RULES AND REGULATIONS
STATE EMPLOYEES' RETIREMENT BOARD
[ 4 PA. CODE CHS. 245 AND 247 ]
Member Purchases of Credit for Previous State Service and Re-election of Benefit Option
[46 Pa.B. 5082]
[Saturday, August 20, 2016]
The State Employees' Retirement Board (Board) amends § 245.4 (relating to member purchases of credit for previous State service) and adds § 247.5a (relating to re-election of benefit option) to read as set forth in Annex A.
A. Effective Date
This final-form rulemaking will be effective upon publication in the Pennsylvania Bulletin.
B. Contact Persons
For further information contact Jay Pagni, Director of Communications and Policy, State Employees' Retirement System, 30 North Third Street, Suite 150, Harrisburg, PA 17101-1716, (717) 237-0236; Sharon S. Smith, Legislative Specialist, (717) 237-0227; or M. Catherine Nolan, Assistant Counsel, State Employees' Retirement System, 30 North Third Street, Suite 150, Harrisburg, PA 17101-1716, (717) 237-0392.
C. Statutory Authority
This final-form rulemaking is being made under the authority of 71 Pa.C.S. § 5902(h) (relating to administrative duties of the board).
D. Background and Purpose
Part XXV of 71 Pa.C.S. (relating to State Employees' Retirement Code) (Retirement Code) permits members of the State Employees' Retirement System (SERS) and the Public School Employees' Retirement System (PSERS) who have elected multiple service to purchase credit for previous State service that is uncredited because membership in SERS was optional at the time it was rendered. The amendment to § 245.4 expressly requires that a member who elects to purchase previous State service credit shall purchase credit for all service simultaneously. Partial purchases of previous optional State service are not allowed. The amendment also extends the time to pay for period by payroll deductions from the customary 3 years to 6 years.
The Board has long interpreted the Retirement Code to require that the purchase be comprehensive and Commonwealth Court affirmed SERS' interpretation in Susan Shinkman v. State Employees' Retirement Board, 958 A.2d 613 (Pa. Cmwlth. 2008). Therefore, this amendment maintains the status quo except in that it extends the payroll deduction payment period for the flexibility of the member.
Section 247.5a pertains to a member's limited right to re-elect a benefit option. The Retirement Code permits retired members who selected a retirement benefit payment option with a joint and survivor annuity to select a new benefit payment option under certain circumstances. Specifically, the Retirement Code provides that if the designated survivor annuitant predeceases the member or the member divorces or marries after retirement, the member has the right to re-elect an option. The Retirement Code does not expressly state the time within which the member may exercise the re-election right.
The absence of a time limitation would allow a member to delay changing the option indefinitely and could result in the payment of a larger total benefit. When a member re-elects a benefit option, the member's benefit and any survivor annuity is recomputed to be actuarially equivalent to the value of the benefit remaining at the time of the recomputation. The recomputation often produces a lower monthly annuity payment to the member. By delaying the option change, the member can postpone the benefit payment reduction and could secure a larger total benefit that would be payable otherwise. In addition, the Retirement Code is silent as to whether a member who experiences multiple triggering events has a single right to change the initial benefit option or whether re-election options may accumulate, potentially allowing a member to accumulate opportunities to change the option selection, thereby further enhancing the member's benefit beyond the statutory maximum.
Section 247.5a provides the right to re-elect an option remains valid until the earlier of 7 years from the triggering event or upon the occurrence of a subsequent triggering event.
E. Benefits, Costs and Compliance
This final-form rulemaking makes SERS' regulation regarding purchasing service credit for previous optional State service consistent with SERS' long-standing interpretation of the Retirement Code and with Commonwealth Court precedent, and eases members' payment terms. It also sets forth reasonable limitations, clarifying a member's ability to select a new benefit payment option.
This final-form rulemaking maintains the status quo, except with regard to the extended payment period. The extended payment period has no impact on the service purchase cost or applicable interest. Therefore, this final-form rulemaking has no associated cost.
This final-form rulemaking will not impose additional compliance costs on State employees or employers.
F. Sunset Review
A sunset review is not applicable.
G. Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P.S. § 745.5(a)), on January 6, 2016, the Board submitted a copy of the notice of proposed rulemaking, published at 46 Pa.B. 354 (January 16, 2016), to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House State Government Committee and the Senate Finance Committee for review and comment.
Under section 5(c) of the Regulatory Review Act, the Board shall submit to IRRC and the House and Senate Committees copies of comments received during the public comment period, as well as other documents when requested.
Under section 5.1(j.2) of the Regulatory Review Act (71 P.S. § 745.5a(j.2)), on July 20, 2016, the final-form rulemaking was deemed approved by the House and Senate Committees. Under section 5(g) of the Regulatory Review Act, the final-form rulemaking was deemed approved by IRRC effective July 20, 2016.
H. Public Comments
The proposed rulemaking was published at 46 Pa.B. 354. The public comment period closed on February 23, 2016. No comments were received on the proposed rulemaking. Subsequently, during a review prior to submitting the final-form rulemaking, a nonsubstantive correction was made in § 245.4(a) to add ''a'' between ''who is'' and ''member of the.'' No other changes have been made from the proposed rulemaking.
The Board finds that:
(1) Public notice of intention to adopt the administrative amendments adopted by this order has been given under sections 201 and 202 of the act of July 31, 1968 (P.L. 769, No. 240) (45 P.S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code § 7.1 and 7.2.
(2) The amendments to the regulations are necessary and appropriate for the administration of the Retirement Code.
The Board, acting under the Retirement Code, orders that:
(a) The regulations of the Board, 4 Pa. Code Chapters 245 and 247, are amended by adding § 247.5a and amending § 245.4 to read as set forth in Annex A.
(b) The Secretary of the Board shall submit this order and Annex A to the Office of Attorney General for review and approval as to form and legality as required by law.
(c) The Secretary of the Board shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect immediately upon publication in the Pennsylvania Bulletin.
DAVID R. FILLMAN,
(Editor's Note: See 46 Pa.B. 4899 (August 6, 2016) for IRRC's approval order.)
Fiscal Note: Fiscal Note 31-14 remains valid for the final adoption of the subject regulations.
TITLE 4. ADMINISTRATION
PART X. STATE EMPLOYEES' RETIREMENT BOARD
CHAPTER 245. CONTRIBUTIONS
§ 245.4. Member purchases of credit for previous State service.
(a) A State employee who is a member of the System or a school employee who is a member of the Public School Employees' Retirement System who has timely elected multiple service may receive service credit for all uncredited previous State service, provided the member applies for and makes the required contributions for all uncredited State service, regardless of the amount of State service previously credited.
(b) The member may make the required contributions through payroll deductions over a period of not more than 6 years.
CHAPTER 247. BENEFITS
§ 247.5a. Re-election of benefit option.
(a) A member who has filed an application for benefits and who has designated a survivor annuitant has the right to re-elect a benefit option and to nominate a beneficiary or a new survivor annuitant if, after filing the application, the designated survivor annuitant predeceases the member, the member is awarded a divorce or the member becomes married, provided the member files a timely application for option change with the Board.
(b) The member's right to re-elect a benefit option remains valid for 7 years from the date of the death, divorce or marriage that triggered the right or until the occurrence of a subsequent triggering event, whichever occurs first. Upon the occurrence of a subsequent triggering event, a superseding right to re-elect shall begin.
(c) Upon the member's timely filing of an application for option change, the member's annuity will be recomputed to be actuarially equivalent to the annuity in effect immediately prior to the recomputation.
[Pa.B. Doc. No. 16-1424. Filed for public inspection August 19, 2016, 9:00 a.m.]
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