Clarification on Retirement Bills

By Susan Kuziak, UEA Legislative Team Member

Although committee meetings and floor debate during both the morning and afternoon included consideration of many bills, the focus of attention was the Senate debate of three bills which will change the benefits of public employees under the Utah Retirement Systems.

The Senate debated separately SB43 (first substitute): Post-retirement Employment Amendments, SB63 (first substitute): New Public Employees’ Tier II Contributory Retirement Act, and SB94: Supplemental Benefit Amendments for Noncontributory Public Employees before voting to pass each bill to the third reading calendar.

Sen. Dan Liljenquist presented each bill followed by questions and comments from many other Senators. Republican Senators praised and support the bills. Democratic Senators asked questions about the data presented to support the bills and expressed deep concern about the need for the changes and with most emphasis, the need to act quickly without further analysis and study. Educators should express thanks to them for not climbing on the express train to retirement reform. Sen. John Greiner, himself a public employee, raised relevant and specific questions about SB43 and SB94 and was the only member of the Republican caucus to vote against these two bills. (Additional details about the debate will be included in a separate update.)

Some Senators have accused public employee groups, including UEA, of misinforming employees about what these bills would do. They seem to forget how complicated some of the changes are and that multiple amendments to the bills have been made in past weeks and continue to be made right up to and during debate of the bills.

SO, let’s be very clear on each of these bills…

SB43 (first substitute): Post-retirement Employment Amendments (effective July 1, 2010) makes changes for employees who are REHIRED into the state retirement system after retiring.
- Future rehires (rehired after July 1, 2010), could come back to employment within the state retirement system, BUT would have to suspend his/her pension benefit (applies to full time reemployment).
- The rehired employee would again earn service credit under the terms of the existing system.
- The contribution to a 401(k) account will be eliminated for future rehired employees.
- An expected amendment would allow employees working on a contract (such as teachers) to rehire up to Aug. 1, 2010, and still qualify under the existing system.
- For currently rehired employees, the percentage of salary contributed to the employee’s 401(k) will no longer be the same as the employer’s contribution rate but will be an amount called the “normal cost.” This rate is now approximately 12 percent, about 4 percent less than what the rate would be next year.

SB94: Supplemental Benefit Amendments for Noncontributory Public Employees (effective July 1, 2010) eliminates the employer 401(k) contribution (1.5% of salary) for all current state employees hired after July 1, 1986.
- Money saved would go into the General Fund.
- NOTE: Those employed prior to July 1, 1986, received this benefit as a “substantial substitute” for moving from the contributory to the non-contributory system. Eliminating it for these current employees would have legal implications.

SB63 (first substitute): New Public Employees’ Tier II Contributory Retirement Act (effective July 1, 2011) changes (and substantially reduces) retirement benefits for all public employees hired on or after July 1, 2011.
- The bill would eliminate the current retirement system for all new hires and replace it with a choice between a defined contribution plan and a greatly reduced hybrid defined benefit/defined contribution plan.
- The defined contribution option would place 8 percent of an employee’s salary in a self-directed investment, with a four-year vesting period.
- The hybrid option would initially place 5 percent of an employee’s salary in a defined benefit plan and 3 percent in a defined contribution plan.
- The hybrid option defined benefit would pay out a 1 percent of salary per year of service credit, as opposed to the 2 percent provide under the current system.
- The hybrid option would shift funding from the self-directed defined contribution plan to the defined benefit plan if investment results are not as expected in the defined benefit system. If costs exceed a total of 8 percent of employee salaries, the additional cost would be borne by participating employees, not the state as under the current system.