SERS explains tier 2 retirement formulas, contribution rates and COLA rules

A State Employees Retirement System presenter reviewed tier 2 retirement rules, the formulas used to calculate pensions for coordinated and noncoordinated positions, contribution rates for regular and alternative formulas, and the system's cost-of-living adjustment (COLA) provisions.

Why it matters: the retirement formula and contribution type determine how a member's final average compensation (FAC) and years of service convert into a monthly pension and when a member can retire without reduction.

Key points from the session: - Tier 2 definition and eligibility: tier 2 members are those who became members on or after Jan. 1, 2011. Regular formula tier 2 members are first eligible for unreduced retirement at age 67 with at least 10 years of service credit; an early reduced retirement is available at age 62 with at least 10 years of service credit subject to a 0.5% per month reduction (up to 30% at age 62). - FAC and calculation windows: FAC is the highest consecutive 96 months of earnings within the most recent 120 months; that FAC is used in the pension formulas described below. - Formulas and contribution rates: - Regular formula, coordinated (pays into Social Security): pension = years of service × 1.67% × FAC; member contributions total 4% (3.5% to retirement account, 0.5% to survivor account). - Regular formula, noncoordinated (does not pay Social Security): pension = years of service × 2.2% × FAC; contribution rate is 8% (7% retirement, 1% survivor). - Alternative formula (assigned by position such as corrections or other specified roles): pension = years of service × 2.5% × FAC for coordinated alternative formula positions; contribution rates are higher (for noncoordinated alternative positions presenter said 12.5% with 11.5% to retirement and 1% to survivor). - COLA rules for tier 2: cost-of-living adjustments equal 3% or one-half of the Consumer Price Index for the preceding calendar year, whichever is less. For regular formula members the first COLA begins the January after a member has been retired for a full year (or after age 67 if retired earlier). For alternative formula members the COLA begins the January after retirement for a year or at age 60, whichever is later; the presenter noted tier 2 COLAs are noncompounding.

The presenter illustrated the reduction for early retirement: "that reduced retirement benefit identifies that you are at least age 62 with 10 years service bridal, but your benefit will be reduced by a half percent for each month you are under age 67." The session was instructional and did not include policy changes or votes.