The pension plan for the State of Utah administers the defined contribution benefit scheme for retirement covering
- State Employees (Utah Retirement System ) (URS)
- Local Government Employees
- Public Education Sector Employees
- Public Safety Sector Employees
- Governors and Legislators
Description of Plan
Defined benefit plans give benefits as per a predefined formula that takes consideration of the length of employment, average final salary and a multiplying factor. They derive funds for the purpose from contributions made by employers as well as employees. The experts invest the funds and the income from it they use for helping workers on their retirement.
The Utah State Retirement System sustains mainly on earnings from investment and contribution of employers. Above ninety percent of the requirements of the State’s Retirement System comes from these two resources. Additional funds come from contribution of employees and taxes that they maintain separately for the purpose.
All these are defined benefit retirement systems with trust funds and the largest group in this membership belongs to the State Employees. The Utah Retirement System establishes the benefits, basing them on a formula that factors in the number of years of service, the final average pay and the multiplier. The multiplier has been kept at 2.5%. This is done after taking the average of the highest earned three years of employee service and multiplied by the number of years of service. The funds for this plan are gathered from the contributions that made from employees as well as the employers.
Funds are invested and managed by the Utah State Retirement Board of Trustees and actuaries are held responsible for projecting the levels of contribution which are required to support the plan. Utah has contracted with Gabriel Roeder Smith & Company Consultants and Actuaries to handle this job. The levels of contribution are calculated by taking into account the expected return on the investments, projected employee turnover and their expected dates of retirement.
Eligibility for Retirement
The public employees in the State of Utah are eligible to retire after they have put in thirty years in service. Employees who have served for twenty five years have an option to purchase future credit of service at any age so that they can decide to retire five years ahead of their actual eligible period with a slight reduction in the benefits. In Utah, public employees can retire with a 20% reduction slab in the annual benefits or they can opt for a 10% annual reduction at the age of sixty two. The employees will earn their full benefits at the standard retirement age of sixty five.
Features of the Public Employee Utah Retirement System Plan
Payment is done after multiplying the employee’s highest three-year monthly average salary by the product of the employee’s total number of years in service. That product is then multiplied by 2.5%. The employee will get an additional employer contribution of 1.5% of his or her salary to a defined contribution account.
The vesting requirement is a four year period before the employee can begin to claim credit of service towards the pension plan.
Employees can qualify for a monthly pension benefit if they are
- Of age 65 with four years of earned credit service
- Of age 62 with ten years of earned credit service
- Of age 60 with twenty years of earned credit service
- Of any age with thirty five years of earned credit service.
If the earned credit service is less than thirty five years, the allowance is then reduced by 7% for every year between the age of 60 and 63 or 9% for every year between the age of 64 and 65.
- Lump Sum Payment – This can be made any time before the employee’s date of retirement. Future service credit has to be made available to the employer at least fifteen days prior to retirement.
- Payroll Deduction – This has to be done after the approval of the employer. It has to be completed before the retirement date and within five years of the first eligible benefit payment.
The pension benefit is paid out on monthly basis. The monthly pension checks are mailed out to the employee on the last working day of every month. The first check will be delayed up to a period of ninety days after retirement.
There are three types of survivor benefits:
- Lump Sum Settlement – If there are any vested contributions, they are payable to the beneficiaries that are designated by the employee.
- Death Benefit Insurance – At the time of employee’s death, 75% of the highest annual salary of the employee will be paid out as an insurance payment. This kind of payment is withdrawn if the employee has committed suicide.
- Accelerated Death Benefit – This also allows the employee to take 75% of the death benefit cover as a payment in advance if the employee has any kind of terminal illness with a life expectancy that is less than eighteen months.
The Retirement System of Utah has 106,261 active state employees. The retirees are 42,138 who are collecting current pension benefits. The Trust Fund gives an annual rate of 7.5% return on investments, mostly in equity markets. There are over twenty billion dollars in the State Pension Fund. The fund is currently being funded at a level of 85.8%.
The cost of living adjustment to the pension plan is linked to the Consumer Price Index. Employee members to the pension fund will get a 2.5% COLA on their original pension benefit. It will be paid on the anniversary of the employee’s retirement date for this current year ending in June 2014.
After the nation’s economy slumped about five years ago, the retirement system in the State of Utah had lost more than twenty per cent of its assets but a recent report has indicated that the State’s pension fund is recovering fast and is currently much better than most other states. The State Auditor had reported earlier this year that Utah Retirement System Board of Trustees should not act complacent on the issue and that the tax payers should contribute more than before for the public employee pensions. Wall Street has given the State of Utah AAA ranking and ranks it in the top fifteen states in terms of the health of the pension funds. (Source: http://www.kutv.com/news/top-stories/stories, 09 July 2013).
Davidson reports in the Salt Lake Tribune on 27 February 2013 that New Utah State Auditor John Duggal wants to review the performances of government programs and especially the Utah Retirement Systems for public employees. He is not happy with the optimism shown by the URS on the return on investments, which places at risk the 190,000 members of the pension fund. He feels that later on, they might have to ask taxpayers to bail them out of a crunch situation.