Month: April 2015

Proposed Federal Legislation Could Eliminate Windfall Elimination Provision

Posted on by planeteria

The Windfall Elimination Provision (WEP), a federal reduction to an earned Social Security benefit, can affect retirees who receive a retirement benefit from an employer who did not withhold Social Security taxes. This includes many government agencies and public employers, such as those covered by PERA, and even employers in other countries.

Some Colorado PERA retirees who are impacted by the WEP have asked what PERA can do to resolve what they see as an unfair reduction in their Social Security benefits. PERA does not typically take positions on federal legislation, but we strongly encourage our members to be active in the political process by letting their elected officials know their positions on legislative matters – both at the state and national levels.

A bill that has been introduced in the U.S. House of Representatives would repeal the current WEP and provide long-sought relief to PERA members who have earned Social Security benefits. Congressmen Kevin Brady (R-TX) and Richard Neal (D-MA) are sponsors of H.R. 711, the Equal Treatment of Public Servants Act of 2015. This legislation would replace the WEP with a new formula for public employees who qualify for a government pension.

The bill summary states that H.R. 711 would:

Amend title II (Old Age, Survivors and Disability Insurance) (OASDI) of the Social Security Act to replace the current windfall elimination provision (WEP) (that reduces the Social Security benefits of workers who also have pension benefits from employment not covered by Social Security) for individuals who: (1) become eligible for old-age insurance benefits after 2016 or would attain age 62 after 2016 and become eligible for disability insurance benefits after 2016, (2) subsequently become entitled to such benefits, and (3) have earnings derived from noncovered service performed after 1977.

Additionally, H.R. 711 would:

  • Establish a new formula for the treatment of noncovered earnings in determining Social Security benefits.
  • Outline a second formula to modify the WEP for current beneficiaries.
  • Direct the Commissioner of Social Security to recover overpayments from certain individuals.

If passed, the law would calculate Social Security benefits for public employees just as it does for all other workers – based on their Social Security contributions and work history. A WEP Repeal Fact Sheet was produced in the fall when the Congressmen first introduced the bill as H.R. 5697 in 2014. The Fact Sheet explains that the legislation would reduce the WEP by up to one-third for current retirees and up to one-half for future retirees, increasing lifetime Social Security benefits by between $20,000 and $32,400.

“If Americans are going to enjoy their golden years financially secure and comfortable, they must have a sound retirement plan. That is why I have been a strong supporter of the Equal Treatment of Public Servants Act,” Representative Neal, a Massachusetts Democrat, said in a statement to MassLive. “Our dedicated public employees have paid into Social Security and they are entitled to their full benefits, just like any other worker. I am happy to join with my colleague Congressman Kevin Brady in a bipartisan effort to provide fair and just treatment for our retired public employees.”

PERA members and retirees may want to contact their representatives in Washington to weigh in on this potential change to the WEP. You can find how to contact your House Representative here and your Senator here.

See the PERA on the Issues article More About Social Security Reductions.

PERA Works With Elected Officials to Ensure Special Needs Are Met

Posted on by planeteria

When John and Cyndy Burd were ready to retire, they wanted to feel secure knowing that their adult disabled son, Joshua, would have the financial support he needed to be taken care of when they died.

“Josh is 37, has always lived with us, and we are fully responsible for his 24-hour care. He has frequent seizures and requires restraint and numerous safety measures,” Cyndy Burd explains. “Josh is medically fragile, a very quiet and shy man but very much a blessing in our lives.”

With the intention to provide for Joshua, John and Cyndy Burd each named him as their cobeneficiary – the person who will receive a monthly benefit for the rest of his life upon the death of the retiree. Unfortunately, they were not aware that naming Joshua as a cobeneficiary would jeopardize his eligibility for public assistance through Medicaid and Supplemental Security Income. Joshua’s PERA benefit would exceed the income limits for those programs and, as a result, terminate the very important support the existing programs provide, including medical care and community placement. With his severe disability and need for 24-hour care, the PERA benefit alone would not be nearly enough to cover his needs.

The Burds discovered that PERA law did not allow the removal of Joshua as a cobeneficiary. There was no way to fix the mistake they made, so they approached their attorney, Laura Mathews, who took on the case, charging no fees. The family and Ms. Mathews contacted PERA to discuss potential alternatives.

State Senator Irene Aguilar (D-Denver) was a champion of this cause. The Burds are her constituents. She enlisted PERA’s help, and PERA worked with Senator Aguilar to find a solution to protect the retirement savings benefits earned by PERA retirees. PERA’s law only allowed a “person” to be named as a cobeneficiary. To protect Joshua’s eligibility, the Burds could have chosen an Option 1 benefit (single benefit for the retiree’s life) or they could have named another person as a cobeneficiary. However, that route would have left Joshua without supplemental funds to cover expenses not covered by the public benefits. Those expenses include additional therapy, clothing, companion care, educational opportunities and in Joshua’s case, art supplies.

“Under existing State and Federal law, parents who have children with profound disabilities have the option to create a Third Party Supplemental Needs Trust and designate these trusts as the beneficiary for IRA Benefits, Retirement and Pension Plans,” explains Laura Mathews. “These trusts if drafted and administered correctly, are an exempt asset and do not count as a resource for the disabled child.”

Senate Bill 15-097 was drafted to allow the Burds to change their cobeneficiary designation from Joshua to a Supplemental Needs Trust for his benefit. Once the cobeneficiary monthly benefit is deposited in the Trust, a trustee for the Trust will manage the funds and pay for Joshua’s supplemental needs without jeopardizing his eligibility for public benefits.

“The purpose of SB 97 is to preserve existing public benefits being received by a child using a mechanism already allowed under State and Federal law to protect public benefits and to fix an unintended consequence of the PERA law,” said Laura Mathews. The bill provides that retirees can name a Supplemental Needs Trust as a cobeneficiary and that a Supplemental Needs Trust will step in to receive benefits when a disabled child is a survivor of an active member. It also allows retirees, such as the Burds, to change their previously named cobeneficiary from a disabled child to a Supplemental Needs Trust to avoid losing public assistance.

Under Sen. Aguilar’s and State Representative Lois Landgraf (R-Fountain) bipartisan leadership, SB 15-097 passed both chambers of the General Assembly. It has been signed by the Governor.

For more information on retirement benefit option selection, please see the Your PERA Benefits publication or call PERA’s Customer Service Center.

America’s Retirement Crisis: Public Opinion Poll Confirms Anxiety

Posted on by planeteria

Average working households in the US have virtually no retirement savings, according to a new report and accompanying public opinion poll released by the National Institute on Retirement Security (NIRS). The report, The Continuing Retirement Savings Crisis, underscores America’s retirement crisis, finding that even near-retirement households have a median retirement account balance of only $14,500.

Public policy, however, “can play a critical role in putting all Americans on a path toward a secure retirement” by “improving low- and middle-income workers’ access to low-cost, high quality retirement plans,” according to the report.

The trend of private sector employers shifting away from defined benefit pensions to defined contribution plans may contribute to Americans’ anxiety about our country’s retirement savings as well as concern for their own financial security. From Americans’ Views of the Retirement Crisis:

  • An overwhelming majority (86%) of Americans believe there is a retirement crisis.
  • Three in four Americans remain highly anxious about their retirement outlook.
  • Americans express strong support for pensions for public employees.

The vast majority of Colorado PERA members participate in the hybrid defined benefit plan, which will most likely be their primary source of retirement income. But PERA also encourages members to participate in voluntary retirement savings plans. PERA offers a 401(k) Plan and a 457 Plan (together called the PERAPlus Plan) with an array of high-quality and low-cost investment options, including a Roth option, that can be used to supplement the PERA defined benefit plan for income in retirement.