2002.
The employee would not appear if he qualifies for the ERI after
July 2004, the date used to calculate the costs. If pension service
credit the employee purchased since June 2002 would allow him
to qualify, he also would not appear.
Q: How
do I determine the ERI pension costs for this individual?
A: The work sheet is designed to give you a "ballpark
estimate" of costs. Your financial people should make an
estimate based on other employees on your list with similar age,
service, and salary. It is not cost effective for us to go back
to the system actuaries for individual cases.
Q: Why
did you include the part-time employees in our work sheet if they
are not eligible for the ERI?
A: The pension systems and our computer systems do not
differentiate between part-time and full-time employees. You must
identify those who are part-time and line them off your list.
Q: I understand
the concept of "acceleration costs" that you described
in the letter with the cost worksheets. However, we have a teacher
eligible for the ERI who is 75. Why would there be acceleration
costs for her?
A: Under a defined benefit pension plan like the TPAF,
the objective is to fund a member's pension over their entire
active service life, so that when they retire, enough has been
contributed to pay their pension throughout their retirement.
For TPAF, the actuaries assume that there is a probability that
members may work up until age 80 so the funding is extended up
to that time. Under an ERI program, members are induced to retire
sooner than actuarially anticipated. As a result, there has been
an under funding of the member's pension while they were actively
employed. The acceleration cost represents this under funding.
Q: I understand
the concept of "acceleration costs" that you described
in the letter with the cost worksheets. However, we have an employee
in the PERS eligible for the ERI who is 65. Why would there be
acceleration costs for him?
A: Under a defined benefit pension plan like the PERS,
the objective is to fund a member's pension over their entire
active service life, so that when they retire, enough has been
contributed to pay their pension throughout their retirement.
For PERS, the actuaries assume that there is a probability that
members may work up until age 70 so the funding is extended up
to that time. Under an ERI program, members are induced to retire
sooner than actuarially anticipated. As a result, there has been
an under funding of the member's pension while they were actively
employed. The acceleration cost represents this under funding.
Q: I understand
the concept of "acceleration costs" that you described
in the letter with the cost worksheets. However, we have a firefighter
in the PFRS eligible for the ERI who is 63. Why would there be
acceleration costs for him?
A: Under a defined benefit pension plan like the PFRS,
the objective is to fund a member's pension over their entire
active service life, so that when they retire, enough has been
contributed to pay their pension throughout their retirement.
For PFRS, the actuaries assume that there is a probability that
members may work up until age 65 so the funding is extended up
to that time. Under an ERI program, members are induced to retire
sooner than actuarially anticipated. As a result, there has been
an under funding of the member's pension while they were actively
employed. The acceleration cost represents this under funding.
Q: I have
several police officers at my location with over 30 years of service.
They will get nothing from this ERI since the Special Retirement
caps out at 30 years. Why must the employer pay acceleration costs
for them under the ERI?
A: Since the member gets no additional benefits from the
ERI, the employer has no additional liability if it adopts the
ERI program. These members will retire with regular benefits.
You should remove the member from the ERI Cost Worksheet when
conducting your analysis of the program costs.
Q: How does the extension process work?
A:
The ERI laws allow an employer to extend an employee(s) of critical
need to its operations, with the approval of the governing body
and the consent of the employee, for up to a year after the last
retirement date of its ERI window. The Division will issue instructions
as to how the employer should notify us of the extensions.
Q: If an
employee agrees to an extension, can he later change his mind
and retire at an earlier date? If so, will he lose his ERI benefits?
A:
The employee can change his mind and retire earlier than the end
of his agreed extension. The employee will not lose his ERI benefits
by doing so.
Q: I represent
a local government entity with its own employer account with the
PERS. Is my location eligible under Chapter 127 (the authorities
ERI) or Chapter 128 (the county, county college, and municipality
ERI)?
A:
You would be eligible under Chapter 128 if you are from a county,
county college, municipality, county welfare board, county board
of social services, county mosquito control authority, or county
park commission. You would be eligible under Chapter 127 if you
are from any local governmental entity other than one of those
just mentioned. Fire districts, libraries, housing authorities,
parking authorities, MUAs, and soil conservation districts are
included under Chapter 127. Any governmental entity that was
authorized to offer an ERI program under Chapter 23 (the State
ERI program in 2002) is specifically excluded from offering a
program under Chapters 127 and 128.
Q: Chapters 128, 129, and 130 provide category 2 eligible employees
with employer-paid coverage in the State Health Benefits Program
as the incentive. Can we substitute coverage in the plan we already
provide our retirees?
A:
No, the law specifically states that the incentive will be coverage
in the SHBP.
