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Date: December 31, 2009

Bulletin Number: 961

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Subject

New Tier 5 Benefit Structure in the New York State Teachers’ Retirement System (TRS)

Purpose

To provide agencies with procedures to populate retirement records in PayServ for employees who enroll in TRS.

Affected Employees

Employees who first join TRS on or after January 1, 2010.

Effective Date(s)

January 1, 2010

Background

On December 10, 2009, the Governor signed into law pension reform legislation (Assembly Bill No. A40026 and Senate Bill No. S66026) that creates a new Tier 5 that, in accordance with constitutional requirements, only applies to new members of TRS who first join on or after January 1, 2010.

Some of the significant changes impacting Tier 5 members include, but are not limited to:

  1. Employee contributions of 3.5% of pay for all years of service

  2. Ten year credited service vesting requirement

  3. Overtime compensation in excess of an annual ceiling is not considered pensionable earnings and is not included in the base to calculate employee contributions.  The overtime ceiling is $15,000 in calendar year 2010 and will increase by 3% each year thereafter.

Overtime compensation as defined in the legislation is “compensation paid under any law or policy under which employees are paid at a rate greater than their standard rate for additional hours worked beyond those required.”  A review of the overtime earn codes impacted by the legislation is currently in progress.

Implementation

Due to the complexity of this legislation and the limited time frame between passage of the legislation and its effective date, the process will be implemented in stages.  The legislation limits the amount of overtime that is considered pensionable and included in the base for calculating contributions.

As a first step, OSC has revised the Retirement Plan Table in PayServ for Plan Type “7X” (TRS) to include tier 5 as an option with a Benefit Plan of “TRSBT5” and a contribution rate of 3.5%.  Any employee designated as tier 5 by the Teachers Retirement System must have this Benefit Plan selected.

Initially contributions will be calculated based on the definition of wages currently in effect for tiers 1 through 4.  Until an employee exceeds the overtime ceiling of $15,000, there will be no difference in the calculation of the contribution using this approach.

A second step in this effort is to change the calculation base and methodology in PayServ.  This will be implemented at a later date and an additional bulletin will be issued.

OSC Actions

As indicated, the Retirement Plan Table in PayServ has been revised for Retirement Plan Type “7X” (TRS).

Agencies now have the ability to select the Benefit Plan option of “TRSBT5” which must be used when setting up retirement records for tier 5 TRS members.

This new Benefit Plan requires agencies to select a Contribution Status of “Contributing” and an Election Option Code of “SEO” (Standard Election Option), which will automatically default the required contribution rate of 3.5% in the Percentage field.

These mandatory contributions are covered under Section 414-h of the Internal Revenue Code and, therefore, are exempt from Federal Withholding tax.

Agency Actions

Agencies must populate the employee’s retirement record as follows:

  1. Open the Retirement Plans page. (Path: Home>Compensate Employees>Administer Base Benefits>Use>Retirement Plans)
  2. Enter employee's EmplID in search box.
  3. Click Search.
  4. Select the correct Empl Rcd# for the corresponding Job Record (if multiple records exist).
  5. Enter “7X” in the *Plan Type field.
  6. Enter the current payroll period begin date or Hire Date, whichever is later in the *Deduction Begin Date field.
  7. Enter the employee’s Date of Membership as provided by TRS in the *Election Date field.
  8. Enter the Benefit Plan of “TRSBT5” in the *Benefit Plan       field.
  9. Enter “5” in the *Tier field.
  10. Enter the employee’s Retirement Registration Number* as provided by TRS in the Reg Nbr: field.
  11. Enter “Contributing” in the *Contribution Status: field.
  12. Enter “SEO” in the Option Code field under “Election Options.”
  13. Tab to the Percentage field which will automatically default to 3.5%.
  14. Click Save.

Questions

Questions regarding this bulletin may be directed to the Payroll Deduction mailbox.