Retirement System Options

The national financial crisis has caused pension systems and 401(K)s to lose money.  The Utah Retirement System (URS) lost about $4 Billion last year, as already reported on this website.  During the upcoming 2010 Legislative Session, URS may ask the legislature to increase Utah public employee contribution rates by 3 to 4 percent or up to $100 million.  However, lawmakers will decide between various options that affect public employee retirement benefits.

Some of the adjustments that could be considered are listed and explained below.  Although none of these proposals are final, all of us need to be educated on each of the alternatives in order to direct a good outcome.

Suspend or Lower Post Retirement contributions to 401(k)

Utah currently has one of the best post-retirement benefit policies.  There is political momentum to change the benefit for employees who “double dip” to save money.  The concern is whether or not any changes can be legally made to the current employees using the post retirement benefit.

Extend final Average Salary Period

The proposal would allow the salary averages of the highest 5 years to be used in calculating your benefit instead of the top 3 years.

Make COLA’s Discretionary/Delay COLA

COLA’s on retirement disbursements could potentially be deferred until a specific anniversary date has been met – like 3 years after retiring – or until a retiree reaches a certain age ( ex. 65).

Increase Vesting Period

Vesting period for new employees could increase from 4 to 6 years.

Put a minimum age condition on the 30 year benefit

One of the suggestions is to change the minimum age that an employee can retire without a penalty (55, 57, 60, 65).  More discussion will reveal whether current employees would be grand fathered.

Partial benefit payments until a certain age

The proposal would allow for an employee to receive partial retirement benefits until they reach a certain age – a form of phased retirement.

Reduce the multiplier

Reducing the retirement multiplier (currently number of years x 2% x 3 highest average salaried years) from 2% to 1.9%.  Again, no answer yet on whether current employees would be grand fathered.

Increase 20 year public safety and fire fighter requirement to 25 years

Again we have the unknown factor of whether current employees will be grand fathered.

Put a minimum age condition on the 20 year public safety and fire fighter benefit (48, 50, 52, …).

This proposal would change the minimum age that employees can retiree without penalty.

Change back to the contributory system.

Allows employees to participate in funding their retirement benefit but introduces a shift of some of the risk to the employee.

Create a hybrid contributory/non contributory system

This would allow the system to potentially have the employee participate in funding their retirement benefit while still having part of their benefit made up of the non contributory system.  For example, employees might contribute 1% – 3% of their own salary to the plan.

Make the retirement benefit option – employees can choose how they would like to participate at the time of hire.

Change the defined benefit system (DB) into a defined contribution (DC) 401(k) system.

Base retirement eligibility on age + years of service

This is patterned after the “rule of 85’ – requires you to have 30 years of service if you plan to retire at the age of 55 = 85.  This has proven extremely expensive in past reviews.
UAGE will continue watching these retirement issues for you.  Retirement has always been the sacred piece of your overall career choice that legislators haven’t messed with.  UAGE is aware of our critical economic times, but recalls at the same time, that URS is well- managed and well funded.   Drastic cuts and changes may not have as much to do with dollars and it does about political agendas.  You will be contacted for help in contacting your legislators as we learn more.

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