Section 60 of the state’s 2011 Pension Reform Act reflects the Legislature’s intent to provide a one-time opportunity for certain ORP participants to change their retirement coverage from the ORP to the Massachusetts State Employees’ Retirement System (MSERS).
Under Section 60, ORP participants whom the Department of Higher Education (DHE) identifies as eligible to change plans may elect to transfer their ORP participation to the MSERS. Participants electing to change their coverage to the MSERS must purchase “qualifying service” under that plan, equal to the years, months and days of creditable service they accrued while in the ORP and any creditable service in the MSERS immediately prior to their enrollment in the ORP.
This is a one-time, irrevocable opportunity for eligible ORP participants to change their retirement plan coverage to the MSERS and purchase qualifying service.
The effective date of the Section 60 implementation is May 1, 2014.
The effective date of the Section 60 implementation for active MSERS members is July 1, 2014.
The procedure established for eligible participants to transfer their ORP participation to the MSERS is comprised of five basic steps, with a potential sixth:
Under Section 60, “qualifying service” is the combination of:
 Former MSERS members who did not withdraw their contributions from the MSERS when they joined the ORP already have that service on record with the State Retirement Board and therefore need not purchase it.
The MSRB will provide the estimated amount and cost of qualifyingservice that must be purchased under Section 60. This information will be provided in a Statement of Service within 180 calendar days of receipt by the Department of Higher Education of the participant’s “Notice of Interest Form.”
The Statement of Service will report the two components of qualifying service and the respective cost for each segment: (A) MSERS time immediately prior to ORP enrollment, and (B) ORP participation.
No. The legislation permits a transfer of one’s membership from the ORP to the MSERS. Accordingly, eligible participants must purchase all of their qualifying service when they join the MSERS under Section 60.
The cost of purchasing creditable service under the MSERS is the sum of the employee’s required contributions that had been made to the retirement system during the period immediately prior to ORP enrollment, plus actuarial-assumed interest.
The purchase of MSERS qualifying service is only applicable to those ORP participants who transferred their contributions from the MSERS to the ORP.
The actuarial-assumed interest rate is 8.00%, compounded annually. The interest accrual period to purchase MSERS creditable service immediately prior to ORP enrollment begins with the date the funds were transferred out of the MSERS. The MSRB has frozen the interest accruals as of December 31, 2013.
The cost of purchasing a participant’s total Years of Participation in the ORP as creditable service under the MSERS is the sum of the employee’s required contributions to the ORP, plus actuarial-assumed interest; or if greater, the sum of the employee’s required contributions plus all investment gains and interest accrued on those contributions in the ORP.
The actuarial-assumed interest rate is 8.00%, compounded annually, for service purchases submitted after January 1, 2014. The interest accrual period for purchasing ORP time begins with the employee’s first contribution to the ORP.
The MSRB has frozen the interest accrual at December 31, 2013. This means that: (A) the interest accrual period ends on December 31, 2013, and (B) the cost to purchase qualifying service will increase (beyond the estimate reported on the Statement of Service) only by the amount of contributions made to the ORP after the calculation’s end date.
The MSRB’s interest accrual freeze is applicable to the purchase of qualifying service made via a single lump sum payments to the MSRB upon first becoming a member of the MSERS.
The interest accrual will resume when all lump sum payments have been made to the Retirement Board, yet service remains to be purchased. The accrual will be reflected in the use of payroll deductions, and when purchasing service with occasional lump sums over time in the future.
No. “Other” creditable service, such as contract service, refunded creditable service under another Massachusetts retirement system, and military service may only be purchased after an eligible participant has become a member of the MSERS and completed the purchase of their qualifying service under Section 60.
“Other” service may be purchased in accordance with the MSRB’s current terms, including the interest rate used to determine the cost of purchasing other service. Note however, that some forms of “other service” (i.e. contract service) may only be purchased after satisfying the MSERS’ ten-year vesting requirement.
Information about different types of service that are eligible for purchase and use under the MSERS is available in the Retirement Board’s “Guide to Benefits” . Hard copies are available from campus Benefits Administrators.
Under terms established by the MSRB, employees may use one or more of the lump sum sources identified below in combination with payroll deductions to purchase qualifying service during the one-time opportunity under Section 60.
Payment for the purchase of qualifying service under Section 60 must be made when the eligible participant becomes a member of the MSERS.
The Section 60 payment process has been structured to follow the MSRB’s standard practice of remitting payment in lump sums prior to use of payroll deductions to purchase service under the MSERS. The following information reflects this approach.
Under the law, the DHE must transfer all of the employee’s required ORP contributions plus the net investment gain and interest thereon, directly to the State Retirement Board to purchase qualifying service on behalf of the participant. The DHE will initiate this transfer after the participant’s final contribution to the ORP.
Where ORP assets, mandatory and voluntary, are not sufficient to purchase all of a participant’s qualifying service, the Retirement Board will determine the remaining balance of service and cost. The Board will send an invoice to the participant reporting the shortage, and highlighting the following payment methods. Under the terms of the invoice, the participant will have up to 35 days to complete the purchase using the following resources.
After all lump sum payments from the sources noted above have been made to the MSRB, eligible participants may purchase any remaining service under the MSERS through the payroll system. The payments are deducted from the employee’s earnings each pay period on an after-tax basis, and remitted directly to the State Retirement Board. These deductions accrue both interest and a carrying charge during the payment period.
MSERS members may set their contribution payment period from six months to five years. Such deductions are made on an “after tax” basis, and will be reported to state and federal taxing authorities as having already been taxed when payment is made to the participant or their beneficiaries. The MSRB will determine the amount of service to purchase via payroll deduction, and the cost per pay period, after all other sources of funding (i.e., lump sums) have been applied to an individual’s service purchase.
Participants initiate the payroll deduction system directly with the Retirement Board (not their campus administrator).
Interest Accrual: The accrual of actuarial assumed interest will resume upon commencement of the payroll deduction method of purchasing service. Additionally, the Retirement Board assesses a 4% carrying charge to administer this program.
Participants who do not purchase all of their qualifying service with lump sum payments upon entry in the MSERS may purchase their remaining qualifying service with the occasional remittance of lump sums directly to the Retirement Board.
Lump sums may be remitted to the Retirement Board, from time to time, whether or not a participant has engaged in the Payroll Deduction program to buy service.
The sources of these lump sums may be those noted above (i.e. 403(b) savings; other retirement plan assets; personal assets; etc). Note that accrual of actuarial assumed interest resumes after the initial opportunity to purchase qualifying service, when the participant first becomes a member of the MSERS under Section 60.
Payment for qualifying service under Section 60 will follow this sequence:
The Commonwealth’s “Employer Plan Contributions” and any investment gains and interest accrued on these contributions may not be used to purchase qualifying service under Section 60.
Transfer to the Retirement Board: When an eligible participant becomes a member of the MSERS, the ORP Administrator, where applicable, will transfer all ORP assets in the participant’s account attributable to Employer Plan Contributions directly to the Retirement Board’s Pension Reserve Fund to help defray the employer costs related to providing the pension for each newly enrolled MSERS member under Section 60.
The TIAA Traditional account has restrictions on the transfer of assets to another investment medium, including the MSRB. This investment fund provides guaranteed, fixed interest and is offered under the two products in the ORP noted below. While an overwhelming majority of participants hold funds in only one product, some participants do have assets in both.
It is important that each participant know which product(s) they hold with TIAA-CREF under the ORP, and the product’s respective provisions:
Transfer Payout Annuity Liquidity: Assets held in a TPA, waiting to be transferred, may not be liquidated for the participant at any time. The installments continue for their prescribed frequency and duration.
TIAA has provided two exceptions to their liquidity restrictions on the TIAA Traditional Account: one for those retiring soon, and one for those with small accumulations in the fund.
Retiring Soon: Participants who have provided notice to the Dept. of Higher Education of their intent to retire prior to January 1, 2017 (“retiring soon”) will have all of their TIAA Traditional Account assets liquidated to help purchase their qualifying service. This is a special benefit that TIAA has offered their customers, in addition to waiving the 2.5% surrender fee.
TIAA mailed an endorsement to all TIAA Traditional investors documenting this change to each participant’s TIAA contract. The endorsement is applicable only for retirements prior to January 1, 2017.
Under the endorsement, participants may transfer their ORP participation to the MSERS and have the Dept. of Higher Education liquidate and transfer their TIAA Traditional Account holdings to the Retirement Board to purchase qualifying service; and then retire immediately or at a later date as long as their employment termination date precedes January 1, 2017.
Participants who are transferring their ORP participation to the MSERS and who have indicated their intent to retire soon to the Dept. of Higher Education, must also make this representation to TIAA-CREF. This representation is documented on the “TIAA-CREF Retiree Direct Transfer form that will be included in the Retirement Plan Information Package for those who notified the DHE that they will retire before January 1, 2017.
Small Sum Transfer: TIAA is also providing a “small sum” transfer to help participants liquidate their TIAA Traditional holdings for the sole purpose of purchasing qualifying service under Section 60. Accordingly, participants holding less than $5,000 in the TIAA Traditional Account at the time of transfer may liquidate their entire Traditional Account holdings to transfer to the Retirement Board.
TIAA mailed an Endorsement to all TIAA Traditional investors, documenting this change to each participant’s TIAA contract.
Participants holding $5,000 to $9,999.99 in the Traditional Account may not utilize the Transfer Payout Annuity because the contractual minimum amount that may be transferred under a TPA is $10,000.
Other TIAA-CREF Investment Funds: All other investment funds offered by TIAA –CREF are fully liquid and can make a lump sum transfer directly to the Retirement Board.
Contact TIAA: Participants holding funds in the TIAA Traditional Account should contact TIAA-CREF directly to discuss establishment of the transfer-out installments described above.
All investment funds offered by Fidelity are fully liquid and can be transferred to the Retirement Board to purchase qualifying service under Section 60.
Notes on VALIC: VALIC has voluntarily waived the liquidity restrictions on their “Fixed Account Plus” fund, thus ensuring that all “Employee” assets at VALIC are available to help their customers purchase qualifying service. The waiver is only valid for eligible participants under Section 60, and only during the Section 60 implementation. The Fixed Account Plus is available under VALIC’s Portfolio Director Annuity. This product was issued to employees joining the ORP prior to September 1, 2010.
Payment to the Massachusetts State Retirement Board (MSRB) to purchase qualifying service will be made upon becoming a member of the Massachusetts State Employees’ Retirement System (MSERS). The multi-part transaction will follow this sequence:
Eligible participants who choose to join the MSERS will be treated under the MSERS provisions in effect on the date the participant would otherwise have become a member of the MSERS, had they not joined the ORP.
This applies to plan features such as the participant’s contribution rate and the age and service requirements for retirement.
New provisions under the Pension Reform Act of 2011 are only applicable to eligible participants whose membership date will be on or after April 2, 2012.
The final determination of a participant’s membership date will be made by the Retirement Board.
Participants planning to retire in the next 12 months should consider the following steps as a guide to the transition from active work to retirement under the MSERS; to help create reasonable expectations of the time needed to complete the process. Where possible, the MSRB and the Department of Higher Education (DHE) will expedite the Section 60 procedures for those ORP participants who reported their intent to retire in the next 12 months.
The MSRB will consider individuals who transfer membership from the ORP to the MSERS under Section 60 to have transferred membership into the MSERS pursuant to Massachusetts General Laws Chapter 32, §3(8)(a). Accordingly, the “two year rule” (which requires a certain members to complete two years of creditable service in order to be eligible to retire) would not apply. See G.L. c.32, §3(6)(e).
Sequence of Retirement Activities Under Section 60
Please note that there is some overlap of the individual steps, and several will be conducted concurrently.
Group life insurance provided by the ORP will end for eligible participants who choose to enter the MSERS. The coverage will terminate at the end of the month during which the final ORP contribution is made to the Plan.
Conversion: Participants who choose to join the MSERS may convert their ORP Group Life Insurance to a policy that is owned and fully paid by the former ORP participant. While converted life insurance can be expensive, the insurance company is compelled to issue the coverage without proof of the individual’s good health. So, this can be an important source of insurance for those whose insurability may be questionable.
The DHE will provide a life insurance Conversion Form for each participant who becomes a member of the MSERS.
Long-term disability insurance provided by the ORP will end for participants who choose to enter the MSERS. The coverage will terminate at the end of the month during which the final ORP contribution is made to the plan.
No Conversion: The ORP long term disability insurance is not convertible to individually-owned coverage when the ORP participant changes retirement plan coverage, such as would be the case under Section 60.
Disability Claims: ORP participants who change their retirement plan coverage to the MSERS may be eligible to file a claim for benefits under the ORP long term disability policy after they have changed retirement coverage to the MSERS. The ability to file such claims will be dependent on individual circumstances and the provision of the ORP long term disability contract.
ORP participants who change their retirement plan coverage to the MSERS should consider purchasing the long term disability (LTD) insurance offered by the Group Insurance Commission (GIC). It is an important supplement to any disability retirement benefits payable under the MSERS.
The GIC has arranged a special open enrollment with UNUM, the current LTD carrier, on behalf of ORP participants who change retirement plans under Section 60:
This open enrollment for the LTD coverage is available during the thirty-day (30) period that begins with the pay period end date when the participant’s first contribution to the MSERS is made.
GIC Form-1: The DHE will include GIC Form-1 in each Retirement Plan Information Package for those participants who are either active employees or on an approved leave of absence. Participants should use this form to indicate their intent to purchase the LTD coverage.
RETURN THIS FORM TO THE DHE ALONG WITH YOUR MSERS ELECTION FORM. DO NOT SEND THIS FORM TO EITHER YOUR CAMPUS ADMINISTRATOR OR THE GIC. The DHE will sign the form and send it to the GIC on your behalf.
Effective Date: The GIC will establish this coverage on your behalf. This process can take up to 60 days. So, participants should anticipate some period during which they are not covered by either the ORP’s LTD insurance policy or the GIC’s LTD policy.
GIC Retiree Health insurance is equally available to both ORP participants and MSERS members upon retirement. The GIC requires participants in both plans to have accrued at least ten total years of creditable service. However, each plan’s methodology for accruing service is different.
ORP participants need to have contributed to the plan for ten years of participation, regardless of whether their workload was full-time or part-time. Months of participation accrue for each month during which the participant makes a contribution to the plan. For example, an ORP participant working at 50% full time equivalency would have to work ten years in order to meet the service requirement to be eligible for Retiree Insurances from the Group Insurance Commission.
MSERS members need to be vested in the pension system before they can become eligible to retire. Vesting requires that an employee complete ten years of full-time employment before receiving pension benefits and GIC retiree health insurance. For example, an MSERS member working at 50% full time equivalency would have to work twenty years in order to be vested and meet the service requirement to be eligible for Retiree Insurances from the Group Insurance Commission.
In other words, any ORP participant who transfers to the MSERS must have completed the equivalent of 10 years of full-time employment either in the ORP, the MSERS or a combination of years under both systems, before becoming eligible for retiree benefits.
Eligible Participants who die while changing their retirement plan coverage to the MSERS will be treated as a deceased participant in the ORP if they still hold assets in that Plan at the time of their death, and will be treated as a deceased member of the MSERS if they have become a member of that Plan at the time of their death.
Beneficiaries: ORP participants who change plans under Section 60 should use that opportunity to ensure that their beneficiary designation under the ORP is up-to-date.
Yes. The two Social Security Offsets, Windfall Elimination Provision and Government Pension Offset, are applicable to participants of each plan: the ORP or the MSERS. For more information, go to the Social Security Administration website.
Participants will find detailed information about the ORP on the ORP's web pages. Menu items along the left side of the page provide a wide variety of topics, including up-to-date information about Section 60.
Some key topics include:
Choosing A Retirement Plan: This section of the ORP web pages provides a helpful comparison of the two plans’ basic features.
Enrollment Center: Steps 1 and 4 provide extensive information about the plan’s providers – the services and investment funds they offer.
Drawing Benefits from the ORP: This section provides detailed information about eligibility to draw benefits from the plan, and the many payment methods available to participants and their beneficiaries.
The MSRB website includes extensive and helpful information about MSERS benefits, including a pension estimate calculator.
Benefit Guide: The Guide to Benefits provides a concise and invaluable description of benefits available under the plan, and a clear explanation of how retirement incomes are calculated.
Participants who want or need assistance in assessing the benefits of the ORP and MSERS in relation to their personal career and retirement plans should consult a professional financial planner who is familiar with defined contribution (ORP) and defined benefit (MSERS) plans.
The Mass Financial Planning Association website provides information for consumers searching for a Certified Financial Planner (CFP designation).