Topic:
MUNICIPAL OFFICIALS/EMPLOYEES; RETIREMENT AND PENSION SYSTEMS; STATE OFFICERS AND EMPLOYEES;
Location:
PUBLIC EMPLOYEES; PUBLIC EMPLOYEES - STATE - RETIREMENT;

OLR Research Report


January 18, 2001

 

2001-R-0105

STATE AND MUNICIPAL EMPLOYEE PENSION COMPARISON

 

By: Lynn Marx, Research Attorney

You asked for a comparison of Connecticut state and municipal employee pensions.

SUMMARY

This report compares Tier II and Tier IIA of the State Employee Retirement System (SERS) with the Municipal Employees' Retirement Fund B (MERF). All the pension plans are defined benefit plans; that is they provide a set level of benefits to employees who meet various service requirements.

SERS Tier II and IIA have only a few differences. Tier IIA requires employee contributions while Tier II does not. Tier II permits normal retirement at age 70 with 5 years vesting service while Tier IIA does not.

There are several differences between MERF and SERS. MERF has a longer vesting period than SERS. The employer contribution is less in MERF than SERS. MERF has a lower normal retirement age than SERS and allows individuals with 25 years of service to retire at any age. MERF does not have a minimum age for early retirement. MERF's cost of living increase does not begin until the retiree is 65 years old.

EMPLOYEE COVERAGE, VESTING PERIODS, AND CONTRIBUTION RATES

Table 1 shows whether the employees are covered by social security, the vesting requirements, and the employer and employee contributions.

Table 1: Employee Coverage, Vesting Periods, and Contribution Rates

Plan

Social Security (SS) Coverage

Vesting period

Employee Contribution (% of salary)

Employer Contribution

(% of salary)

Connecticut-Tier II

Yes

5 years (actual)* or 10 years (vesting)

0% (excluding hazardous duty)

15%

Connecticut-Tier IIA

Yes

5 years (actual) or 10 years (vesting)

2% (excluding hazardous duty)

15%

MERF-Fund B

Most employees are covered by SS

10 years continuous service or 15 years of aggregate service

Members covered by SS: 2-1/4% of compensation up to SS taxable wage base plus 5% of compensation, if any, in excess of such base

Members not covered by SS: 5%

2 to 6%

*Actual state service includes all years and months of state service for which the employee paid contributions subject to permanent break in service rules. Vesting service includes actual state service, periods of severance of less than 12 months, and purchases of various types of leaves and service, e.g., military service and service in other states.

AGE AND SERVICE REQUIREMENTS FOR NORMAL AND EARLY RETIREMENT

Table 2 shows the age and service requirements necessary for a normal and early retirement and the actuarial reduction in annual benefits for an early retirement.

Table 2: Age and Service Requirements for Normal and Early Retirement

State

Normal Retirement

Early Retirement

Actuarial Discount for Early Retirement

Connecticut-Tier II

Age 60/25 yrs vesting

Age 62/10 yrs vesting

Age 62/5 yrs. actual

Age 70/5 yrs. vesting

Age 55/10 yrs vesting

0.25% per month

Connecticut-Tier IIA

Age 60/25 yrs vesting

Age 62/10 yrs vesting

Age 62/5 yrs actual

Age 55/10 yrs vesting

0.25% per month

MERF

Age 55/10 yrs of continuous service or 15 yrs of active aggregate service

or

25 yrs of aggregate service (no age limit)

Any age with 10 years of continuous service

Actuarial reduction

PENSION BENEFITS

Table 3 concerns benefits. The plans base employees' pension benefits on final average salary (FAS) or final average pay (FAP) and years of service. FAS uses the employee's three highest-paid years. FAP uses the employee's three highest-paid consecutive years.

Table 3: Pension Benefits

State

FAS/ FAP Period

Benefit Formula

Benefit Limit

COLA

State Income Taxable

Connecticut-Tier II

3 highest years (except, no 1 year's earnings, commencing 1/1/86, can be > 130% of the average of the preceding 2 yrs)

1.33% x FAS + 0.50% x FAS > “breakpoint” x years of credited service (to a maximum of 35 yrs) and 1.625% x FAS x yrs in excess of 35

None

For those who retire after 7/1/99, 2.5-6.00%

Yes

Connecticut-Tier IIA

3 highest years (except, no 1 year's earnings can be > 130% of the average of the preceding 2 yrs)

Same as Tier II

None

For those who retire after 7/1/99, 2.5-6.00%

Yes

MERF

3 highest consecutive years

If covered by SS: 1-1/6 % x FAP up to SS earnings base + 2% x FAP over SS earnings base x years of service

Maximum annual benefit, including workers' comp. and SS, is 100% of FAP

3-5% beginning on July 1 following 65th birthday

Yes

LM:eh