Retirement Made Simpler

Retirement Made Simpler (RMS) and coalition partner AARP have surveyed more than 800 large companies regarding automatic 401(k). The study concludes that automatic 401(k) features are gaining recognition and acceptance among corporate leaders.  The survey also underscores that additional education and information are needed to help companies overcome barriers to adopting automatic enrollment.

Among findings:

• The vast majority (94 percent) of employers are either "very familiar" or "somewhat familiar" with automatic enrollment in 401(k) plans.  
• A majority (78 percent) of employers also report that they are familiar with automatic escalation.
• Forty-two percent of respondents report that their 401(k) plan includes automatic enrollment, a number that has been increasing steadily over the past decade.
• Twenty-eight percent report that their 401(k) plans have an automatic escalation feature.

 Retirement Costs Escalate in Maine

The Maine Public Employee Retirement System, which administers retirement payments to 27,000 former state employees and teachers, will cost the state $916 million in the two-year budget that begins on July 1, 2011. That price tag is up from $629 million in the current biennium, an increase of about $287 million.

A Sleepless Budget in Seattle

The City of Seattle will have to substantially increase the amount of money it pays into its employees' retirement system to cover future obligations because its related investments took big hits during the economic meltdown, according to a report recently presented to the City Council. This news comes at a hard time for a city budget that is already falling apart.

As of Jan. 1, 2008, the city's retirement "actuarial valuation" funding ratio was 92.4 percent, the report said. That's the ratio of the assets the city had compared to what it owes for benefits earned by employees. As of Jan. 1 of this year, the funding ratio had dropped to 62 percent - mainly because the city's stock market holdings tied to retirement accounts dropped 20 percent and other factors.

The Nation’s 4^th Most Underfunded Public Pension Plan

The retirement fund for Oklahoma public school teachers is one of the most underfunded plans of its type in the nation even though it reported a 17 percent return on investments last fiscal year. During the last fiscal year this pension plan was funded at 49.8 percent valuation, way below the 80 percent experts prefer.

In fact, the Public Fund Survey ranks the Oklahoma Teachers Retirement System as having the fourth-lowest funding ratio among the 126 state pension plans it has reviewed.

The lower the level of funding, the greater is the concern that there may be insufficient money for future retirees. Yet state officials remain optimistic that recent strong returns on investment will bring the funding ratio back to 50 percent while unfunded liability continues to grow.

The Importance of Social Security

According to the Employee Benefit Research Institute (EBRI), Social Security continues to be the largest source of income for the 36.5 million Americans age 65 and older. It accounted on average for almost 40 percent of income for that population in 2008. Pension and annuities was about 20 percent, income from assets (including assets in tax-deferred and taxable accounts) was 13 percent, and income from earnings was 26 percent.

Social Security is especially critical for low-income retirees: If you are among the 6.2 million 65-and-older Americans in the lowest income quintile, with income of less than $8,956 in 2008, then Social Security represents the bulk of your income at nearly 80 cents on the dollar.

If you're in the highest income quintile, that is, one of the 7.5 million older Americans who had income of more than $38,332 in 2008, then your sources of income were somewhat diversified:

• The bulk from earnings at nearly 40 cents on the dollar;
• Pensions and annuities, 23 percent;
• Social Security, 19 percent;
• Assets, 18 percent;
• Other, 2 percent.

The Department of Labor Investigates

The Employee Benefits Securities Administration of the Labor Department is investigating administrators of corporate retirement plans — including some that are registered investment advisers — to determine the kinds of fees that they receive from mutual funds and whether they are disclosing the fees to plan sponsors.

The enforcement arm has been collecting documents — at times through subpoenas — from third-party administrators that conduct the labor-intensive, often low-profit tasks of processing retirement plan contributions and distributions for plan participants.

An End to Floridians Double-Dipping

Thousands of Florida public employees have flocked to a lucrative retirement program in advance of a new law making it harder for employees to draw pensions while still working.

The State Legislature has passed a new law intended to curb the practice of "double-dipping," where employees collect retirement checks while working full-time after a 30-day hiatus. The new provision, effective July 1, requires people to leave their jobs for six months before returning.

Innovation in Orange County

Orange County, Calif., has adopted a novel retirement plan in which new union employees can choose between participating only in the county’s defined benefit (DB) plan, or participating in both the DB and a new defined contribution (DC) program.

Those opting the combination pay a lower contribution to the defined benefit plan, but also get reduced benefits, and on the DC side, they get a small employer match.

This new approach was developed by executives of the union—the Orange County Employees Association—and management. Officials from both sides say the new design will reduce the county’s defined benefit plan expenses.

The new plan is unique to California, and required passage of legislation last year to authorize it. The county and the union agreed to the plan in June 2009; enrollment began in June 2010.

Albany County, New York

Albany County, New York, is offering employees a state retirement incentive package under terms of a proposed local law. Local government employees are enrolled in the state retirement program and therefore eligible for the retirement incentive.

Credit for Military Service under the Railroad Retirement Act

The following information was released by the U.S. Railroad Retirement Board:

Prepared by Public Affairs 312-751-4777

Many railroad employees have at some time served in the Armed Forces of the United States. Under certain conditions, their military service may be credited as rail service under the Railroad Retirement Act.

The following questions and answers provide information on how military service may be credited towards railroad retirement benefits.

1. Under what conditions can military service be credited as railroad service?

The intent behind the crediting of military service under the Railroad Retirement Act is to prevent career railroad employees from losing retirement credits while performing active duty military service during a war or national emergency period. Therefore, to be creditable as railroad service under the Railroad Retirement Act, active duty service in the U.S. Armed Forces must be preceded by railroad service in the same or preceding calendar year. With the exceptions noted later, the employee must also have entered military service when the United States was at war or in a state of national emergency or have served in the Armed Forces involuntarily. Military service is involuntary when an employee is required by law, such as Selective Service System conscription or troop call-up from a reserve unit, to leave railroad service to perform active duty military service.

Only active duty military service is creditable under the Railroad Retirement Act. A person is considered to have been on active duty while commissioned or enrolled in the active service of the Armed Forces of the United States (including the U.S. Coast Guard), or while ordered to Federal active duty from any reserve component of the uniformed Armed Forces.

2. What are some examples of creditable service performed by a member of a reserve component, such as the Army Reserve?

Any military service a reservist was required to perform as a result of a call-up to active duty, such as during the current partial mobilization, would be creditable under the Railroad Retirement Act, so long as the military service was preceded by railroad service in the same or preceding year.

Annual training duty as a member of a reserve component of a uniformed service is also considered active duty and may be creditable, provided the employee service requirement is met. The period of active duty for training also includes authorized travel time to and from any such training duty. However, weekend alone or evening reserve duty is not creditable.

Active duty in a State National Guard or State Air National Guard unit may be creditable only while the reservist was called to Federal active duty by the Congress or President of the United States. Emergency call-up of the National Guard by a governor for riot or flood control would not be creditable.

3. What are the dates of the war or national emergency periods?

The creditable periods that affect current retirements are:

September 8, 1939, through June 14, 1948.

December 16, 1950, through September 14, 1978.

August 2, 1990, to date as yet undetermined.

If military service began during a war or national emergency period, any active duty service the employee was required to continue in beyond the end of the war or national emergency is creditable, except that voluntary service extending beyond September 14, 1978, is not creditable.

Railroad workers who voluntarily served in the Armed Forces between June 15, 1948, and December 15, 1950, when there was no declared national state of emergency, can be given railroad retirement credit for their military service if they:

performed railroad service in the year they entered or the year before they entered military service, and;

returned to rail service in the year their military service ended or in the following year, and;

had no intervening nonrailroad employment.

4. How can military service be used to increase benefits paid by the Railroad Retirement Board (RRB)?

Railroad retirement annuities are based on length of service and earnings. If military service is creditable as railroad service, a person will receive additional compensation credits for each month of creditable military service and railroad service credit for each active military service month not already credited by actual railroad service.

Creditable military service may be used in addition to regular railroad service to meet certain service requirements, such as the basic 10-year or 5-year service requirements for a regular annuity, the 20-year requirement for an occupational disability annuity before age 60, the 25-year requirement for a supplemental annuity, or the 30-year requirement for early retirement benefits.

5. Can United States Merchant Marine service be creditable for railroad retirement purposes?

No. Service with the Merchant Marine or civilian employment with the Department of Defense is not creditable, even if performed in wartime.

6. Are railroad retirement annuities based in part on military service credits reduced if other benefits, such as military service pensions or payments from the Department of Veterans Affairs, are also payable on the basis of the same military service?

No. While railroad retirement employee annuities are subject to reductions for dual entitlement to social security benefits and, under certain conditions, Federal, State, or local government pensions, as well as certain other payments, railroad retirement employee annuities are always exempt from reduction for military service pensions or payments by the Department of Veterans Affairs.

7. Are the unemployment and sickness benefits payable by the RRB affected if an employee is also receiving a military service pension?

Yes. The unemployment and sickness benefits payable by the RRB are affected if a claimant is also receiving a military service pension. However, payments made by the Department of Veterans Affairs will not affect railroad unemployment or sickness benefits.

When a claimant is receiving a military service pension or benefits under any social insurance law for days in which he or she is entitled to benefits under the Railroad Unemployment Insurance Act, railroad unemployment or sickness benefits are payable only to the extent to which they exceed the other payments for those days. In many cases, the amount of a military service pension precludes the payment of unemployment or sickness benefits by the RRB. Examples of other such social insurance payments are civil service pensions, firefighters' and police pensions, and certain workers' compensation payments. Claimants should report all such payments promptly to avoid having to refund benefits later.

8. Can proof of military service be filed in advance of retirement?

Railroad employees are encouraged to file proofs of their military service well in advance of retirement. The information will be recorded and stored electronically until they actually retire. This will expedite the annuity application process and avoid any delays resulting from inadequate proofs.

If employees do not have an official record of their military service, their local RRB office will explain how to get acceptable evidence. All evidence brought or mailed to an RRB office will be handled carefully and returned promptly.

9. How can an employee get more information about the crediting of military service by the RRB?