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Results
of NCTR Portability Survey  |
| Cynthia
L. Moore, Washington Counsel
National Council on Teachers’ Retirement August, 1999 NCTR President Don Miller convened a Portability Committee, which met in April of 1999 to make recommendations about the "next generation" of pension portability opportunities for teachers and other public employees. As part of this responsibility, the committee surveyed the organization’s membership about current portability options offered to their plan participants. In May, the 73 retirement systems that belong to NCTR received the survey. By June, 45 systems had responded for a 61% return rate. The survey results follow, and the responses are compiled in the spreadsheet. It may be easier for you to view a printable version of this spreadsheet. Question 1: Does your plan accept direct rollovers from individuals who have terminated from previous employment and wish to move into your plan, money from a qualified plan of the previous employer? 29 - Yes More than one-half of the respondents accept direct rollovers. Thus, plan participants have the opportunity to take money from previous employment and move it into the retirement system in which they currently participate. Rollovers allow, in effect, the plan participant to consolidate pension money from various sources. In many cases, survey respondents provided details about the purposes and limitations (if any) on accepting direct rollovers. Some survey respondents noted that they accept direct rollovers only for purchase of service credit (Arizona SRS, Georgia TRS, Massachusetts TRS, Michigan PSERS, North Dakota TFFR, Ohio SERS, Pennsylvania PSERS, Rhode Island ERS, and South Carolina Retirement Systems. Others commented that they accept rollovers for: Payment of previous service only (Idaho PERS); Purchase of certain types of service and to repay refunds (Illinois MRF); and Re-payment of prior refunds (Duluth TRFA). Certain respondents mentioned that they accept direct rollovers only if they are from a conduit IRA (Chicago PSTPRF, Duluth TRFA, and Virginia Retirement System). Tennessee CRS allows rollovers from not only conduit IRAs, but also 401(k)s. Question 2: Does your plan allow installment purchases of service credit? 37 Yes Of all the means of providing portability, the most common was allowing installment purchases of service credit. This method of payment allows flexibility. Respondents noted some limitations in the maximum number of payments (Denver PSEPBA, 12 months; Omaha SERS and North Dakota TFFR, five years; and Pennsylvania PSERS, six years). Other limitations were mentioned. In Connecticut, TRS members may pay for prior Connecticut service by installment, but other prior service (e.g., out-of-state and military) is purchasable at retirement by lump sum payment. Duluth TRFA allows the installment option for refund repayments only. The New Hampshire Retirement System allows installment payments for certain in-state purchases. Question 3: Does your plan allow pre-tax purchase of service credit? (I.e., using authority under IRC § 414(h)(2) that has been interpreted as allowing a plan participant to make an irrevocable decision to have purchases of service credit deducted from his/her paycheck on a pre-tax basis.) 15 Yes One-third of the survey respondents allow pre-tax purchase of service credit. This option is particularly advantageous because members do not use money that has already been taxed to purchase the credit. Illinois TRS commented that participation in their Payroll Deduction Program (PDP) has been very high due to members’ upgrading service credit earned before July 1, 1998, to a new formula. TRS participants may also use PDP for optional service purchases. The Virginia Retirement System received authority to offer pre-tax purchase of service credit beginning May 1999 and Massachusetts TRS expects to have it available within 12-18 months. Question 4: NCTR has done a survey showing that most public school teachers can purchase out-of-state teaching service. We are interested in knowing about less common types of purchases. Please indicate whether your plan authorizes the following types of purchases: __ Private sector service; Survey respondents provided the following information: 19 allow parochial or private school service; Chicago PSTPRF reports that purchases for parochial or private school service is being considered. Members of Indiana TRF may purchase service credit from private Indiana colleges. In addition to the foregoing, some respondents noted the cost of service credits and limits on the number of years purchasable. Question 5: A few states have authorized their retirement systems to transfer participant’s credit to other retirement systems. If the transfers are authorized between retirement systems in the same state, they are called "intrastate reciprocity." If the transfers are authorized between systems in different states, they are called "interstate reciprocity." Does your plan have such agreements with other plans? Intrastate – 26 Yes 19 No; Intrastate Reciprocity. Although some public employees spend their entire careers working in one state, they may work for different employers. When they change jobs, their retirement system coverage may change. Many states recognize this job movement and authorize affected employees to transfer service from one retirement system to another. Survey respondents with authority to effect such transfers are: Arizona SRS (names of participating systems not provided); Georgia (TRS and ERS); Michigan (PSERS and SERS); Louisiana (any retirement system in the state); Massachusetts (among all 106 public retirement systems in the state); Montana (TRS and PERS); New York (systems of the state and systems of the City of New York); Ohio (all retirement systems); North Dakota (TFFR and PERS); Rhode Island (between ERS--which includes both teachers and state employees--and the Municipal ERS); Virginia (names of participating systems not provided); and West Virginia (TRS and PERS). Although the survey asked NCTR members to identify transfer options only, respondents interpreted the intrastate reciprocity portion of the question differently. Specifically, some respondents answered "yes" in cases where they do not have authority to transfer credit per se, but have rules that allow a participant to combine service credit in some way. These rules, in effect, result in a type of reciprocity. California STRS has partial reciprocity with most public retirement systems in the state. This partial reciprocity does not transfer credit, but rather recognizes the highest final average salary from either employer to compute the benefit. For example, if someone worked in California PERS-covered employment for 20 years and then worked in California STRS-covered employment for five years, he/she would be entitled to two separate benefits, but California PERS and STRS would use the individual’s highest final average salary when calculating the benefit. Illinois has a law known as the Reciprocal Act that covers 13 public systems in the state. The systems "recognize" service earned in other systems for such purposes as vesting and the final average salary calculation, but service is not transferred. In Kentucky, service credit is not transferred, but is combined for purposes of meeting eligibility for retirement. The calculation of final average salary is made with both plans using their own retirement formulas and paying benefits on service. In Minnesota all years of service with various public retirement systems in the state are combined. Pennsylvania law allows PSERS credit to be combined with SERS credit. In Arkansas, service credit is combined to meet retirement eligibility. The final average of the system from which the participant retires is used by all reciprocal systems. Hawaii ERS and Tennessee CRS pointed out that as consolidated systems, they offer automatic intrastate reciprocity. Interstate Reciprocity. While reciprocity either through transfer or some other means is somewhat common on an intrastate basis, it is rarely available on an interstate basis. At the time the survey was conducted, only Missouri PSRS had authority to enter into agreements with retirement systems of other states to transfer credit. Texas TRS noted, however, that as of September 1, 1999, its board will have the authority to do so. Question 6: Please describe any current legislative activity in your state to promote portability. A number of items appear on the attached survey, the most salient of which are mentioned here. In Minnesota, the Governor signed legislation in 1999 that significantly expands the right of all public school teachers in Minnesota to purchase service credit. Prior to that time, they had very little opportunity to do so. In Iowa, effective July 1, 1999, refundees will receive a percent of employer-accumulated contributions. Finally, the defined benefit versus defined contribution plan issue was brought up by two survey respondents. The Florida Retirement System expects an alternative defined contribution choice, wage indexing, and a reduced vesting period for retirement system members to be taken up in the year 2000 legislative session. In Ohio, a proposal has been offered to allow new teachers and non-vested current members of STRS to forego the existing defined benefit plan and instead join a defined contribution alternative offered by commercial vendors. One of the justifications for this proposal is increased portability. University faculty and administrators who have less than five years of credit already have this option. KEY TO RETIREMENT SYSTEM ABBREVIATIONS Arizona SRS – Arizona State Retirement System
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| Last Update: November 16, 2006 |
