Pension Reform—2015
Senate Bill 1
From Senate Leadership memo on Senate Bill 1
http://archive.pasbo.org/Pension%20memo.pdf
Proposed Changes under Senate Bill 1
• Creates mandatory Defined Contribution Plan and Cash
Balance Plan for new employees hired on/after July 1, 2016.
• Makes changes to future benefits of current employees
– Pre-Act 120 employees will need to increase employee
contribution to keep 2.5 multiplier for future benefits
– Act 120 employees will be limited to defined benefit plan for
future benefits on salary up to Social Security wage base. Have
optional DC and Cash Balance plan for salary above.
– Anti-spiking provision for pre-Act 120 employees
– Revenue neutral Option 4
– Contribution savings provisions for pre-Act 120 employees
choosing higher employee contribution with 6% corridor (4% for
Act 120 employees)
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Senate Bill 1
From PERC Actuarial Note on SB 1
4
New Employees
(hired on/after July 1, 2016)
• New employees become Class T-I—no Defined Benefit
plan
Cash Balance Plan
5
Defined Contribution Plan
Employee contribution of 3%; no employer
contribution
Employee contribution of 3%; employer
contribution of 2.59% (employee can
contribute up to an additional 3% in DC plan)
Employees credited with interest at the lower
of 4% or rate paid by 30 year Treasury Bonds
Employee is fully vested in employer
contributions after 4 years
Pre-Act 120 Employees
(hired before July 1, 2011)
• Employees currently in Class T-D will become Class T-G
or Class T-H for all benefits earned after 7/1/16
Class T-G
Class T-H
Employee contribution
rate=10.5%; multiplier of 2.5
Employee contribution
rate=6.25%; multiplier of 2.0
Optional Cash Balance Plan:
employee contribution up to 3%
Optional Cash Balance Plan:
employee contribution up to 3%
No defined contribution plan
No defined contribution plan
Shared risk based on actual
returns: 6% corridor (10.5%-4.5%)
No shared risk provision
• T-D employees will automatically default to T-G
employees for benefits earned after 7/1/16. Will
have 180 days to elect to become T-H employee—
once decision is made, it is irrevocable.
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Act 120 Employees
(hired on/after July 1, 2011)
• Employees currently in Class T-E and Class T-F
• Retirement compensation under DB is limited to Social
Security wage base—only amount up to wage base can be
used in calculation of final average salary
Classes T-E and T-F
Cash Balance Plan
Defined Contribution Plan
Retain current DB plan for all
benefits after 7/1/16 up to the
Social Security taxable wage
base ($118,500 for 2015)
Optional participation in Cash
Balance plan: employee
contribution up to 3% for salary
above Social Security wage base
Shared risk based on actual
returns: 4% corridor
Employee must participate in BOTH the Cash Balance and DC plans
if choosing to participate in one
7
Optional participation in DC
plan: employee contribution
3%; employer contribution
2.59% for salary above Social
Security wage base
Social Security Wage Base Growth
$140,000
$120,000
Current Wage Base $118,500
$100,000
$80,000
$60,000
$40,000
$20,000
$0
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Senate Bill 1
From PERC Actuarial Note on SB 1
9
Senate Bill 1
From PERC Actuarial Note on SB 1
10
From PERC Actuarial Note on SB 1
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