Massachusetts Teachers Retirement System Update

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MASS 2008
Massachusetts Teachers Retirement System
Update Joan Schloss Executive Director Erika
Glaster Deputy Executive Director
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MASS 2008
Todays topics

• MTRS Overview
• Legislative update
• Actuarial costs funding the system
• MTRS benefits overview
• Creditable service for administrators
• Working after retirement

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What is the MTRS?
MASS 2008

• The plan
• Formed under M.G.L. Chapter 32
• Operates as a defined benefit plan under Section
  401(a) of the I.R.C.
• 23.2B total assets (as of January 1, 2007)
• 8.5B in unfunded actuarial accrued liability (as
  of January 1, 2007)
• Governed by seven-member, unpaid Board
• Two offices, in Cambridge and Springfield
  approximately 80 staff members

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What is the MTRS?
MASS 2008

• Membership
• K12 public, charter and collaborative school
  teachers and administrators
• All eligible employees are required to enroll
  with the MTRS and make mandatory contributions
• The largest of the 106 Massachusetts contributory
  retirement systems
• Active members 89,000
• Inactive members 12,000
• Retirees and survivors 49,000
• Total membership 149,000

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MTRS Retirement Statistics
MASS 2008
FY00 through FY07, and FY08 projected
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What do we do for you?
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MASS 2008

• When you join ? Establish your MTRS
  annuity savings account
• Throughout ? Maintain your MTRS annuityyour
  career savings account ? Process your service
  purchases, if any ? Keep you informed of
  retirement issues via seminars, newsletters
• If you leave ? Refund your account upon request
  active service ? If you die, process a benefit
  toprior to your your survivorretirement
• During your ? Pay you a monthly
  retirementretirement allowance ? Pay a
  benefit to your survivor, if applicable

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Resources for membersOnline at mass.gov/mtrs
MASS 2008

• Home Members Active members
• Downloadable forms
• Service purchase applications
• Beneficiary designation form
• Retirement and refund applications
• Retirement benefit estimator
• Info on plan benefits, pending legislation,
  regulations, useful linksand more!
• MTRS M_at_il Register to receive periodic updates
  via e-mailits easy!

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MASS 2008
2008 Legislative Update
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Pending Federal Legislation
MASS 2008

• H.R. 82
• Would repeal the GPO WEP
• As of 1/28/08, 337/435 (77) members of Congress
  have co-sponsored
• Cost estimate 60- 80 billion over next 10
  years
• If full repeal deemed too costly, modifications
  to WEP GPO remain possible

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Pending State Legislation
MASS 2008

• S1610 would allow all Option C retirees to use
  the more generous factor tables, amended in 2004
• FY 09 Budget
• COLA Reform
• Increase base from 12K to 16K
• Extends funding schedule to 2026
• Passed by House and Senate
• Pending Governors action
• COLA remains inadequate inflation protection

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Pending State Legislation
MASS 2008

• S 1616
• Amends statutory definition of regular
  compensation
• Eliminates fringe benefits as pensionable
  annuities, housing, insurance premiums, etc.
• S 1632
• Also amends definition of regular compensation
  and includes future cap on 3-year salary average
  (125,000)
• Ordered to study
• Policy drivers pension envy, perceived abuses

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Pending State Legislation
MASS 2008

• S 1631
• Would allow purchase of non-public school service
  rendered after 1973
• Reported favorably from Joint Committee on Public
  Service
• Referred to Senate Ways Means 11/07
• H 4341 (formerly H 2713)
• Increases post-retirement earnings limit by
  15,000/year
• Reported from House Ways Means 11/07
• Ordered to 3rd reading 1/08

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State law reminder M.G.L. c. 268A 25
MASS 2008

• School districts must notify retirement boards of
  suspensions of members under indictment, and
  outcome of the indictment
• DAs and AG are required to inform the MTRS when
  members have been convicted
• Pension forfeiture M.G.L. c. 32 15
• Any violation of the laws applicable to the
  members position
• Pension is forfeited upon conviction
• Forfeiture is not negotiable it cannot be
  become a condition of a settlement

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Funding the System
MASS 2008
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MASS 2008
Commonwealth funding schedule

• MGL c. 32 22C
• Established a 40 year funding schedule
• Funding schedule currently 2023
• Requires annual state appropriation comprised of
  the normal cost amortized payment for unfunded
  liability
• Payment for SRB, TRB, Boston teachers, COLA
  payments

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MASS 2008
Commonwealth pension appropriations last 5 years

• Fiscal Year Appropriation
• FY2005 1.216B
• FY2006 1.274B
• FY2007 1.335B
• FY2008 1.398B
• FY2009 1.465B
• portion attributed to MTRS 800M

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MASS 2008
Employee and employer contribution rates

• 85 of pension appropriation dedicated to paying
  down unfunded liability (amortization component)
• Increased member contributions shift costs from
  employer to employee
• 11 contribution rate funds 93 of retirement
  benefit
• Under SS employer contributes 6.2 of payroll,
  under current pension plan employer contributes
  2.2 of total normal costs as percentage of
  payroll

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MASS 2008
Employee and employer contribution rates As a
percentage of total payroll and normal cost
Valuation Total Employee Employer EmployeeYear No
rmal Expected Normal contributions Cost Contribut
ions Cost as a of Total Normal Cost 1979
15.20 5.30 9.90 35 1983 12.90 5.40 7.50 42
1987 10.00 5.90 4.10 59 1996 10.43 6.93
3.50 66 2001 10.05 7.69 2.36 77 2007 11.89
9.69 2.20 81
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MASS 2008
Cost of retirement benefits
Source PERAC 2007 Annual Report
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MASS 2008
PRIT performance (periods ending 1/1/2007)
1 year 3 years 5 years 10 years PRIT
Returns 11.92 13.8 16.3
9.9 Investment rate of return assumption
8.25 Rate of return since inception
11.43 Total market value of
assets 23.2B Unfunded liability
8.5B Current system funded ratio 71
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Benefits Overview
MASS 2008
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All members contribute a percentage of earnings
MASS 2008

• Your rate is determined by the date on which you
  established membership rights in the public
  retirement system
• MA retirement system start date Rate
• Prior to 1/1/75 5
• Between 1/1/75 and 12/31/83 7
• Between 1/1/84 and 6/30/96 8
• Between 7/1/96 and 6/30/01 9
• On or after 7/1/2001 (RetirementPlus) 11
• Additional 2 on earnings over 30,000 may apply

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MASS 2008
You contribute on your regular compensation

• Includes
• Annual salary per collective bargaining
  agreement
• Administrators contract
• Longevity
• Coaching

• Excludes
• Retirement incentives
• Sick leave buy-back
• Overtime
• Hourly payments
• Temporary salary augmentations

Note You pay contributions only on earnings that
count as regular compensation. Likewise, when
we determine your final salary average for your
retirement benefit calculation, we count only
your regular compensation.
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Examples of Fringe Benefits that are Regular
Compensation
MASS Leadership Academy Series 2007
MASS 2008

• Premiums paid by employer for a administrators
  annuity contract
• Premiums paid by employer for an administrators
  individual life or disability insurance policy
• Non-cash allowances such as housing provided by
  the district
• Caution potential legislative change

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Fringe Benefits that are not Regular Compensation
MASS Leadership Academy Series 2007
MASS 2008

• Expense reimbursements such as automobile mileage
  or other travel expenses
• Cash paid to the member in lieu of health
  insurance premiums
• Professional development incentives that do not
  become part of base pay, such as tuition
  reimbursements or payments for attending workshops

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Regular Compensation Some Things to Consider
MASS Leadership Academy Series 2007
MASS 2008

• Evaluate contracts carefully avoid
  renegotiations
• Understand regular compensation rules during
  negotiations express all compensation provisions
  in writing
• Ensure that the correct contribution rate is
  applied and deductions for all eligible
  compensation are being taken, particularly for
  premiums paid for life and disability insurance
  and annuity payments

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Your MTRS benefits
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MASS 2008

• In-service death benefits
• If you die while you are an active teacher, a
  benefit to your survivor(s)
• Retirement benefits
• Disability (ordinary and accidental)
• Termination
• Retirement (superannuation)

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In-service death benefits
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MASS 2008

• A one-time, lump-sum distribution of your annuity
  savings account
• OR
• A monthly member-survivor benefit
• Calculated the same as Option C
• Age factor increased to 55 (if member under 55)
• Dependent child(ren) allowance
• 120/month to eldest child 90/month for each
  additional child
• Payable until age 18, or age 22 if full-time
  student
• Keep your MTRS beneficiary designation current!

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Disability retirement
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MASS 2008

• Ordinary disability retirement
• Service requirement at least 10 years
• Benefit formula
• Nonveteran Superannuation retirement formula,
  with age factor increased to age 55
• Veteran 50 of last annual salary, plus annuity
• Accidental disability retirement
• No service or age requirements
• Disability must be due to injury or hazard
  sustained while performing job duties
• Benefit formula 72 of last annual salary, plus
  annuity
• Annuity Members account balance x
  actuarial factor

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Termination retirement
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MASS 2008

• Pursuant to M.G.L. c. 32 10(2)
• Service requirement at least 20 years
• Termination must
• Be completely involuntary (for example, as a
  reduction in force or failure of reappointment)
• Not be due to moral turpitude
• Benefit formula
• (3-yr salary average x 1/3) Annuity
  Option A
• Annuity account balance x actuarial factor

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Eligibility for retirement
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MASS 2008

• Two superannuation retirement plans, each with
  different eligibility criteria
• Regular
• Any age, with 20 years of creditable service, OR
• Age 55 with 10 years of creditable service
• and

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Eligibility for retirement
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MASS 2008

• 2) RetirementPlus
• Any age, with 30 years of creditable service, at
  least 20 years of which must be teaching
  service with the MTRS or Boston Retirement System
• Enhanced benefit Additional 12 added to
  allowable percentage of salary average upon
  reaching 30 years, with additional 2 for each
  full year thereafter

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Creditable serviceRegular service
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MASS 2008

• Full-time service
• 10-month contract 1 year
• 12-month contract 1 year
• Part-time service
• Prorated based on percentage of full-time
  service rendered
• Exception Part-time service rendered prior to
  November 9, 1990, with no status change (Madden
  case)
• Leaves of absence
• Paid vs. unpaid
• Took a refund? You may buy it back

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Creditable servicePurchasable service
MASS 2008

• Refund buy-back
• MA substitute or temporary teaching
• Out-of-state public school teaching
• Department of Defense overseas dependent school
  teaching
• Nonpublic school teaching
• MA state or municipal employment
• Military service
• Peace Corps service
• Vocational education

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Creditable serviceHow do I purchase service?
MASS 2008

• Download service purchase forms from
  www.mass.gov/mtrs Downloadable forms
• Submit completed form to MTRS for processing we
  will send you an invoice
• The cost typically includes principal (past
  earnings x applicable contribution rate) and
  interest (4.125 compounded annually through date
  of payment)
• Special formulas apply to certain types of
  purchases (e.g., voc-exp, military)
• Pay by personal check, a rollover or transfer
  from an eligible plan, or through our five-year
  installment plan (must be paid for before your
  date of retirement)

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Creditable Service for Administrators
MASS 2008

• Many administrators begin their careers as
  teachers under a 10-month contract and end
  their careers working under a 12-month contract
• Position Value of one month service
• Teacher 0.1 year (1/10th)
• Administrator 0.0833 year (1/12th)
• A change in contract status mid-career may affect
  your final service credit

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Creditable Service for Administrators - Example
MASS 2008

• Sam Superintendents service history
• Teacher 9/1/73 - 6/30/86 13.00 yrs
• Principal 9/1/86 - 6/30/96 9.83 yrs
• Superintendent 7/1/96 - 6/30/08 12.00 yrs
• Total service 34.83 yrs
• The regular contract period for Sams position as
  a Principal was July through June, so in his
  first year, he only worked 10/12ths of the year
  (10/12 0.8333 yr)
• If Sam needs 35 years to reach 80, hell need to
  retire on 8/31/08, NOT on 6/30/08!

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The retirement formula
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MASS 2008

• Age factor
• x Your creditable service
• Percentage of salary average

RetirementPlus percentage, if
applicable (additional 12 at 30 years, plus 2
for each full year thereafter) Percentage of
your salary average (80 max)
x Salary average (highest three consecutive
years) Your Option A annual benefit
Veterans benefit, if applicable (15 per year
of creditable service, up to 300) Your total
Option A annual allowance
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The three benefit options
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MASS 2008

• Option Retiree benefit Survivor benefit, if
  any, amount upon retirees death
• A Maximum None allowance

B Appr. 1 One-time lump-sum payment less
than payment of balance, if any, Option A
remaining in retirees account amount no
restrictions on beneficiary designation
C Appr. 911 Monthly benefit, equal to
2/3 less than of retirees benefit, to
one Option A named beneficiary
(restrictions amount apply) pop-up provision
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Example Sam SuperintendentRetirementPlus
retirement on 6/30/08
MASS 2008

• Age factor (age 58 at retirement) 0.018
• x Years of creditable service x 34.0
• Percentage of salary average 61.2

RetirementPlus percentage, if
applicable 20.0 Percentage of salary average
(80 max) 80.0
x Salary average (highest three consecutive
years) x 130,000 Option A
annual benefit 104,000
Veterans benefit, if applicable 300 (15
per year of creditable service, up to
300) Total Option A allowance
104,300/yr 8,691/mo
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IRS Benefit and Earnings Limits for 2008
MASS Leadership Academy Series 2007
MASS 2008

• IRC 401(a)(17) annual compensation limit is
  230,000
• IRC 415(b) maximum annual benefit _at_ age 62 is
  185,000
• limits are lower for retirements prior to age 62
  based on actuarial equivalent
• Limits are indexed for inflation each year by the
  IRS

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IRC 401(a)(17) Compensation Limit - 2008
MASS Leadership Academy Series 2007
MASS 2008

• Pre-1996 members
• No limit
• Membership dates after 12/31/1995 and before
  2/28/2002
• regular limit (230,000) applies
• possible solution under MGL c. 32 s. 104
• Membership dates on or after 2/28/2002
• regular limit (230,000) applies
• no pre-tax contributions on excess earnings
  allowed

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IRC 415(b) Benefit Limit
MASS Leadership Academy Series 2007
MASS 2008

• Example Mary Educator age 59 (80)
• 3-year salary average 180,000
• x 80
• Option A benefit 144,000
• IRS maximum benefit
• (adjusted for age 59) -135,000
• Marys excess benefit 9,000
• As the IRS increases the annual limits, the
  excess benefit amount decreases

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QEBA
MASS 2008

• In order to pay benefits in excess of the 415(b)
  limit, the MTRS has established a Qualified
  Excess Benefit Plan (QEBA)
• Private Letter Ruling (PLR) request made to the
  IRS in December 2006 for approval of the QEBA
• Excess benefit amount
• paid from the annual state appropriation
  (employer contributions) pursuant to grantor
  trust
• reported on W-2 form rather than 1099R

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Working after retirement
MASS 2008

• There are no limits on the following
• Employment in the private sector
• Employment in another statepublic or private
• Employment within the federal government
• Volunteering

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Working after retirement
MASS 2008

• Limitations on employment in the
• Massachusetts public sector
• Separation from service 60-day period of
  separation from service required waived if
  retiring at age 65 or at 80 maximum benefit
• Time Cannot exceed 960 hours in a calendar year
• Earnings Post-retirement earnings cannot exceed
  the difference between the current salary of the
  position from which you retired, and the amount
  of your annual pension

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Working after retirement
Part 3 Other retirement issues
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MASS 2008

• Example Calendar year 2008
• 2008 salary for your pre-retirement
  position 140,000
• Annual gross retirement allowance 100,000
• 2008 earning limit 40,000
• Salary includes earnings such as regular
  longevity, coaching and contracted stipends. It
  does not include annuity/insurance premiums or
  other fringe benefits.

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Working after retirement
MASS 2008

• Working/earning more than the s. 91
• limits is allowable only if
• The retiree suspends his/her pension
• OR
• The retiree has been approved for a critical
  shortage waiver by the ESE
• School district must apply to ESE
• RetirementPlus retirees not eligible for a
  critical shortage waiver until 2nd anniversary of
  their retirement date
• Waivers are for one-year term

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Reinstatement to ServicePursuant to MGL c. 32,
105
MASS 2008

• Allows members to unretire
• All pension benefits received must be repaid,
  plus 8.25 annual interest
• The reinstated member must remain in service for
  at least 5 full-time years
• Cost estimate worksheet at
• http//www.mass.gov/perac/forms

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Retirement Contributions for Rehired Annuitants
MASS 2008

• Except for members reinstated under 105,
  employees working after retirement do not pay
  MTRS retirement contributions and do not accrue
  additional service credit

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Hiring Retirees
MASS 2008

• Retirees working as consultants and independent
  contractors are subject to the 91 limits
• What about hiring a retiree through a 3rd party?
• Effective July 1, 2008, retirees hired under
  employee leasing arrangements are subject to
  the 91 limits
• Notice sent to all employers in March
• Best to ask the MTRS before you hire because the
  retiree will be liable for repayment if the
  limits are exceeded

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Plan ahead for your health insurance coverage
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MASS 2008

• A year BEFORE your date of retirement
• Contact your local insurance administrator
• If you are retiring from a participating
  district, contact the Group Insurance Commission
  (www.mass.gov/gic)
• Find out how Medicare eligibility will impact
  your future insurance benefits visit
  www.medicare.gov
• Understand survivor health insurance is your
• survivor covered upon your death at what
  rate?
• If changing school districts, find out about
  requirements to qualify for retiree health
• insurance coverage, if any, before you
• decide to leave current employer

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Social Security
MASS 2008

• Two double dipping laws
• Windfall Elimination Provision (WEP)
• Exempt from WEP if you were eligible to retire
  from the MTRS prior to 1/1/86
• Government Pension Offset (GPO)
• Exempt from GPO if you were eligible to retire
  prior to 12/1/82
• For more info, please see our handout, Social
  Security for the Massachusetts Educator and
  www.ssa.gov

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MASS 2008
Thank you for attending todayPlease encourage
your payroll and HR staff to attend the MTRS
Employer Programs starting next week!
For more information

• www.mass.gov/mtrs
• Cambridge 617-679-6877
• Springfield 413-784-1711