Tuesday, July 14, 2009

Public Employees Retirement System Update

On July 13, 2009 the Utah League of Cities and Towns conducted it fourth subcommittee meeting on the Utah State Retirement issue. At this meeting we had asked the various participating entities (Counties, Cities, Special Districts, Police Associations, and Fire Associations) to be prepared to evaluate and prioritize the various retirement modification options that have been provided by the Utah State Retirement System (URS). The group was asked to prioritize from “most acceptable” to “least acceptable”. We also asked that each group come prepared to discuss the issue of having an employee retirement contribution component considered, whereas now most public sector employees have their retirement solely funded by the public employer contribution.

In order to fairly prioritize the various options, we felt that a common set of assumptions would be necessary, so we had also established a set of assumptions for the various options. Below is a list of those options and assumptions:

Benefit Options and Assumptions:

Non-Contributory to Contributory Threshold:

Assumptions: Please evaluate the sensitivity of having a shared employer/employee responsibility for making a pension contribution. The idea being that the employer would make the contribution to a certain level (the current contribution level). After that level is reached, the employee would assume either partial or full responsibility for the remainder of the required contribution amount. Any amount contributed by the employee would be portable and would not be subject to vesting requirements.

Option 1: Redirect the 1.5% 401K contribution to the URS

Assumptions: From this date forward the 1.5% contribution would be redirected to the URS System. This would apply to all current and future employees.

Option 2: Change the Final Average Salary (FAS) calculator from the highest 3 years of salary to the highest 5 years of salary

Assumptions: Those retiring prior to 2011 maintain 3 year (FAS); those retiring after 2011 but prior to 2013 get 4 year (FAS); those retiring after 2013 have a 5 year (FAS).

Option 3: Change the years of service multiplier from 2.0% per year of service to 1.9% per year of service

Assumptions: Apply to only future years of service, and only apply to those not eligible to retire.

Option 4: Change the minimum age of retirement (55)

Assumptions: Change the minimum age of retirement to 55 and grandfather all those who are currently eligible to retire.

Option 5: Change the minimum age of retirement (60)

Assumptions: Change the minimum age of retirement to 60 and grandfather all those who are currently eligible to retire.

Option 6: Members pay full actuarial cost of retiring prior to age 65 if they have less than 30 years of service (rather than the 3% currently applied)

Assumptions: Apply to all current members of the system who are yet to retire

Option 7: Defer the COLA to the 3rd anniversary of retirement or 1st anniversary after turning age 65.

Assumptions: Apply which ever comes first (age 65 or 3rd anniversary). No grandfathering.

Option 8: Move from a 20 to a 25 year retirement for public safety and firefighter retirement.

Assumptions: For new hires only

Option 9: Change post-retired employment and associated contributions

Assumptions: Those who are rehired after retiring would still draw a pension, but make a full contribution to the state retirement system, or could reactivate and forego the pension to acquire additional years of service.

In the meeting we went through the various options to determine the level of acceptability for all participating groups. In doing so, we have found that there are some options that have a natural gravity, but others clearly split the groups based on the disproportionate impact that they may have on certain categories of employees. After receiving the feedback, it was determined that a smaller working group would get together to compile a comprehensive package, or set of packages for the larger group to evaluate. We are now in the process of that compilation and will be meeting again in August to follow-up on the effort. Upon the completion of this effort we will be submitting the agreed upon package to the various group’s policy committees for final recommendations. We intend to have the entire effort completed in time to respond to the legislative request for recommendations for their September legislative meetings.

If you have any questions about this effort, please feel free to call or write the Utah League of Cities and Towns.