PERS Legislation Update
We wanted to reach out to our PERS employees to run through the major changes that Senate Bill 1049, which was signed by Governor Brown yesterday, will impose upon the PERS retirement system. Depending on your particular situation, these three major changes may impact your retirement benefits.
The first change will be implemented starting with January 1, 2020 retirees. This is a limit on how much salary can be used in the calculation of your final average salary. The new cap will be $195,000, which includes, salary, vacation payments, overtime etc. This figure will be adjusted annually for inflation based on the Consumer Price Index (CPI). For most PERS employees, this will not be significantly impactful. However, if your income has been over $195,000 by a significant margin there will be a reduction in your expected pension. If you are in this situation and are considering a 2020 retirement, it may be worth examining the impact of retiring before the end of the year. We can help run projections that would show those different retirement calculations.
The second change is to the ability to work for a PERS employer after beginning your pension. In the past, you have been required to work less than 1,040 hours for Tier One/Tier Two or 600 hours for OPSRP annually if you are already collecting PERS. Beginning in 2020 and running through 2024, if you retire on or after normal retirement there will be no limitation on the amount of hours you can work for a PERS employer. If you retire before normal retirement age, you would need to go back to a PERS employer 6 months after beginning your pension to be able to work an unlimited number of hours.
The third change is to your Individual Account Program (IAP) contributions. Beginning July 1, 2020, if you are earning $2,500/month or more, a portion of the 6% that is contributed to your IAP will be redirected to an ‘Employee Pension Stability Account.’ For Tier One/Tier Two, 2.5% will be redirected. You will have the option to make after-tax contributions to make up this amount. OPSRP members will have .75% redirected and will also be able to make after-tax contributions to the IAP to get back to the full 6% contribution.
The final part of this bill will allow you to change the investment choice of your IAP account. Beginning this year, the IAP funds have been transitioned to target date funds that are based on your date of birth. In the fall of 2020 you will be able to select a different target date fund. This means you will be able to shift your investments to be either more aggressive or conservative than the default selection if you prefer a different risk level.
The only impact for current retirees is that beginning in 2020, you will be able to work an unlimited number of hours at least through 2024.
As with PERS changes in the past, we expect these to be challenged in the courts. At this time, it is too early to guess the results of those potential challenges, but if you would like to examine the potential impact on your retirement we are here to help.
Please feel free to get in touch with us if you have any questions, and I hope you have a great start to the summer.