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Public pension eligibility

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Public pension eligibility is when public employees reach an age where they are allowed to retire and begin collecting their benefits. When employees are eligible for benefits varies by state. The average retirement age for public employees is nearly 60 years old, whereas the average is around 63 years old for private sector employees.[1] In New York, the Department of Civil Service estimates that state employees retire at an average age of 58.[2]

Ten states in 2010 upped the number of years that new employees must work before they can retire with a full pension. States have done so for several reasons: longer lifespans add pressure to pension systems; lawmakers demand more years from employees given the fiscal crises facing their states and, as many states cut services, citizens are scrutinizing the compensation of public workers more than in prior years.[1]

Illinois raised the retirement age to 67 from 55, and reduced the maximum allowed pension to $106,800 from $391,000. The reforms apply to workers entering the work force in 2011, thus lessening the impact of the reforms. The state's pension gap will not shrink noticeably as a result of these changes for years. In Illinois, teachers can retire as early as age 55 with 35 years of service. Beginning January 1, 2011, new hires must reach age 67 with 10 years of service.[3]

Other states have also increased either the retirement age, amount of service required prior to retirement, or otherwise changed requirements for pension eligibility:

State Adjustment to retirement age
Arizona Increased the 'retirement rule'-worker's age plus years of service before retirement-to 85 from 80[1]
Colorado Increased the 'retirement rule' to 88 from 85 as of 2011, and to 90 as of 2017[1]
Michigan Minimum retirement age of 60; before, workers needed 30 years of service at any age for employees hired after July 1, 2010[1]
Minnesota Increased penalty for early retirement for state patrol and correctional workers[1]
Missouri Increased retirement age to 67 with 10 years of service up from age 62 with 5 years of service; some very long-term workers may be able to retire earlier[1]
New Jersey In March 2010, a law barring part-time workers from the pension system went into effect[4]
New Mexico Increased years of service prior to retirement eligibility from 25 years to 30 years[5]
Utah New fire and public safety employees as of July 1, 2011, must work 25 years, up from 20, before getting a full pension. Most other state employees must now work 35 years instead of 30 before receiving their pension[1]

Experts say changes are less likely with firefighters and police due to the beliefs that older workers should not or cannot be in these positions and that people who do hold these often-dangerous jobs deserve long pensions. Some police and firefighters New York can retire after 20 years of service.[1]

Service requirements

Only a few state plans provide for normal retirement benefits when a person reaches a specified age without an accompanying service requirement. As of 2011, four plans provided benefits without a service requirement after the age of 65.[6]

Twenty plans allow normal retirement with longer service requirements than earlier and generally increased age requirements to 65 or 67.[6]

Nine plans require 10 years of service and one requires 25 years of service. Four plans, however, allow retirement when a member reaches 65 regardless of length of service.[6]

Buying work history: "air time"

The practice called buying "air time" permits state, municipal and school employees to pay to add up to five years to their work history so they are eligible to retire and collect a lifetime pension. In 21 states, workers who are already eligible for retirement can buy extra years to boost a pension by up to 25%. Workers buy credit for non-existent work, in contrast to policies that let workers buy credit for military service or government jobs in different states.[7]

In California, at least 34,202 people have bought air time since 2005. For example, Dan Pellissier, a former adviser to California's previous governor, Arnold Schwarzenegger, paid $75,000 in 2004 for five years of work credit. When he turns 55 in 2015, he will get a California pension of $61,536 a year — nearly $13,000 more than if he hadn't bought air time. That's $320,000 extra by the time he is 80.[7]

The New Hampshire Legislature barred air time in 2007 after finding it was costing the retirement system $25 million to $40 million.[7]

Retire-rehire

A "loophole" in the pension system is that in many of the systems, employees can retire one day, be retired for a one day, and return to work at full pay and a year later start collecting retirement benefits and salary. This "double dipping" was becoming a drain on pension funds in Louisiana and the governor signed a law in July 2010 closes the door ending the overused "retire-rehire" provision in state law.[8]

State laws addressing re-employment after retirement, as compiled by the National Conference of State Legislatures[9]

State Retire-rehire provisions
Colorado Chapter 2, Laws of 2010 ([SB 1]) states that a retiree who returns to work for a PERA employer must make a contribution to PERA equal to the member contribution. Working retiree contributions are not credited to the retiree's member contribution account.
Georgia Act 455, Laws of 2010 (HB 916), provides that if a retiring employee has not reached normal retirement age on the date of retirement and returns to any paid service, his or her application for retirement shall be nullified; provides that certain service as an independent contractor shall not result in a suspension of retirement benefits.

Act 457,Laws of 2010 (HB 969), says retired teachers of normal retirement age have two options if they return to a position that ordinarily would require membership in the teachers’ retirement system:

  • Contribute to the system, in which event the member's retirement benefit will cease and the retired member will reestablish active membership in this retirement system. The member will have the same creditable service that the member possessed at the time of retirement and will accumulate additional creditable service so long as such active membership continues. Upon cessation of such service, the retired member, after proper notification to the board, will receive a retirement benefit based on the member's total accrued service reduced by any amounts already received; or
  • Not contribute to the system, in which event the member's retirement benefit shall not cease, and no additional benefits will accrue.

It is the employer’s responsibility to see that teachers who return to covered service follow the rules specified above although the teacher has a responsibility to notify the employer of his or her retirement status before accepting a position.

Hawaii Act 179, Laws of 2010 ([HB 2533]), provides that retirees may not be rehired by the state or a county government unless they are re-enrolled in the retirement system, with exceptions. Those who are rehired without being re-enrolled, when identified, are required to reimburse the system the amount of benefits received, make the employee contributions they would have owed with 8% annual interest, and contribute to the system for the administrative costs it bore in the matter, if the employee is found to have been at fault. Employers of such employees are to make the foregone employer contributions to the system with 8% interest, and contribute to the system for its administrative expenses, if the employer is found to have been at fault.
Illinois Public Act 96-0889 (SB 1946) covers most statewide retirement plans and states that for employees entering the plans on or after January 1, 2011, annuities will be suspended for a person who returns to service covered by the systems included in the act. The law says that the benefit will be recalculated “if appropriate,” but fails to explain under what circumstances re-calculation would be appropriate.
Maryland Chapter 698, Laws of 2010 (HB 774 /SB 498), increases the maximum average final compensation from $10,000 to $25,000 that retirees of the Employees Retirement and Pension System must have at the time of retirement in order to be exempt from a reemployment earnings limitation.
Michigan Act 75 of 2010 (SB 1227) provides that retirees who retire after July 1, 2010 and work directly for a MPSERS reporting unit, may maintain pension and health benefits if they earn less than 1/3 of their final average compensation. If they earn more than 1/3 of their final average compensation, their pension and health care benefits would be suspended until the employment ends. For those retirees who retire after July 1, 2010, and then work for a MPSERS reporting unit but who are employed independently or by a third party, the bill would suspend their pension and health care benefits.
Mississippi Chapter 546, Laws of 2010 (HB 957), provides that no one who is being paid a retirement allowance or a pension after retirement can be employed or paid for any service by the State of Mississippi, including services as an employee, contract worker, contractual employee or independent contractor, until the retired person has been retired for 90 consecutive days from the effective date of retirement. Thereafter the person may be reemployed while being paid a retirement allowance. Employers are to make the full employer contribution for the person who is re-employed. People who return to covered employment while receiving a retirement benefit are not eligible to earn additional service credit while so employed.
New Mexico Chapter 18, Laws of 2010 (SB 207), amends the return-to-work (RTW) program in the Public Employees Retirement Act. The bill does not affect members of the Education Retirement Board plan.
South Dakota Chapter 23, Laws of 2010 (SB 18), provides that retirement benefits will be cancelled for any retired member who returns to covered service within three months of retirement. The retiree must repay any benefits received in the period, or accept an offsetting actuarial reduction in eventual retirement benefits. For those who return to covered employment after three months, retirement benefits shall be reduced by 15% and the member forfeits annual increases during the period of re-employment. Employee and employer contributions will be made during the period of re-employment. The employee contributions will be deposited in a deferred contribution retirement account. The employer contributions will be made to the Retirement System without any credit to the member, and the member cannot earn additional service credit during the period of re-employment.
Utah Chapter 263, laws of 2010 (SB43), provides that after July 1, 2010 a retired person who returns to employment with any employer covered by the Utah Retirement System (URS) within one year of retirement is returned to active service, the employee’s retirement benefit is cancelled, and the employee can earn additional service credit. Anyone who returns to any covered employment after a one-year separation may choose to continue to receive a retirement benefit and forfeit accumulation of any additional retirement credit (though the employer must pay an amortization rate to URS) or may choose to cancel his or her retirement benefit and earn additional service credit for the period of re-employment. Two years’ service is required to earn additional credit. The benefit will be recalculated when the employee finally retires. Previous law allowed return to covered employment after six months but the six-month requirement was waived for work that was less than 20 hours a week or was with a different agency than the one from which the person retired. A retiree is also prohibited from part-time and contractual work during the separation period.

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