MEMORANDUM

TO:                TCTA Members

FROM:          L. Mason Neely, Chief Finance Officer

DATE:                       August 24, 2005

RE:                 Public Employees Retirement System – Retirement (Revised)

     I recently was asked to clarify a pension question about retirement and said employee’s ability to protect their spouse or dependents with pension benefits while continuing to work. The situation with the Public Employees Retirement System (PERS) is according to the following: As long as one is considered an “active employee” which means they are working and have not filed retirement papers (application), they are covered under PERS and also enrolled in the Group Life Insurance program. PERS is not regulated by the Federal provisions of a joint and survivor benefits therefore “active” status does not provide protection for a spouse or dependents in case of sudden death.
     Under the Group Life Insurance Program, the employer provides 1 ½ times the employee salary in the form of life insurance up to age 60 or longer if they are still active. Employees have the option to purchase an additional 1 ½ times their salary representing a maximum of up to 3 times one’s salary in life insurance coverage. If one were to die as a result of illness, accident, or any other events while considered an “active employee” their spouse or dependents would not receive a pension regardless of how many years one had worked. PERS benefits would lapse to the system. Your dependents would only receive reimbursement of the amount one had contributed plus interest. The amount the employer has contributed would just lapse to the fund balance of the system and your spouse or dependents would receive the life insurance coverage which would at a minimum be 1 ½ times your salary and, if you elected the contributory portion, three (3) times your salary. There is no joint and survivor benefit after vesting in PERS.
     When the PERS provision of the State law was initially drafted, three (3) times one’s salary was considered a substantial amount of life insurance. In today’s market it wanes as compared to the pension benefit for many long time employees in light of normal longevity.
     A few years ago, an employee of the State who was a Director of one of the divisions died suddenly while considered an “active” employee. The individual had 28 years of service in the system, but his spouse did not receive a pension. Because of that example, we managed to have Chapter 221 Public Laws of 1995 passed which added a phrase to the Title 43 Law covering employee retirement systems. N.J.S.A. 43:15A-50 was amended to read “however, if the member dies 30 days or more after the date of the application for retirement was filed with the system, the retirement will be effective”. This language implies that if someone who is vested (10 or more years) in PERS could guarantee an option of life insurance and/or their pension by simply filing a retirement application.
     Illustrative would be, if one were to file an application during the month of October 2005 indicating they are going to retire as of January 1, 2007 then their pension option would be secure. If some tragic event were to occur, their spouse or dependents would be protected. Prior to January 1^st of the year 2007 the individual could send a letter to the Division of Pensions saying I have changed my mind and I wish to extend my retirement date to the next succeeding date selected. Or they could always amend the application and retire at an earlier date when they wish. One can select a far out date, but pension will not start until the date selected. Therefore, short dates which can be moved are best. This would protect the pension for the spouse or dependents because an application has been filed, but the date of retirement would not take effect until the point in the future selected. This process can be continued in an unlimited fashion thereby protecting a spouse or dependents by the simple act of filing an application, but extending the date until the actual time one wishes to retire.
     The second part of the statute requires that one must select one of the four options with regards to the method of disbursement of their pension and name a survivor as a beneficiary. Assuming those actions have happened: one has filed an application, selected one of the options and named a dependent, then one has protected a spouse or dependent without retiring and without affecting their “active” status. This paper shuffle will cause the Pension Administrator a little extra work, but it is a method to have a joint and survivor option for loved ones.
     I decided to reduce this situation to writing because I know a number of PERS members who fall under the category of having many years of service in the Pension System, but not desiring to retire as of this point in time. Therefore, one can protect their loved ones by simply filing an application and at the same time remain as an “active”, viable employee in the system. If you know employees within your area of responsibility that fall into this category, you may want to speak with them or share this memorandum.
     If an “active” employee was to die suddenly with an application on file at the age of 52 and their spouse was 50 the spouse would have a choice of life insurance payment and a pension when the “active” employee qualified. Special retirement is qualified with 25 years of service and age 55. Regular retirement is qualified at age 60 regardless of years of service.
     If one has 25 years of service and age 55 at the time of death then the spouse could draw a pension based on the date selected. For example, if the 52 year “active” employee had a salary of $50,000 per year at the time of sudden death the life insurance benefit would be $150,000. But 25 divided by 55 would be a pension of 45.46%, i.e. $22,733 per year for life which under average life expectations would be the next 24 years plus cost of living adjustments which is $545,520.00 plus. This is just an illustration and payment would be based on the option selected. Also the issue of post retirement health benefits comes into play when an “active” employee has 25 or more years of service.
     This is only one example of many which could be provided. There are a number of events which could cause one to want a joint and survivor option. Pension Staff Services can be very helpful and one may want to visit the Trenton office.
     It seems clear to me that one should act on this information to protect their family. If you don’t then don’t blame the government. There are some things for which the government can’t be blamed.

LMN/acg

PERS Memo for TCTA

cc:       File/Chrono