How Does the 2012 Pension Reform Affect Me?

How Does the 2012 Pension Reform Affect Me?

Chapter 176 of the Acts of 2011 made a number of significant changes to the Massachusetts public pension system.  The law affected both the operations of the local Boards as well as the calculation of benefits for members.  This post will attempt to summarize the changes to benefits for public employees.

To begin, for active employees who were members of the system prior to April 2, 2012, the new law made absolutely no changes to your benefits.  Your benefits will stay the same so long as your account remains in the retirement system.  However, if you leave your job and take a refund of your account, this will end your membership.  If you are subsequently rehired, you will be considered a new hire, and subject to the new law, and all the changes described below.

If you were hired on or after April 2, 2012, there are a number of changes to the law that affect how your benefits will be calculated when you eventually retire.  The allowance you receive at a given age and service time will not be the same as one received by a pre-2012 employee.  The most important changes to the law are listed below:

• The minimum retirement age for all groups has been increased.  For Group 1 employees, the minimum age for retirement is now 60.  For Group 2 employees, the minimum age is 55, and for Group 4 employees, it is age 50.
• The law sets new age factors to be used in calculating an allowance. Again, the exact figures vary by group.  Group 1 employees will reach the maximum age factor at age 67.  Group 2 employees at age 62 and Group 4 employees at 57. 

Our office has prepared new benefit charts to show the impact of these changes.  They are available on our Benefit Calculator page.

In addition,

• Retirement calculations will be based on the average of 5 years of earnings, rather than 3 years of earnings.  This will result in a somewhat lower salary number for nearly all employees.
• The law includes a new requirement that any make-up or redeposit paid into the system must be completed within one year, or be subject to a higher interest rate.
• Termination allowances have been eliminated for new hires.  Pre-2012 remain eligible to collect a minimum benefit if they are involuntarily terminated form their position after twenty years of service.

Our office has begun to provide separate guidebooks for pre-2012 employees and post-2012 employees.  Both books are available on our Benefit Guide page.