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Friday October 31st 2014

New “Breakpoint” Agreement Improves Tiers 2, 2a, 3 & Hybrid Pensions

  • Increases for all members in Tiers 2, 2a & 3 and the Hybrid retiring on or after July 1, 2013
  • Change in pension multiplier affects all, but targets lower-paid employees

A recent improvement to the formula used to calculate state employee pensions means that all participants in the State Employee Retirement Systems (SERS) in Tier 2, Tier 2a and Tier 3 who retire on or after July 1, 2013 will be receiving larger pension checks.

On Friday, January 17th, SEBAC unions and the State agreed to adopt a proposal recommended by a rank and file committee to increase the multiplier in the formula that is used to calculate the pensions on the portion of our income that falls below the “Breakpoint.”    This change implements the part of the 2011 SEBAC Agreement that required that the State designate .5% of payroll (about $35 million annually) beginning in July of 2013 to address certain problems that developed over time in the pension formula. These problems affect everyone, but have a particularly strong impact on lower-paid employees. The former multiplier (1.33% on the below-Breakpoint portion of our income), has been increased to 1.4%.  The effect of this change will be combined with what the Committee — working with the pension plan’s actuaries — found was already likely to occur  under current language in the SEBAC agreement, which is that the yearly increase in the Breakpoint will moderate from 6% to 4% in future years.   For a longer and more detailed description of the background and the negotiations that led up to this improvement, please click here.

While the change might sound small, the multiplier has a strong effect on the pension calculation. The chart below demonstrates the difference this change, along with the moderation of the yearly increase already in the current agreement, makes for people with different final average earnings at the time they retire.

BreakpointChart

 

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