In the United States, national, State and local government give state-owned pensions. They offer this facility to few government employees. The employers specially confer their contributions to these schemes after a period. In other states, the government pension schemes go by the name of Public Employee Retirement Systems (PERS).
Many states and local governments offer established defined benefit (DB) pensions, by which the employees are safe, have expectations and enough income after retirement. Rhode Island Pension fund, though similar to others, faces a difficulty resulting in delays in modernizing their pension scheme. Compared to the other states they had a deficit prior to the 2008 market downfall.
The Retirement Security Act for Rhode Island was revised and passed in 2011. This update was created to offer a similar level of post retirement income as the previous Act but as a revised pension benefit in combination with the employee’s individual retirement contribution account.
The Employees’ Retirement Security Act of Rhode Island (ERSRI) offers pension, disability and survivor benefits to State Employees, Public School Teachers, Judges, State Police and participating Municipal Police Personnel, Fire Department Employees, General Employees of participating Municipalities and Registered Nurses with Behavioral Healthcare, Developmental Disabilities and Hospitals.
The largest group eligible is for the State Employees Plan. The eligibility for this plan can be for any person who is employed by the State of Rhode Island in service for a period of at least twenty hours per week. Those employees who are hired on casual or seasonal basis and employees who are appointed on an emergency basis are not considered eligible for the Pension Plan.
Contributions by employees
With effect from 1st July 2012, all state employees, teachers and municipal employees started making compulsory pre-tax contributions to this defined contribution pension plan. The defined benefit rate by the state employee is 3.75%; the defined contribution rate by the state employee is 5% and the defined contribution plan rate by the employer is 1%
Pension Vesting Period
The State Employee will get vested when he or she is able to collect the pension benefit after meeting the minimum retirement criteria for eligibility. Post July 2012, all active contributing employees would be vested in the defined pension benefit plan after completing five years of service. Employer contributions would also be vested once the employee completes three years of service. Members who are not vested will have to forfeit the employer’s contribution if they have ended their employment without the completion of three years’ service.
Members would not be able to borrow money from the pension plan. Withdrawal on contributions can only take place if the employment is terminated with a participating employer.
The contributions to this pension plan are placed in a trust fund that is formed for the sole benefit of the pension plan members and their beneficiaries. The investment of this pension Fund is managed by the State Investment Commission which is headed by the General Treasurer.
Pension Benefits Available
The pension benefit is actually determined by the number of years the State Employee has worked for and contributed to the pension plan. As a standard, all employees get one year of contributed service credit for each full year that they have worked. Service credit could be bought by the employee for official leave of absence up to four years or for an official lay-off up to one year.
It is important for the employee to know about the Article 7 date when trying to calculate when he or she can retire under the Pension Scheme. The employee has to know the schedule based on when the employment commenced and the years of contributing service as on 30th September 2009.
The employee would fall into different schedule categories based on this Article 7. If the employee was vested with ten years of service on 1st July 2005, that employee would fall into Schedule A and would be eligible to retire as of 30th September 2009 provided the employee has completed twenty eight years of total service or if the employee had ten years of vested service or the employee was sixty years old as of that date. Employees would fall into schedule B if they had not been vested with ten years of service as on 1st July 2005. They would be eligible to retire if they were sixty five years of age on 30th September 2009.
An option is offered when an employee is within five years of retirement eligibility date as per Article 7 and has completed twenty or more years in service. The additional option offers the employee the chance to retire early with an actuarially reduced benefit. For all state employees, the additional benefit accrued would be one per cent for each year worked after 1st July 2012.
The benefits could be shown as per the table below:
|Schedule A Employees||Schedule B Employees|
|1-10 Years 1.7%||1 – 10 Years 1.6%|
|11- 20 Years 1.9%||11- 20 Years 1.8%|
|21-34 Years 3.0%||21- 25 Years 2.0%|
|Year 35 2.0%||26 – 30 Years 2.25%|
|31 – 37 Years 2.50%|
|Year 38 2.25%|
Cost of Living Adjustments
The Cost of Living Adjustments or COLA under the pension plan would be scheduled to begin the following month after the third anniversary of the date of retirement or when the employees reach the social security normal retirement age, whichever falls later. The State employees would not be eligible for COLA if the funding level falls below eighty per cent. If there is a suspended COLA for an employee, an interim calculation is done every five years. This is worked on a five-year average investment rate of return less 5.5%. The figure has to be in a range of zero to four per cent. All COLAs are awarded only on the first $25,000 of the employee’s pension benefit.
Vesting Period or How Many Years Before One Could Get a Pension
A minimum ten years of service subscription towards investment is necessary. The term “vested” would purport to cover a minimum period of service that entitles you to meet your criteria for pension eligibility. Most members in the defined contribution plan will have their contributions 100% vested.
The authorities base it on the advantages of your configuration and plan (ERS or MERS) that you can claim your benefits.
Full Retirement Age, Early Retirement Options and Requirements
The recent law instituted least retirement age of 62 for all employees.
The retirement age for Schedule B members (Schedule BI and Schedule B2) who retire with less than 29 years of service, is 65. (A minimum of 10 years of contributing service credit is essential.).
Government teachers, BI and B2 public employees have the clear eligibility to retire earlier at 55 years of age, but with 20 years of service. Their benefits will suffer pro-rata reduction from the 65-year period.
Survivor Benefit Options
There are two beneficiary options. The first one is Joint and Survivor Full. In this option, the employee is selecting to receive a reduced monthly pension benefit and to leave the beneficiary the full pension benefit after the employee’s death. The beneficiary will receive the pension for life. As a result of this, the employee gets an actuarially reduced benefit amount. The reduced amount is calculated taking the age difference between the employee and the beneficiary. The second option is Joint and Survivor Half. This option gives the beneficiary half the monthly pension benefit after the employee’s death. The employee still gets the reduced benefit.
The Employees’ Retirement Scheme of Rhode Island was adjudged the Best Small Public Plan for the Year by Institutional Investor Magazine. It was recognized for its achievement in managing its pension investment portfolio which was close to eight billion dollars. (Source: GoLocalProv.com/news/28 June 2013).
The Providence Journal reports on a report from the Economic Policy Institute: “Rhode Island’s new hybrid pension plan will cost the state more while reducing retiree benefits.”