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BILL # SB 1045 |
TITLE: defined contribution; health subsidy; disability |
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SPONSOR: Livingston |
STATUS: Senate Engrossed |
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PREPARED BY: Molly Murphy
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The bill would make the following changes to the state retirement system benefits:
1) Health Insurance Subsidy - Allow participants of the Public Safety Personnel Retirement System (PSPRS) and participants of the Corrections Officers' Retirement Plan (CORP) who are enrolled in the Defined Contribution Plan (DC Plan) to opt-in and join the PSPRS retiree health benefits plan, which provides a monthly health insurance premium subsidy during retirement. The subsidy amount would be at the same level provided to members of the PSPRS and CORP Defined Benefit Plans (DB Plans). This benefit change would impact the class of PSPRS and CORP members known as "Tier 3," who were hired after changes in those systems and specifically "Tier 3" employees who enrolled in the DC Plan.
2) Minimum Accidental Disability Benefit - The bill would change the formula used to calculate accidental disability pension benefits for PSPRS members by making the monthly amount no less than 50% of the member's average monthly benefit compensation.
3) Ordinary Disability Benefit - The bill would also change the formula used to calculate ordinary disability pension benefits for PSPRS members to a calculation that divides the member's actual years of credited service by his/her required credited service for the applicable normal retirement date.
Estimated Impact
The bill would increase state government costs for PSPRS and CORP retirement contributions by approximately $100,000 annually. This fiscal impact relates to creating a new contribution rate to fund retiree health insurance stipends for Tier 3 DC members of PSPRS and CORP that opt-in to the program. The fiscal impact of the bill's other formula changes related to the accidental disability benefits formula and the ordinary disability benefits formula is expected to be minimal.
Health Insurance Subsidy
The bill would allow PSPRS and CORP members enrolled in the Tier 3 DC retirement plan to opt-in and join the PSPRS retiree health benefits plan, which provides a monthly health insurance premium subsidy during retirement. PSPRS estimates that the employer and employee would each contribute 0.135% of the employee salary (0.27% total). These new contributions would be created in order to fund the new health subsidy for these members.
According to PSPRS, the estimated state government salary base for Tier 3 PSPRS and CORP DC members is $69.8 million. When multiplying this salary base by 0.135%, the employer contribution rate increase will cost approximately $100,000 annually. This estimated cost could increase in future years as new employees are hired and more active members are from "Tier 3" and are enrolled in the DC Plan. However, the above estimate could also be overstated as it assumes 100% participation in the program. Members in high turnover positions (such as the Department of Corrections) may be unlikely to enroll in the program which requires immediate contributions for a modest health insurance benefit provided years later in retirement.
(Continued)
Minimum Accidental Disability Benefit
The bill raises the floor for accidental disability benefits to a monthly amount no less than 50% of the member's average monthly compensation. Under current law, Tier 2 and Tier 3 members are only guaranteed an accidental disability benefit of 40% of the member's average monthly compensation. Given the number of new accidental disability claims in a given year, and that this change would only apply to member's claims at or near the minimum benefit level, PSPRS has indicated that this change would have a minimal impact.
Ordinary Disability Benefit
The bill also changes the ordinary disability formula. Under current law, an ordinary disability pension is calculated as follows: A normal pension amount assuming 20 years of service is multiplied by actual years of service (not to exceed 20) divided by 20. SB 1045 would change that last step of the calculation to divide by the member's normal retirement service requirement. Because Tier 2 and Tier 3 have a service requirement that differs from 20 (15 or 25 years depending on the circumstance), this provision of the bill would have a varying impact. Given the number of new ordinary disability claims in a given year and the varying impact of this change, PSPRS has indicated that this change would have a minimal impact.
Local Government Impact
As noted above, the bill's retiree health benefit change would impact "Tier 3" employees who enrolled in the DC Plan. For PSPRS members whose employers participate in Social Security, new hires are given the option to enroll in the DC plan, although in practice only a small proportion of employees select that option. Therefore any local government impact for PSPRS members is expected to be minimal.
For CORP, local government members are automatically enrolled in the DC plan, with the exception of certain probation officers who are given the option to select a DB plan. Overall, the salary base for local government CORP employees enrolled in the DC plan is smaller than the state salary base. Therefore we estimate that any local government impact for CORP members would not exceed $100,000 annually.
3/3/21