HCS HB 538, 537,147,187,402,478 Franklin, Richard

C O M M I T T E E

HCS HB 538, 537, 187, 402, 478 -- PUBLIC SCHOOL RETIREMENT

SPONSOR: Hagan-Harrell (Franklin)

COMMITTEE ACTION: Voted "do pass" by the Committee on Retirement by a vote of 7 to 0.

This substitute increases the retirement allowance for members of the nonteacher school employee retirement system of Missouri. In addition to the benefits a member currently receives, for each year of employment a member will now receive 1.35% of his or her final average salary. The current rate is 1.25%.

This substitute also makes several changes in law regarding the Public School Retirement System by:

(1) Establishing that employee compensation in excess of the limitations set forth in the United States Internal Revenue Code will be disregarded for the purpose of determining retirement contributions and calculating benefits paid by the system. This language complies with the Internal Revenue Code and is applicable to both teachers and nonteachers;

(2) Complying with the United States Internal Revenue Code by requiring that benefits for the members of the Public School Retirement System or the Nonteacher School Employee Retirement System must not exceed 100% of that member's final average compensation;

(3) Allowing the Public School Retirement System and the Nonteacher School Employee Retirement System to delegate authority to registered investment counselors to invest the system funds as provided under the prudent person provisions currently in the statutes (RSMo 105.688);

(4) Creating three additional benefit options for members of either the Public School Retirement System or the Nonteacher School Employee Retirement System. One option permits members to provide 50% of actuarially reduced payments to beneficiaries. If the member is predeceased by the member's beneficiary, the retirement allowance will be increased to the amount the member would have received under the standard option known as "Option 1." Another option establishes that upon the death of a member prior to the member having received 120 monthly payments of the member's reduced allowance, the remaining monthly payments will be paid to a beneficiary designated by the member or to the member's estate. A final option is similar to the previous option except that there are 60 monthly payments of the reduced allowance; and

(5) Increasing the number of hours from 360 to 550 that a retired member of the Nonteacher School Employee Retirement System can work on a temporary-substitute basis each year without forfeiting any retirement benefits.

A provision of current law is repealed that prohibits members of any of the state's public school retirement systems from purchasing equivalent credit from another of the state's retirement systems after August 28, 1994.

The limit on cost of living adjustments for Public School Retirement System retirees' benefits is increased from 65% to 70% of the retirement allowance established at retirement or as otherwise adjusted.

A member of the public school retirement system who has been granted unpaid maternity leave is permitted to purchase creditable service for the leave period for the purpose of increasing future retirement benefits. This purchase must be made prior to the member's retirement. No member may purchase more than four year's worth of creditable service. The member will have to pay the retirement system the amount the member and the employer would have contributed, plus interest, had the member been working during that time period.

Members of a school retirement system who are within 5 years of being eligible to retire are allowed to purchase additional creditable service of up to four-tenths of a year. The member will have to pay the retirement system the amount the member and the employer would have contributed, plus interest, had the member been working during that time period.

FISCAL NOTE: Not available at time of this printing.

PROPONENTS: Supporters say last year, the General Assembly approved a plan that allowed teachers to receive an increased percentage of their final average salary; it is only fair for the nonteachers to see their "multiplier" increased as well. The contribution rate increase is well within the cap allowed by law. For retired teachers and nonteachers who choose a retirement plan providing better benefits for a spouse or beneficiary upon the death of the retiree, this legislation automatically switches the member to the full benefit plan should that member be predeceased by the spouse; this simply makes the process more efficient both for the member and the system. The provisions to allow a member to purchase credit from different state retirement systems or for unpaid maternity leave permanently "opens windows" that closed recently. Raising the COLA cap provides significant help for retirees, and the retirement system should be able to handle the costs. Allowing teachers who end a school year 1-4 months short of the service time required to receive full benefits to purchase up to a semester's worth of credit will allow a teacher to retire without needing to teach an extra year, and discourage teachers from quitting midway through a school year once they have reached their years and months of service.

Testifying for the bill were Representatives Franklin, Linton, Backer, Bray, and Hartzler (123); Public School Retirement System; Missouri State Teachers Association; Missouri National Education Association; Missouri Council of School Administrators; Missouri Retired Teachers Association; and Dan Schlegel, a retired teacher.

OPPONENTS: There was no opposition voiced to the committee.

Brian Cook, Research Analyst