94th Congress } COXIBTTEE PRINT
TERMINATION OF SOCIAL SECURITY
COVERAGE: THE IMPACT ON STATE
AND LOCAL GOVERNMENT EMPLOYEES
A WORKING PAPER
PREPARED BY THE '
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
$'I FL ,
SEPTEMBER 1976 ,
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SPECIAL COMMITTEE ON AGING
FRANK CHURCH, Idaho, Chairman
HARRISON A. WILLIAMS, JR., New Jersey
JENNINGS RANDOLPH, West Virginia
EDMUND S. MUSKIE, Maine
FRANK E. MOSS, Utah
EDWARD M. KENNEDY, Massachusetts
WALTER F. MONDALE, Minnesota
VANCE HARTKE, Indiana
CLAIBORNE PELL, Rhode Island
THOMAS F. EAGLETON, Missouri
JOHN V. TUNNEY, California
LAWTON CHILES, Florida
DICK CLARK, Iowa
JOHN A. DURKIN, New Hampshire
HIRAM L. FONG, Hawaii
CLIFFORD P. HANSEN, Wyoming
EDWARD W. BROOKE, Massachusetts
CHARLES H. PERCY, Illinois
ROBERT T. STAFFORD, Vermont
J. GLENN BEALL, JR., Maryland
PETE V. DOMENICI, New Mexico
BILL BROCK, Tennessee
DEWEY F. BARTLETT, Oklahoma
WILLIAM E. ORIOL, Staff Director
DAVID A. AFFELDT, Chief Counsel
VAL J. HALAMANDARIS, Associate Counsel
JOHN GUY MILLER, Minority Staff Director
S PATRICIA G. ORIOL, Chief Clerk
During the past 2 years, many local governments have opted to
pull out of the social security system. Others are now giving considera-
tion to terminating coverage for their employees.
But at the same time, more governmental workers' jobs are covered
under social security than at any time in history. Nearly 8.7 million
governmental employees now pay into the social security system. In
return, they are building credits toward retirement, disability, sur-
vivor, and hospital protection for themselves and their families.
The committee is concerned, however, about the increased number
of governmental units electing to terminate coverage, particularly in
terms of the financial effect on the system. And the committee is
especially concerned about the impact of this decision upon individual
workers and their families.
Social security is clearly the economic mainstay for the vast majority
of older Americans. In all likelihood, it will continue to be for the fore-
seeable future..Quite clearly then, termination of social security cover-
age can be a risky decision for government employees.1
To obtain more in-depth information about the effect of these
actions, the committee has called upon its staff to prepare this working
paper.2 In addition, technical assistance and other information was
provided by Mr. Gary Good, an Executive Development Fellow with
the Social Security Administration. In this assignment, Mr. Good dis-
played the highest degree of impartiality, fairness, and professionalism
min examining relevant issues related to local government termination
of social security coverage. The committee extends its heartfelt thanks
to Mr. Good for his assistance.
1 The June 1976 edition of the National Retired Teachers Association-American Associa-
tion of Retired Persons legislative report said:
"Termination of social security participation can be risky for certain current and future
public employees. Failure to continue social security contributions could result in a loss of
insured status for disability benefits and could also impair currently insured status for
certain survivor benefits, lump sum death payments and chronic renal disease protection
under the hospital insurance program.
"Furthermore, due to inflationary pressures, considerable doubt exists as to the future
financial ability of public employee retirement systems to provide retirement income security
comparable to that provided under the social security system. Many public employee retire-
ment systems would probably not be financially strong enough to bear the costs of providing
benefits liberalized and extended to an equivalent degree as that of social security and
SThe sample: The committee obtained a copy of all State and local government groups
that have filed notice to terminate social security coverage through December 31. 1977. A
10-percent random sample of the groups terminating coverage effective during 1977 (15
out of 154) was selected. Each group was then contacted by telephone. The groups selected
California: (1) City of Dixon, (2) Tracy Rural County Fire Protection District, (3)
Marina Fire Protection District, (4) City of Rolling Hill Estates, (5) Elk Grove Fire
Protection District, (6) Sonoma County Water District. (7) City of Fountain Valley.
(8) Sonoma Valley County Sanitation District, (9) Big Bear Valley Recreation and Park
Georgia : (10) Murray County Board of Education.
Louisiana: (11) Town of Haynesville, (12) Town of Marimguin, (13) City of Plaquemine.
Missouri: (14) City of Northwoods.
Texas: (15) Red River County Schools.
The document provides clear and convincing evidence that the im-
portant decision-whether to continue or terminate social security
coverage-is oftentimes made in a haphazard manner. The decision-
making process is frequently based upon incomplete, inaccurate, or
questionable information. Many workers and local government officials
have failed to take into account the total impact-both immediate and
in the future-of their actions. In a very real sense, some workers are
playing a dangerous game of Russian roulette with their future eco-
nomic security as well as their families' well-being. The decision to
maximize take-home pay now may be at the cost of losing future
retirement, disability, survivor, and hospital protection.
Unfortunately, information about social security's future protec-
tion has not been readily available. A precise explanation about present
benefits is ordinarily fairly easy to obtain. But projections about
future benefits were even difficult for the staff to obtain. One of the
recommendations in part 7 is directed specifically at this problem.
The working paper makes an important contribution in other ways
by: analyzing the reasons for the increased pullouts from social secu-
rity; identifying major considerations in deciding whether to ter-
minate coverage; providing examples of the scope and value of social
security protection; recommending administrative and legislative ac-
tions to improve social security.
Finally, this working paper can serve as a useful checklist for gov-
ernment workers and officials in giving appropriate consideration to
relevant factors in determining whether they should continue social
security coverage. FRANK CHURCH, Chairman,
Special Comnmission on Aging.
Part 1. Background------------------------------------------------ 3
A. The law: Termination of social security coverage --------------- 4
B. Terminations on the upswing-------4---------------------- 4
Part 2. Why terminations have increased----------------------------- 6
A. Employees' desire for more take-home pay------------- 6
B. Finances of local governments-------------------------------- 6
C. "Social security is going broke"-- ----6-------------------- 6
D. Social security taxes will continue to rise---_------------ 7
E. "Employees will be eligible for social security, regardless"---------- 7
F. "Replacement plans will pay more"--8---------------------- 8
G. "These people don't know what they're voting for"----- 8
Part 3. Value of social security-------------------------------------- 9
Part 4. Examples of benefits of staff retirement plans -------------- 17
A. Parochial employees' retirement system of Louisiana ------- 17
B. California Public Employees' Retirement System-4/o at age 60- ... 17
C. Highlights of other plans------------------------------------17
Part 5. How some termination decisions were reached------------- 19
A. Dixon, Calif------------------------------------------- 19
B. Murray County Board of Education, Georgia------------------ 19
C. Plaquemine, La-------------------------------------------- 20
D. Haynesville, La------------------------- 20
Part 6. Considerations of State and local governments------------------ 22
A. Basic choices---------------------------------------------22
B. Benefit comparability of replacement plans -------------------- 23
C. Cost-of-living increases-------------------------------------23
D. Vesting-- ----------------------------------23
E. Portability --------------------- ------------ 24
F. Desirability of local government employment------------------ 24
G. Effect of terminating social security coverage on present employees- 24
H. Effect on future employees---------------------------------- 25
I. Financial strength of other plans-----------------------------25
J. Tax-free benefits--------------------------------------- 26
K. Likelihood of future improvements in social security ----------- 26
L. Possibility of general tax revenue financing ---------------- 27
Part 7. Administrative and legislative recommendations and considerations- 28
A. Independent evaluation of replacement plans- ---- --- -- 28
B. Actuarial evaluation of social security- --------------------- 28
C. Notice of results of evaluation--__--------------------------- 29
D. Employee referendum-------------------------29
E. Certification of benefit protection comparability ---------------- 29
F. Modification of minimum benefits under social security------- 30
G. Modification of social security financing ----------------------- 31
H. Modification of coverage agreements- ------------------ 32
I. Administrative possibilities----------------------------------32
Appendix 1. Parochial Employees' Retirement System of Louisiana------ 34
Appendix 2. California Public Employees' Retirement System----------- 40
Appendix 3. Letter from David H. Doty, city manager, Bellaire, Tex.; to
Gary Good, Senate Special Committee on Aging, dated April 13, 1976 - 58
Digitized by the Internet Archive
NEW YORK WILL QUIT SOCIAL SECURITY1
N NEW YORK, March 22 (tJPI)-New York City formally
notified the Federal Government today it intends to pull
most municipal employees out of the Social Security System
in 2 years in what would be the largest withdrawal from the
system in its history.
In making the required 2 years' notification, Mayor Abra-
ham D. Beame noted that the city could change its mind dur-
ing that period and remain in th& system.
The pullout, if made, would substantially reduce social
security benefits for about 150,000 current city employees and
make new employees ineligible. Retired city workers would
not be affected.
Several municipalities have withdrawn their employees
from the system in recent years, but none as large as New
In negotiations with the city, Federal officials reportedly
vigorously opposed a New York pullout. A withdrawal by
New York would mean a loss to the system of more than $400
million annually. The system already has an estimated benefit
deficit of $1.6 billion this year.
Beame gave March 31, 1978, as the tentative termination
With a pullout, the city would save an estimated $200 mil-
lion in annual contributions, Beame said. However, several
municipal union leaders have indicated they would demand
increased contributions to existing pension programs in the
event of an end to social security.
Employees would end their contributions, too, under a pull-
out. Each would find his paycheck fattened by about $900
"I would like to emphasize that termination of coverage
would not affect vested rights of city employees under the
social security program," Beame said.
The decision to withdraw would be irrevocable. Once a mu-
nicipality withdraws from the system, it is prohibited from
The mayor's notification affects only mayoral agencies.
Beame said he has asked the heads of the nonmayoral agen-
cies, such as the board of education, to make similar
1 Newspaper article, the Washington Post, Tuesday, Mar. 23, 1976.
If all six of these nonmayoral agencies complied, the num-
ber of affected city workers would be about 230,000.
"The notice filed today does not constitute actual termina-
tion of coverage," Beame said. "That decision will be made
following the most rigorous and thorough analysis of this
matter, as well as the question of alternate means of provid-
ing disability insurance, during the next 2 years."
All of New York City's moves to pull itself out of financial straits
is national news. But on the same day that the Washington Post re-
ported Mayor Beame's announcement, CBS Evening News reported
that other local governments have already dropped out of social secu-
rity. Their decisions received far less attention than New York's, but
the two news stories on March 23 illustrate that more and more local
governments are electing to terminate social security coverage.
As of June 1975 there were 12.39 million employees of State and local
governments; 70 percent of these employees-8.67 million-were cov-
ered by social security. Of the employees not covered, only about .045
million are not covered because their social security coverage has been
Nearly 40 percent of all notices to drop social security coverage have
been filed in the past 2 years. Despite this upsurge, the proportion of
State and local government employees covered by social security is
growing; 68 percent were covered as of June 1973. The 2-percent in-
crease as of June 1975 represents 1.12 million employees.
Some of the employees whose coverage would be terminated are
looking forward to more take-home pay. Some local government ad-
ministrators are looking forward to less payroll expense. For employ-
ees whose social security will be replaced with a new staff pension plan,
many are looking forward to an earlier retirement age for benefits.
Yet, the voluntary termination of social security is causing concern.
As the Washington Post article indicates, part of the concern is about
the loss of revenue to the social security system. But the principal
concern of the Senate Committee on Aging flows from its primary
responsibility: to examine all matters pertaining to problems and
opportunities of older Americans. Specifically, this working paper
addresses the concern that voluntary termination of social security
will reduce the employees' overall benefit protection and lead to in-
creased dependency on others in the future.
Most State and local government employees now work in jobs cov-
ered by social security. From June 1961 to June 1975 the number of
State and local government employees with social security coverage
more than doubled, increasing from approximately 3 million to almost
Seven out of ten State and local government employees are covered
under social security. This is down slightly from the 1967 high when
77.2 percent of all such employees had social security coverage.
The following graph shows that the majority of State and local
government employees are in jobs covered by social security. The
numbers within the-bars show the proportion of employees in covered
The drop between June 1967 and June 1970 was because of increases
in employment in several very populous States which have relatively
few of their governmental entities under social security.
NUMBER OF STATE AND LOCAL EMPLOYEES
IN JOBS COVERED BY SOCIAL SECURITY
MILLIONS OF EMPLOYEES
12 TOTAL EMPLOYED ...11.10-
11 TOTAL COVERED :::::::::::::::::: .::::::::::
. . . . ...........
...-.-.-.-.'... ..........::::--. ......
6* ..... ... ..
3.03 ........ 68....0% .
. . ....:..:..:..:.. .........:::::
8 -- ,.......,.~......... ,.:.:.:.:.:..:.:.. ::::::
1861 1964 1967 1970 1973 1975
(June) IJune) (Junei (June) (June) IJune)
7 ss 6.60~~:!!i:" \\"
6 5.59iiiii~~ :::::::::::
4 -- ..........:::::0%
1961 1964 '1967 1970 1973 1975
(June) |Junel (June) |Junel |June) (June)
74-481 O 76 2
A. THE LAW: TERMINATION OF SOCIAL SECURITY COVERAGE
The Social Security Act permits termination of coverage for em-
ployees of State and local governments. The State must give 2 years'
advance notice of its desire to terminate social security coverage of
the employees of a political subdivision. Such notice cannot be given
until after the coverage has been in effect for at least 5 years. Once
coverage has been terminated it can never again be provided for any
present or future employee of that political subdivision.
Employees cannot individually terminate coverage. That action
must be taken by the State. No employee vote or referendum is
Coverage was not made compulsory for these employees because of
the constitutional problems that were foreseen if the social security
law were to require the employer tax on the States and political subdi-
visions. Therefore, coverage was extended on a group voluntary basis,
with provision for termination.
B. TERMINATIONS ON THE UPSWING
In recent years there has been a substantial increase in the number
of government employees in units filing notices of termination. Nearly
31,000 State and local government employees had their coverage ter-
minated by June 30, 1975. Latest figures reveal that potentially 469,000
employees may terminate their social security coverage from July 1,
1975, to April 1, 1978. This represents a fifteenfold increase, compared
with the terminations before June 30,1975.
Virtually all of the terminations have been concentrated in four
States: New York, California, Louisiana, and Alaska. In New York
alone, 362,000 employees are affected-the vast majority of whom work
for New York City. About 90 percent of the employees in New York
City are now covered by social security.
NUMBER OF STATE AND LOCAL GOVERNMENT EMPLOYEES WHOSE SOCIAL SECURITY COVERAGE WILL HAVE
BEEN TERMINATED BY APR. I, 1978, COMPARED WITH NUMBER OF COVERED EMPLOYEES IN CALENDAR
QUARTER ENDING IN JUNE 30, 1975-BY STATE
Number of em-
Number of em- Total number of ployees for whom
ployees for whom covered employees coverage will have
coverage was in calendar been terminated
terminated prior quarter ending from July 1, 1975
State to June 30, 1975 June 30, 19751 to Apr. 1, 1978 *
California- -------------------------- -
Georgia,. . .. ----------------.- -
Idaho --------------- -----------------
Indiana------- -- --------------------
Minnesota --------- ---------------
Missburi-. ...---------------- ------
New Jersey ---------------------------
North Carolina-- ------- -------------------
Puerto Rico-------- ---------------
South Carolina.--- -------------------
Virginia -- ------------------
Virgin Islands --------------------------
West Virginia ------- ----------
Wyoming.---- ------- .---------- --------
Total-- --------- ------
I Takes account of all covered employees in the calendar quarter. When an employee leaves his job and another
employee fills the vacancy both employees are counted. A representative number of employees in State and local employ-
ment at one point in time during this calendar quarter would be about 8,670,000.
s Takes account of notices of termination that were filed between Apr. 1, 1973 and Mar. 31, 1976.
Source: Social Security Administration.
WHY TERMINATIONS HAVE INCREASED
The number of State and local governments electing to terminate
social security coverage is clearly on the upswing. Perhaps the most
notable example occurred in March when New York City-the Nation's
largest local unit of government-filed a notice with the Department
of Health, Education, and Welfare to terminate coverage. This would
represent the largest withdrawal in the entire history of the program.
To obtain more detailed information about the terminations through-
out the Nation, the committee staff has conducted an in-depth analysis
of the reasons influencing the decisionmaking process. Among the
major reasons cited:
A. EMPLOYEES' DESIRE FOR MORE TAKE-HOME PAY
Pressure to drop social security coverage is quite often initiated by
employees. They typically want more take-home pay to cope with
inflation. In addition, many younger employees are more concerned
with meeting current living expenses than with retirement income in
the later years. Some localities' pay increases have not kept pace with
inflation. Thus, younger workers opt for a raise in their take-home
pay by reducing their payroll deductions.
B. FINANCES OF LOCAL GOVERNMENTS
Employees are not the only ones caught in a money squeeze. Many
State and local governments are financially hard pressed. Some-such
as New York City-have been on the verge of bankruptcy. This situa-
tion influenced New York City's decision to file a notice of intent to
terminate social security coverage. Inflation is also intensifying the'
budgetary squeeze for other State and local governments. The cost of
furnishing governmental services has increased dramatically. This is
frequently accompanied by a demand for more services. Virtually all
groups hastened to point out that, while the cost of government is up,
taxpayers are more and more reluctant to pay additional taxes.
As a result, several local government administrators believed it is
essential to consider all alternatives to cut costs-including dropping
their social security coverage.
C. "SOCIAL SECURITY Is GOING BRoE"
News accounts about the financial condition of social security have
provided a catalyst for many employees to consider terminating their
coverage. Widespread reports of the projected exhaustion of social
security trust funds in the 1980's have been translated to mean benefits
will cease at that time.
As a result, a vote for termination of coverage has been viewed as
calling a halt to throwing good money away on a bankrupt system.
D. SOCIAL SECURITY TAXES WILL CONTINUE To RISE
Few administrators shared the pessimism of some employees that
social security would go broke. They-along with many employees,
upon reflection-realized that our Nation would not allow social
security checks to stop. But they also realized that, to correct the finan-
cial problem of greater outgo than income to the program, social
security taxes may be increased. Or, some other alternative would be
approved which would increase their payroll costs.
One of the most difficult budgetary problems at the local level, ad-
ministrators reported, is unscheduled rising expenses. Because social
security tax levels are beyond local control, dropping social security
was seen as a way to achieve more static and budgetable expendi-
tures. [See subsection B for additional discussion of finances of local
E. "EMPLOYEES WILL BE ELIGIBLE FOR SOCIAL SECURITY, REGARDLESS"
Many older employees had found that they already met the require-
ments for "fully insured status" 1 under social security, which entitles
them to at least some retirement, survivors, and hospital insurances.
(The amount of monthly retirement or survivors' benefits, however,
will be reduced because years of no creditable earnings will be aver-
aged into these workers' lifetime average earnings.)
Many older workers, however, vote for termination of coverage be-
cause they will receive at least some benefits.
Younger employees often were reported to be highly optimistic that
they would gain enough social security work credits for eventual eligi-
bility through moonlighting or work after retirement. Some will also
leave the Government and obtain sufficient quarters of coverage to
qualify for benefits. Indeed, the literature from several staff retirement
systems also banked on employees being eligible for minimum social
The formula for computing monthly social security benefits also
provides an incentive for some Government workers to opt for ter-
minating coverage. Benefits are weighted to the advantage of people
with low lifetime earnings covered under social security. In some
cases this occurs because a worker may have an in-and-out pattern of
covered employment, or because he or she may have worked in non-
Some groups took care to explain to committee staff that employees
were unswayed by the fact that they already were fully insured under
social security. Others said this was a major factor in the voting. All
groups seemed well aware of the fully insured status rule in the social
1 To be fully Insured a worker must have covered earnings in a sufficient number of
quarters equal to the number of calendar years after 1950 (or the year the worker reached
21, if later) up to the full year in which he or she became disabled, died, or reached retire-
ment age. However, a worker cannot be fully insured with fewer than six quarters of
coverage. No worker, though, will need more than 40 quarters of coverage.
F. "REPLACEMENT PLANS WILL PAY MORE"
Almost all of the groups planned to replace the social security bene-
fits with a different plan. Retirement benefits under the replacement
plans generally were higher than social security amounts. Typically,
though, the replacement plans paid less survivors and disability bene-
fits and offered no prepaid hospital insurance for retired and disabled
workers and family members 65 and over.
Only a few of the plans tied their benefit amounts to the cost of
living. Many had no cost-of-living adjustment. Others had special
limitations, such as an annual 2-percent limit on the increase. Other
plans allowed cost-of-living increases only if fund reserves were suf-
ficient. Still other plans made the increases available only to employees
who retired after a specified recent date.
G. "TmHESE PEOPLE DON'T KNOW WHAT THEY'RE VOTING FOR"
This quotation from a local government administrator illustrates a
sentiment voiced by many. Before the votes, employees did not have
any independently prepared evaluations of social security or the pro-
posed replacement plan. Information necessary for informed judg-
ments was therefore lacking.
VALUE OF SOCIAL SECURITY
Central to the issue of local government termination of social secu-
rity is the value of social security protection. As stated in part 2, many
Government employees are deciding to drop social security coverage
based upon incomplete-and oftentimes inaccurate-information.
Today many Americans view social security as a retirement program
for older workers. But it is much more. Social security is also family
security, protecting workers and their families from loss of earnings
because of death, retirement, or disability. In addition, today's work-
ers are building hospital insurance protection under medicare for
themselves and their spouses. About 61 percent of all people getting
monthly cash benefits are retired workers and their spouses.
To provide more detailed information about the value and scope of
social security protection, this working paper incorporates Senator
Dick Clark's May 11, 1976, statement in the Congressional Record on
VALUE OF SOCIAL SECURITY PROTECTION
Mr. CLARK. Mr. President, the social security program is
one of the Nation's most valued institutions. One out of every
seven Americans receives a monthly social security check.
These benefits replace, in part, the earnings that have been
lost because of retirement, death, or disability. In addition,
medicare protection is provided when people reach 65 or
have been disabled for 2 years, or suffer from end-stage renal
In all, social security currently pays more than $7.3 billion
in benefits each month.
That fact is difficult to put into proper context. This
amount-$7.3 billion a month-is useful in measuring social
security's overall impact on the economy, but it does not
fully illustrate the value of thel protection provided for indi-
vidual families. A few key facts, it seems to me, would make
SSURVIVORS INSURANCE PROTECTION
Survivors protection, for example, is an important part
of social security. Social security monthly benefits are paid
to a deceased. worker's:
Unmarried children under 18-under 22 if full-time
Unmarried son or daughter 18. or over who was severely
disabled before 22 and continues to be disabled.
Widow or dependent widower 60 or older.
Widow, widower, or divorced wife if caring for the
worker's child under 18-or disabled-who receives a child's
Widow or dependent widower 50 or older who becomes
disabled not later than 7 years after the worker's death or, in
the case of a widow, within 7 years after she stops receiving
checks as a widow caring for the worker's children.
Dependent parents 62 and older.
Divorced wife 60 or older if the marriage lasted 20 con-
secutive years or more.
Disabled divorced wife 50 or older if the marriage lasted
at least 20 consecutive years and if she becomes disabled
within the 7-year period described for disabled widows.
Grandchildren who were living with and dependent on
the worker and whose parents are disabled or deceased.
Ninety-five out of every one hundred children under 18
and their mothers have survivorship protection if the father
were to die.
The value of social security survivors protection for a
family with young children depends largely on: First, the
number and age of the children; and second, the earnings of
the worker. For example, in the case of a young worker with
average monthly earnings of $600 who dies in mid-1976 leav-
ing a wife aged 32 and two children aged 3 and 5, the present
value of social security benefits that will be paid to that
family over the years-assuming that the children attend
school until they reach age 22-is $113,520. And, it is guaran-
DISABILITY INSURANCE PROTECTION
Disability protection is another important part of social
security. Monthly social security disability benefits are paid
to disabled workers and the worker's:
Unmarried children 18-or under 22 if full-time student.
Unmarried children 18 or over who were severely disabled
before 22 and who continue to be disabled.
Wives or dependent husbands 62 or over.
Wives under 62 who care for a covered worker's child
under 18-or disabled-who received a benefit based on the
retired or disabled worker's earnings.
Divorced wives 62 or older if the marriage lasted 20 con-
secutive years or more.
Grandchildren who are living with and dependent on the
worker and whose parents are disabled or deceased.
Four out of five adults have disability protection under
social security in the event of the breadwinner's long-term
disability, either as insured workers or as dependents of
The present value of the social security survivors and dis-
ability protection is about $116,380 for a man who:
Becomes disabled in mid-1976 at age 35;
Has a wife 32 and two children aged 3 and 5;
Has average monthly earnings of $600; and
Dies after being disabled for 5 years.
These benefits are also inflation-proof.
If the disabled worker in this example dies after being
disabled for 20 rather than 5 years, the present value is about
MEDICARE HOSPITAL INSURANCE PROTECTION
At age 65, medicare hospital insurance protection auto-
matically goes with eligibility to social security or railroad
retirement benefits for workers, dependents, or survivors.
Also eligible for hospital insurance are disabled people under
65 who have been continually entitled to social security or rail-
road retirement benefits on the basis of a disability for 2 years.
Insured workers and their dependents who have end-stage
renal disease are eligible also. Finally, people 65 and over
who are not eligible under any of these provisions can buy
medicare hospital insurance protection, currently for $40 a
month. It will go up to $45 this July.
Three types of care provided by participating organizations
are covered: inpatient hospital care, posthospital extended
care, and posthospital home health services.
Inpatient hospital care is covered for up to 90 days in a
benefit period. A benefit period starts when a person enters a
hospital and ends when the patient has been out of a hospital
or skilled nursing home for 60 consecutive days. Medicare now
pays all but the first $104 of the cost of covered services for the
first 60 days. If hospitalization lasts longer than 60 days, the
medicare beneficiary pays a $26 daily coinsurance charge for
the next 30 days. In addition, a lifetime reserve of 60 days of
inpatient hospital benefits is available to beneficiaries who
have used up the 90 days of benefits in a benefit period. Here
again, the patient must pay a $52 daily coinsurance charge.
The second, posthospital extended care, is covered for up to
100 days in a benefit period if the care is begun shortly-gen-
erally within 14 days-after a hospital stay of at least 3 days.
Medicare pays all covered costs for the first 20 days and, after
the 20th day, pays all but $13 a day. The services covered are
the skilled nursing or rehabilitation services provided daily to
ifipatients of skilled nursing homes.
The third type of care covered by hospital insurance is post-
hospital home health services. Medicare pays for covered
services in full. Up to 100 visits by nurses, physical therapists,
and other health personnel are covered if furnished within a
year' after discharge from a hospital-after at least a 3-day
stay-or from a covered stay in a skilled nursing facility. A
plan of home health care must be provided by a doctor.
The' value of hospital insurance protection depends, of
course, on a person's state of health. A person who enjoys
continuing good health will stand to receive less benefits than
the average. A person who is not that fortunate, on the other
74-481 0 76 3
hand, could receive substantially more than the average. For
fiscal year 1975 covered inpatient care in short-stay hospitals
accounted for 95 percent of the total hospital insurance bene-
fits paid. The average short-stay hospital benefit was $1,062.
The average number of covered days of care for these stays
was 10.7. The average lifetime value of hospital insurance
benefits that can be expected to be paid for a couple, both
reaching 65 now, is $24,000.
Here is another way to illustrate the value of medicare's
hospital insurance protection: 12 percent of aged beneficiaries
are expected to receive benefits for hospital services in excess
of $1,000 in fiscal year 1976. Four percent are expected to
receive more than $3,000 in benefits. The following chart shows
Reimbursement greater than- beneficiaries
$1,000 ------------------------------------ 12
$3, 000 ------------------------------------- 4
$5, 000 --------------------------- ----------2
Thus, medicare hospital insurance is there when you really
MEDICARE SUPPLEMENTARY MEDICAL INSURANCE PROTECTION
Medicare's supplementary medical insurance plan operates
somewhat differently. Unlike the rest of social security, work-
ers do not contribute toward medical insurance protection
during their working years. People 65 and over---and people
under 65 who are eligible for hospital insurance-who sign
up for medical insurance pay monthly premiums for this pro-
tection. The current premium is $6.70 a month; it will increase
to $7.20 this July. The Government more than matches the
amount of premium to meet the full cost of the program.
Now, the Government's monthly share is $8.30. This July it
will be $14.20, about twice what each beneficiary will pay.
There is an annual deductible of $60. After the deductible
is met, the plan pays 80 percent of the reasonable charge for
covered services. Special limitations apply to psychiatric care
and services of independently practicing physical therapists.
Physicians' and surgeons' services are covered in the house,
office, clinic, and hospital. Outpatient hospital services are
covered if furnished by participating hospitals-or by non-
participating hospitals for emergency outpatient services.
Home health services-the same as covered in medicare's
hospital insurance-are also covered under the medical in-
surance plan, for up to 100 visits in a calendar year. The plan
pays the full amount, rather than 80 percent of reasonable
cost, of home health services. No prior hospitalization is
Examples of other covered health services include out-
patient physical therapy and speech pathology services, diag-
nostic tests, rental and purchase of durable medical equip-
ment, and certain ambulance services.
The value of medical insurance protection also depends on
a person's state of health. The average benefit paid per bill
was $48 in fiscal year 1975. Over three-fourths of the medical
insurance bills are paid for doctors' services. Over 1 in 10 bills
is for outpatient hospital services.
Here is another way to illustrate the value of medicare's
medical insurance protection: 10 percent of aged beneficiaries
are expected to receive medical insurance benefits in excess
of $500 in fiscal year 1976; 5 percent are expected to receive
more than $1,000 in benefits. The following chart shows addi-
PERCENTAGE OF AGED ENROLLEES
Reimbursement greater than- Percent
Thus, medicare medical insurance is also there when you
really need it.
RETIREMENT INSURANCE PROTECTION
I have purposely left until last the illustration of the value
of social security retirement benefits. Many people think of
social security as only a retirement plan, but it is much more.
It is also family security. In fact, only about 61 percent of all
people getting monthly cash benefits are retired workers and
Social security retirement benefits are paid to retired work-
ers at 62 or older, and their dependents. The same rules apply
for dependents under both the disability and retirement
Nine out of 10 people aged 65 or over either receive social
security retirement benefits or would receive them if they or
their spouses were not working. By 1985, about 94 percent of
the aged population will be eligible for benefits; the propor-
tion is expected to be 96 to 98 percent by the year 2000.
The value of social security protection is $85,200 in the case
of a worker who-
Reaches age 65 upon retiring in January 1976;
Has a wife who reaches 62 in the same month; and
Has average monthly earnings of $585.
This figure includes the value of some survivor's protection
for the wife, since the probability is that the worker will die
before her. Once again, this protection is inflation-proof.
For people reaching 65 and retiring in the future, the value
is, of course, much higher. Let me again use the example of the
worker and his wife who are now aged 35 and 32. In the year
2005, they will be 65 and 62. Assuming the worker retires then,
the value of their social security retirement protection includ-
ing the wife's survivor protection will be about $159,700 in
This valuation is based on the actuarial assumptions in-
cluded in the report of the 1975 board of trustees of the social
security trust funds. It assumes the same proportion of wage
replacement as exists under present law in January 1976. It
further assumes that the worker will earn the maximum salary
counted toward social security. That amount is $15,300 this
year and is expected to be about $26,500 in 2005, using con-
Constant dollars-that is, 1976 dollars-are used because
the number of 2005 dollars is expected to be significantly
higher because of inflation. I want to keep all the illustrations
as consistent as possible for comparison purposes; using 1976
dollars helps do that.
WORK CREDITS REQUIRED
Before workers and their families can get retirement, sur-
vivors, disability, or hospital insurance protection, the workers
must earn a certain amount of social security work credits. For
each 3-month calendar quarter that a worker is paid $50 or
more in a job covered by social security, he or she receives one
work credit. Self-employed workers get four credits for each
year they have a net profit of $400 or more.
The amount of work credit needed depends on the worker's
age. For retirement and hospital insurance protection, a
worker reaching age 62 in 1976 needs 25 credits. He or she will
need 28 credits if 62 in 1979, 32 credits if 62 in 1983, and 40
credits if 62 in 1991 or later.
For survivors protection, a worker born after 1929 will need
13 credits if he or she dies at age 35, 20 credits if at age 42,
and 28 credits if at age 50.
For disability protection, workers who become disabled at
age 31 or later need as many credits as they would need if they
reached 62 in the year they become disabled. In addition,
though, they need 20 credits in the 10-year period just before
they become disabled. The additional credits are not needed
if the worker becomes blind.
Having enough credits means only that workers and their
families can become eligible for checks. But the amount of the
checks depends on the worker's average earnings over a period
of years from jobs covered by social security. The higher the
earnings, the higher the benefits.
NEED FOR ADDITIONAL PROTECTION
A final important point: Most people believe it is wise to
supplement their social security protection with other in-
surance or pensions. We must remember that prices will rise
in the future. Although social security benefits will increase
with the cost of living, it is not too likely-in my opinion-
that there will be any sizable future increase in the propor-
tion of earnings replaced by social security benefits. So plan-
ning for some supplement seems to me to be prudent.
Finally, it should be emphasized that social security was
never intended to be the sole source for replacing lost earnings
because of death, retirement, or disability.
It, of course, provides valuable protection. And for most
older Americans, social security is their primary source of
support. But quite clearly, social security benefits should be
supplemented by private pensions, insurance, savings, or other
forms of protection.
The above statement by Senator Dick Clark appeared in the Con-
gressional Record of May 11, 1976, page S6866.
Chart 1 shows average monthly benefits for some selected family
The benefits paid to disabled workers do not ordinarily include
reduced benefits, and a higher percentage of disabled workers than
retired workers have their benefits computed on more recent, and
therefore higher, average earnings. These facts explain, at least in
part, why the average benefit for disabled workers is higher than the
average for retired workers-$242 as compared with $224 for June
A wife's benefit beginning at or after age 65 is equal to one-half
of the amount her husband would get if he retired at age 65. The
average benefit for a worker and his wife is $372.
AVERAGE CASH BENEFITS
I I I I I I i I
RETIRED WORKERS | IIIIIIil |||||| H||i|U$224
AGED COUPLES $|| |
AGED WIDOWS. i..iiiiii i iii i
W IDOW S $510;;;;;^ ;;;:;;;;^ ;;;;;;;::;:;;:::::::::;;::;;:::;
WITH 2 CHILDREN
DISABLED WORKERS ...........................................$
WITH WIFE AND 1 ..................$476
OR MORE CHILDRE.N .....................*.*.......... ............
I I I I I I I I I1.
$0 50 100 150 200 250 300 350 400 450 500 550
MONTHLY CASH BENEFIT AMOUNT
JUNE 1976 (ESTIMATED). PAYABLE JULY 3. 1976
An aged widow's benefit beginning at or after age 65 is 100 percent
of the benefit her husband was getting or would have gotten if he
retired at age 65. The amount of a widow's benefit depends on her age
at the time she starts getting benefits and whether her husband got
reduced retirement benefits. The benefit for a widow who starts getting
benefits at or after age 65 and whose husband did not get reduced
benefits is 100 percent of her husband's unreduced benefit amount. All
other widows-those who start getting benefits before age 65 (benefits
payable as early as age 60) or whose husband got reduced benefits-
get less than 100 percent. The average benefit for aged widows is $208.
Several factors affect the amount of benefits for family groups con-
sisting of several people. A child's benefit is 50 percent of the worker's
unreduced benefit if the worker is alive, and 75 percent if the worker
is dead. Also, there is a limit on the monthly family benefit payable
on the basis of an insured worker's earnings record. The maximum
family benefits range in amount from 150 percent of the minimum
unreduced benefit for a worker to 175 percent of the maximum un-
reduced benefit under the law. Under the automatic provisions in the
law, the family maximums will be increased by the same percentage
as benefits are increased.
The benefit for a dependent parent of a deceased worker is 821/
percent of the worker's benefit if there is one parent, and 75 percent
each if there are two parents.
BENEFIT AMOUNTS ARE RELATED TO AVERAGE MONTHLY EARNINGS
EFFECTIVE JUNE 1976 AVERAGE % REPLACEMENT OF
MONTHLY BENEFIT AMOUNT MONTHLY CAREER AVERAGE EARNINGS
'3 45 fl72 ........... ....... ........ ... ... 54.8
l'/^/ //J;;;::: $187.80::,:::: :::::::: 9:: :::::::: ::::::::::::::::::::
$3 4 .. .......... ......... .......... ........... ....... ....:. .......: .......
..... <- i ii i:::$251. 0:::::: : 237 ..:.. . . .80.4 i! : 91 ::::::.3.::: 3 .........
/ $476. .. .................. 3 .............. ... //1 //
lr'/ // / :::::::$2 156.3::::::::: 2372 9::: : :::: 1.3:::::::: ..........-
-O 4 6 ] *,.: i' .......'..l...=..' .........! .............................'... .....
.. :: ....................A
/,$ 81.OO1 / ,.:.:... :.:. :.:.:. '...........,.. .......... .......... .'.7..3 /
.... .. / / : $ 7585 :::::::: ::::66.2 ::::::::::::[ / "
i RETIRED WORKERS AGE 65 IN 1976 f7 COUPLES AGED 65 IN 1976 JUNE 1976
1 EARNINGS EQUAL TO $3A438 IN 1975 WITH INCREASES PARALLELING INCREASES IN AVERAGE
1ST QUARTER WAGES 1951-75
2 EARNINGS EQUAL TO THE FEDERAL MINIMUM WAGE. 1951-75
3 EARNINGS EQUAL TO AVERAGE TAXABLE WAGES UNDER SOCIAL SECURITY. 1951-75
4 EARNINGS EQUAL TO MALE MEDIAN EARNINGS UNDER SOCIAL SECURITY. 1951-75
5 EARNINGS EQUAL TO THE CONTRIBUTION AND BENEFIT BASE UNDER SOCIAL SECURITY, 1951-75
EXAMPLES OF BENEFITS OF STAFF
Government employees should consider several factors in determin-
ing whether to vote for the termination or continuation of social secu-
rity coverage. A major consideration, of course, is the present and
future value of retirement benefits under various plans. But there are
many other factors that must also be appropriately weighed, including:
How does the disability coverage of the alternative plan compare
with social security's coverage?
Is there provision for survivor benefits for the worker's wife or
Is there an automatic cost-of-living adjustment mechanism to make
retirement benefits inflation-proof ?
What type of provision is made for medical protection for the
A. PAROCHIAL EMPLOYEES' RETIREMENT SYSTEM OF LOUISIANA
There are two basic versions of this plan. The "regular" plan is
coordinated with social security. The more liberal "supplemental" plan
is designed to replace social security benefit protection.
The plan's publication "Summary of Principal Features" is re-
printed in appendix 1, p. 34.
B. CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM-1/0 AT
This plan also has two versions-one coordinated with social secu-
rity, the other not coordinated.
The plan's "Questions and Answers" pamphlet is reprinted in ap-
pendix 2, p. 40.
C. HIGHLIGHTS OF OTHER PLANS
The committee has also examined a number of other representative
plans. Among the major features:
(a) Retirement age is well below 65. Most plans studied provided for
reduced benefits at either age 50 or 55. The lower retirement ages
applied to police and fire employees, and their benefits were relatively
(b) Restricted cost-of-living increases. Most plans studied did not
automatically increase benefits with rises in the cost of living. For those
that did, a 2-percent a year ceiling on the increases was common.
(c) Survivorship protection for young families is meager. What
most plans term survivors benefits applies only to surviving spouses
of workers who have already retired. Typically, the retiring worker
is given several options regarding how benefits are to be computed.
The two major options are (1) benefits payable only while the worker
lives and (2) benefits at a reduced rate payable to the worker with
benefits to continue to the surviving spouse. Employee contributions
with interest are paid to designated beneficiaries in case of death before
retirement age. Many local governments provide a group life insur-
ance policy for employees. Ten thousand dollars is a typical amount.
(d) Health insurance after retirement is nonexistent. No plan
studied provided prepaid hospital or medical insurance after retire-
ment. Most local governments did provide group health policies for
(e) Earnings limitations apply only to work covered by the plan.
All plans studied had provisions that reduce or stop benefits if the
retiree works in employment covered by the plan. Other work, however,
does not affect the benefits.
(f) Disability benefits vary widely. Disability benefits for fire and
police employees were quite liberal in the plans studied. On the other
hand, these benefits were very restrictive in other plans, all of which
covered nonfire and police employees.
HOW SOME TERMINATION DECISIONS
Local governmental termination of social security coverage has in-
creased markedly during the past year. To provide insight concern-
ing how these decisions were reached by employees and Government
officials, this part focuses on four case studies.
A. DIXON, CALIF.
The city of Dixon has 25 employees covered by social security. Its
coverage will terminate March 31, 1977, unless the notice of termina-
tion is withdrawn.
The idea of terminating social security coverage originated with the
employees. Ten of the employees are over 40 years old, with the
average age between 20 and 35. There is very little turnover. Only
three employees have terminated employment in the past 2 years.
The vote was 24 for termination with 1 abstention.
The basic concern of the employees was the 5.85-percent payroll
tax deduction. Other concerns centered on future increases in the tax
rate and whether the system would go broke.
The director of finance for the city assured the employees that the
social security system would not go broke. Because he did not have
information about future benefit rates for social security, he himself
estimated the future benefits under social security, and the proposed
replacement plan, assuming a 5-percent-per-year inflation rate.
Current and future cost was the primary employee consideration.
Under the replacement plan, the employer contribution will be con-
siderably more than the employees' share. The employer share will
be 23 percent for safety employees and 21 percent for all others.
B. MURRAY COUNTY BOARD OF EDUCATION, GEORGIA
The board of education has between 200 and 220 employees. Many
of the teachers had been asking school board officials about social
security's financial strength. During meetings the possibility of ter-
minating social security coverage also was mentioned. Many of the
employees have worked for 15 to 20 years under social security.
Turnover is relatively low since four out of every five employees are
hometown people. '
In addition to social security, teachers are covered under a State
teachers pension plan. Because of the 6-percent payroll deduction for
the State plan and income tax withholding, the 5.85-percent social
security deduction seemed too burdensome to most of the employees.
Several straw votes were taken. About 95 percent voted to terminate
Present plans are to return the employer's portion of the social
security tax to the employees, thus increasing take home pay by 11.70
Local bond referendums do not pass and practically everyone is
opposed to more taxes, according to the school superintendent.
Employees believe their benefits under the State pension plan are
adequate. Retirement benefits are 80 percent of the employees' highest
5 years' earnings. Disability benefits are provided after 10 years of
work credit. Each employee is provided a $10,000 life insurance policy
and group health insurance benefits while employed.
The superintendent believed the social security law should provide
an option whereby employees who want to retain social security cover-
age could do so regardless of the wishes of the majority. He also
thought' it would be desirable for the State to have a plan that would
take social security benefits into account and provide additional bene-
fits on top of social security.
C. PLAQUEMINE, LA.
None of the 120 employees of the city voiced objections when the
city, after several meetings with them, decided to terminate social
security coverage. The city will change to a more liberal version of the
Municipal Employees Retirement System of Louisiana. Employees
believe they will get more benefits under that plan than from social
Some employees had read about social security going broke, and that
helped them make their decision. But social security was dropped
primarily because the replacement plan provided greater benefits. Ex-
cept for the young employees, almost all are fully insured under social
The mayor pointed out that there is tremendous mobility among
city employees. Except for the "old heads," employees work about 7 or
8 years and then accept new, nonmunicipal jobs. The city's pay scale
used to be significantly lower than that in the nearby construction
industry. Although city salaries have increased, the new retirement
system, with the years of service requirements and higher benefits, will
be an incentive for employees to remain on the city payroll.
D. HAYNESVILLE, LA.
The 26 employees of the town gave their approval to drop social
security coverage and replace it with the more liberal version of the
Municipal Employees Retirement System of Louisiana. A relatively
small number of the employees will be covered by the Municipal Police
Employees Retirement System of Louisiana.
At a roundtable discussion meeting of the Louisiana Municipal
Association, the idea of dropping social security was raised. Many
other towns in Louisiana had already done that.
The town clerk described the financial situation of the town and the
reasons for dropping social security; very clearly and forcefully:
(a) Social security costs will rise in the future. The town will find it
difficult to budget for these expenditures. Haynesville needs a level
cost retirement system that town planners can project and count on.
(b) Citizens want more and more town services but don't want to
increase taxes. People must realize that they must pay for the services
(c) The town can't change social security's cost and has no influence
over it. Rising costs have been forced on the town by Washington.
Social security is just one example of Federal interference with peo-
ple's money. The rising cost of social security is going to break the
(d) The replacement plans will give more in benefits.
(e) There was some concern that social security is going broke.
(f) The town was not directly covered by social security. The social
security tax invoices must be paid to the public employees' board. The
town was an unwanted stepchild from the beginning.
CONSIDERATIONS OF STATE AND
In deciding whether to withdraw from social security, State or
local governments should consider several factors, such as:
What are the advantages and disadvantages of social security cover-
age compared with other types of plans?
What is the likelihood of future improvements for social security,
in contrast to other forms of retirement, disability, survivor, or hospi-
tal protection ?
How does the cost of social security protection compare with similar
forms of retirement, disability, survivor, and medical protection?
Governmental employees should give appropriate consideration to
these factors, as well as others.
A. BASIC CHOICES
When a State or local government elects to continue in or withdraw
from the social security system, it has essentially four basic choices:
(1) Coordinate social security protection with a staff retirement
(2) Replace social security with a new staff pension;
(3) Rely entirely on a staff pension plan; or
(4) Have no plan.
1. Coordinate.-Some groups have coordinated the benefits of their
staff retirement plan with the benefits of social security. Under this
method, the staff plan agrees to pay benefits in addition to social secu-
rity, up to a predetermined level. For example, that level could be 80
percent of the employees' average salary during their high 5 years of
earnings, with additional provision that social security's cost-of-living
increases be passed through to the disabled or retired employees and
Additional provisions could be made to provide an earlier retire-
ment age, a retirement age different for police and fire employees than
for other employees, and supplemental hospital and medical benefits.
2. Replace.-Other groups have decided to replace social security
benefits with a new staff pension plan. Under this method, a local
government can establish a staff plan with benefits comparable to
social security, but under local control and direction.
3. Retain the existing staff plan.-Some groups have dropped social
security and, rather than replacing it. rely on a preexisting noncoordi-
nated staff plan. This is usually done because of financial pressures on
employers and local groups, and because the existing plan benefits
are thought to be sufficient protection.
4. Have no plan.-This is rarely a choice, although it's sometimes
an unintended result when some employees are not eligible for mem-
bership in the staff plan and social security coverage is dropped.
B. BENEFIT COMPARABILITY OF REPLACEMENT PLANS
Almost all of the replacement plans studied offer higher benefits
at retirement. Most have lower retirement age than the age 65 (62 for
reduced benefits) for social security. The replacement plans typically
do not reduce benefits because of work after retirement, unless the
work is covered by the staff retirement plan. (,Social security retire-
ment benefits are reduced $1 for each $2 of earnings over $2,760, except
that full benefits are paid for every month earnings are $230 or less,
regardless of the yearly total.)
However, the replacement plans studied are significantly weaker
than social security in hospital insurance protection, survivors protec-
tion, and disability protection. A major exception is disability protec-
tion for police and fire employees. Their disability benefits are awarded
under rules that have been criticized as too generous.
None of the plans studied has prepaid hospital insurance for people
65 and over or disabled. Social security has such protection as a part of
Very few of the plans offer comparable benefits for survivors. Par-
ticularly weak are benefits for young families in the event of the death
of the worker before retirement age.
C. COST-OF-LIVING INCREASES
Most of the replacement plans do not tie their benefits to the cost of
living. Those that have an escalator clause limit the percentage increase
in benefits to an annual level that is low compared to anticipated infla-
tion rates. A 2-percent-per-year limitation is common.
The result is that, while retirement benefits are higher than social
security benefits initially, replacement benefit amounts will erode over
time. Assuming an annual 5-percent rate of inflation, social security
would increase about 63 percent by the end of a 10-year period. A 2-
percent limitation would reduce the increase to about 22 percent-a
41-percent loss in the purchasing power of the benefits.
Vesting is the pension-related term used to identify the permanent
right to benefits. The period for vesting is the length of time an em-
ployee must work before obtaining the right to benefits. The period
for vesting usually was 5 years in the replacement plans studied. If
employment terminates before vesting, all plans studied pay back the
contributions of the employee, plus interest. No benefits are paid unless
For short-term employees, then, the staff plan becomes nothing more
than a forced-savings account. No extra benefit will be paid upon pre-
mature death, disability, or retirement. Because few people invest-their
refunds in insurance or annuities, the result can be complete depend-
ency on others if one of these events occurs.
Social security vesting is 11/ years for survivor benefits, 5 years of
covered work in the last 10 years for disability benefits, and no more
than 10 years for retirement benefits. [See part 3 for a more detailed
description of social security vesting.]
See appendix 3 for discussion of this and other issues by Mr. David
H. Doty, city manager, Bellaire, Tex.
Portability is the term used to describe the situation where work
credits for pension vesting under one job can be carried to other jobs.
If work credits are portable, a worker can move from job to job and
build credits toward benefits from one-or coordinated-staff plans.
Work in a job for 3 years, itself not enough for vesting, could be car-
ried over to work in another job for 2 more years, resulting in vesting
under a 5-year arrangement.
As could be expected, portability of staff plan work credits is very
limited. Some common limitations were found. They include porta-
bility of credit from one plan to another only for other staff plans listed
in the provisions of the first plan, or within a certain time limit, or only
upon approval of the plan covering the new job.
Social security work credits are fully portable, which means that
work in any job covered by social security counts toward vesting; 9
out of 10 jobs in the country are covered by social security.
F. DESIRABILITY OF LOCAL GOVERNMENT EMPLOYMENT
Once a local government terminates its social security coverage, it
cannot go back into the system.
Over the years, prospective employees who do not want their social
security protection reduced by noncovered earnings may choose em-
ployment with local governments that have their jobs covered by
social security. Conversely, employees who have worked in local gov-
ernment jobs not covered by social security may wish to limit their
employment to governments with similarly noncovered jobs. Thus, the
free mobility of labor could be impaired-with 9 out of 10 job hunters
seeking employment in social security-covered jobs, and 1 out of 10
seeking employment in noncovered jobs.
G. EFFECT OF TERMINATING SOCIAL SECURITY COVERAGE ON PRESENT
Present employees can be divided into two groups: those with vested
social security rights and those without.
The employees with vested rights will be eligible for social security
retirement, hospital, and survivors benefits. Disability benefit protec-
tion will cease after 5 years of termination.
But even with vested rights, the amount of monthly benefits will
constantly decrease after termination. This is because the benefit
amount is computed on covered earnings over a person's working
Social security pamphlet 76-10065, "Your Stake in -Social Security
as a Public Employee," January 1976, illustrates it this way:
Take John M., for example, who was 50 in January 1975,
when his State coverage group's termination of social security
became effective. At that time, John had more than 10 years
of coverage so he'll be permanently insured for retirement
and survivors benefits and medicare.
John has maximum covered earnings each year through
1974, but not from 1975 up to 1990, when he'll retire at 65.
So his social security check will be $507 a month (under cur-
rent estimates). If he had kept his social security coverage, he
would have gotten about $1,023 a month in social security
The other group of present employees-those without enough work
credit for vesting-will not be eligible for benefits without additional
work under social security. While it is common to hear that these
workers-usually younger ones-will moonlight and work after retire-
ment to gain work credits, family obligations, the labor market, and
the employee's health or stamina may work against these ambitions
If employees without vested social security eligibility in fact gain
enough work credit for vesting, the amount of their benefits will suffer
from a reduction similar to the one described for employees who
already have vested rights.
H. EnFECT ON FUTURE EMPLOYEES
Future employees will not be represented in any referendum by
employees to terminate social security coverage. But they definitely
will be affected by the outcome. If a State or local government's
coverage is terminated, future employees' work will not count toward
social security protection.
As a result, the pension rights of these employees will be seriously
impaired (1) if they do not work under the State or local plan long
enough for vested rights, (2) if the staff plan does not provide com-
parable benefits, or (3) if they withdraw their contributions to the
staff plan when they leave the State or local employment.
I. FINANCIAL STRENGTH OF OTHER PLANS
The Employee Retirement Income Security Act of 1974 (ERISA),
which protects the rights of participants and beneficiaries of private
pension plans, does not cover State or local government employees.
ERISA contains, instead, a mandate to engage in an in-depth study
of governmental pension systems.
The Pension Task Force of the Subcommittee on Labor Standards
of the House Education and Labor Committee has released its interim
staff report. It reached these tentative conclusions:
(1) Because public pension plans are not subject to the qualifica-
tion provisions of the Internal Revenue Code, or the protection of
other Federal law, many public plans lack the participation, non-
discrimination, disqualified person, and other safeguards that are
inherent in private plans.
(2) The absence of any external independent review of public pen-
sion plans has permitted the existence of a high degree of employer
control of plan assets, which carries an attendant potential for abuse.
(3) In general, public pension plans do not appear to be operated
within the generally accepted financial and accounting procedures
applicable to private plans.
(4) As a general policy, the practice of using the assets of munici-
pal and State retirement funds to finance local government operations
significantly impairs the stability of public pension plans.
(5) Given the nature of public pension plans themselves, plus con-
flicting and confusing State statutes, constitutional provisions, and
court interpretations, a great deal of legal uncertainty exists as to the
rights of plan participants, the standards governing the conduct of
plan officials, and the remedies available to aggrieved participants.
(6) Public retirement systems in general suffer from serious de-
ficiencies in the area of plan disclosures to participants and benefici-
aries of information central to a full understanding of the provisions
and operation of the plan. This absence of disclosure has produced a
situation where participants and beneficiaries seldom know with any
accuracy exactly what their pension entitlements are, and how they
can object to any practices of the plan involving the management of the
assets of their pension fund.
J. TAx-FREE BENEFITS
Social security benefits are not subject to Federal income tax. Ben-
efits from other plans are taxable once the amount of employee contri-
butions is repaid. Retired Government pensioners, though, may qualify
for tax relief under the retirement income credit.' For some people, the
tax-exempt status of social security can be an important consideration.
K. LIKELIHOOD OF FUTURE IMPROVEMENTS IN SOCIAL SECURITY
The social security system has been improved numerous times since
its enactment in 1935. It undoubtedly will continue to be improved in
the future. Increased benefit protection can be of great importance
to beneficiaries in the future, as a hedge against inflation.
I The retirement income credit was enacted in 1954 to provide Government pensioners
or annuitants with comparable tax relief as social security beneficiaries who are not taxed
on their benefits. Persons with little or no social security coverage can claim a 15-percent
credit on their qualifying retirement income: pensions, annuities, interest, dividends,
The credit is 15 percent of the lesser of: (1) A taxpayer's qualifying retirement Income.
or (2) $1,524 ($2,286 for a joint return where both taxpayers are 65 or older) minus the
total of nontaxable pensions (such as social security benefits or railroad retirement
annuities) and earned income (depending upon the taxpayer's age and if the taxpayer
is under 62, the $1,524 figure is reduced by the amount of earned Income in excess of $900.
For persons at least 62 years old but less than 72, this amount is reduced by one-half of
the earned income in excess of $1,200 up to $1.700. plus the total amount over $1,700. Per-
sons 72 and over are not subject to the earned income limitation).
Under the Tax Reform Act of 1976-which the House and Senate had passed as of this
writing-the retirement income credit would be replaced by a 15-percent elderly credit for
persons 65 or older. This 15-pecent credit can be claimed on up to $2.500 income for single
persons aged 65 or older and for a married couple filing jointly if only one spouse is 65
or older. In the case of a married couple filing jointly with both spouses 65 or older, the
maximum amount for applying the credit would be $3,750. These maximum amounts, how-
ever, would be reduced by tax-exempt pension income (e.g., social security). In addition.
the maximum amounts for application of the credit would be reduced by $1 for each $2 of
adjusted gross Income in excess of $7,500 for a single person and $10,000 for a married
couple filing jointly. The new elderly credit would be applicable for earned Income. The
requirement of earning $600 over 10 years would be eliminated.
It is also possible that changes will be made to restrict in some
fashion the benefits protection of people with very limited work cover-
age under social security. The modification in the minimum benefit,
described in part 7 of this report, is an example.
L. POSSIBILITY OF GENERAL TAX REVENUE FINANCING
There is more and more discussion about using the income tax to
collect part of the social security funds needed in the future.
Under present law, employers and employees each pay 5.85 per-
cent on the first $15,300 of annual earnings. Self-employed people pay
7.90 percent on the first $15,300 of net income. Only people working
in jobs covered by social security pay into the system.
Under the proposals, all people with taxable income would pay into
social security through the income tax. If a person were not working
in covered employment, no benefit rights would accrue because of this
payment of taxes.
Supporters of such proposals point out that the present social secu-
rity tax rate could be reduced if all jobs were covered by the program.
This is because some people with noncovered jobs collect benefits as
a result of moonlighting or working after their retirement. Since
many of these people collect artificially high benefits, the supporters
contend that general revenue financing would make the system more
equitable for all.
74-481 0-/76- 4
ADMINISTRATIVE AND LEGISLATIVE RECOM-
MENDATIONS AND CONSIDERATIONS
In most cases, no actuarial evaluation is made to compare the em-
ployees' future benefit protection under a replacement plan with
that provided by social security. When an evaluation is made, it often-
times fails to examine many of the considerations described in part 6
of this report. Typically, the evaluations have not been made by
Quite frequently, this causes two significant deficiencies:
(1) A failure to consider survivors, disability, and hospital insur-
ance protection; and
(2) A failure to consider future effects of automatic increases in
benefits, other automatic provisions of social security, and the prob-
ability of future legislative improvements in social security.
A. INDEPENDENT EVALUATION OF REPLACEMENT PLANS
A comprehensive actuarial comparison seems essential before in-
formed judgments can be made. And at the least, it seems to be prudent
public policy to have those comparisons made by qualified actuaries
who are not employed by or otherwise associated with an insurance
company, a staff pension plan, or other organization that has a mate-
rial interest in the outcome.
Therefore, it is recommended that a resolution be introduced to
express the sense of the Congress that State and local governments
contemplating termination of social security coverage:
(1) Require an actuarial evaluation of any such replacement plan;
(2) Provide that the evaluation be conducted by an "enrolled ac-
tuary," as that testing and qualification program is established under
the Employee Retirement Income Security Act of 1974 (ERISA) ;
(3) Restrict the evaluation to those enrolled actuaries who are not
employed or otherwise associated with organizations with a material
interest in the outcome; and
(4) Require evaluation of benefit structure, entitlement factors,
vesting, portability; evaluation of present and future benefit amounts,
cost, funding, replacement ratios; comparison of essential benefit pro-
tection; and evaluation of other factors.
B. ACTUARIAL EVALUATION OF SOCIAL SECURITY
A similar evaluation of the social security program also would be
necessary before informed judgments could be made. It would be
duplicative and wasteful, however, to require each State and local
government to contract for an evaluation of the same nationwide
Therefore, this proposed resolution would:
(1) Invite the Secretaries of Treasury, Labor, and Health, Educa-
tion, and Welfare to have prepared an actuarial evaluation of social
security, covering the same factors as are required for the replacement
(2) Update the evaluation report whenever appropriate, but at least
(3) Furnish copies of the report to State and local government offi-
cials, employees, and interested members of the public, upon request.
C. NOTICE OF RESULTS OF EVALUATION
Informed judgment also requires notice. Therefore, this proposed
resolution would call for:
(1) Copies of both evaluations be given to all employees involved;
(2) A copy of the replacement plan evaluation be furnished to a
person designated by the Secretary of Health, Education, and Welfare.
D. EMPLOYEE REFERENDUM
In most cases, the State and local government groups which have
filed notice to terminate social security coverage have conducted em-
ployee referendums. But, as in New York City's case, there have been
notable exceptions. The matter of economic security in old age, after
a worker's disablement, and after a worker's death, is fundamental to
the Nation's welfare.
Therefore, the proposed resolution would:
(1) Provide that termination of coverage would not be effective
unless approved by a majority of employees affected; and
(2) Provide that the referendum be held only after adequate time
has been provided for employees to study and compare the actuarial
evaluations, including time for clarifying meetings, but not less than
60 days after employees have received both evaluations.
E. CERTIFICATION OF BENEFIT PROTECTION COMPARABILITY
It would be a hollow gain indeed for employees to replace their
social security protection with a plan which initially offers benefits
comparable to or greater than social security, but which erode by com-
parison in the future. Similarly, it would be detrimental to replace
social security with a plan that offers retirement benefits equal to or
greater than social security, but has limited-or no-survivors, disa-
bility, or hospital insurance protection.
The public welfare would be ill served to have large numbers of peo-
ple dependent on others in old age or after death or disablement. Yet,
this would be the inescapable result for many, if large numbers of
employees had only meager pension protection.
Essential benefit protection must be maintained for State and local
government employees. Otherwise, society will eventually experience
even greater welfare costs. That is a far bleaker alternative than
assuring that employees are gaining essential protection during their
Therefore, the proposed resolution would encourage State and local
(1) Specify that social security coverage could be terminated only
if the Governor of the State or the chief executive of the local govern-
mental group certifies that essential benefit protection under the
replacement plan would be at least equal to the entire social security
(2) Specify that, for purposes of the certification, the benefit pro-
tection be compared: At the onset of the replacement plan; 5 years
after the onset; and 30 years after the onset.
For these periods, the benefit comparisons will be made for earnings
levels, with work during ages 25 through 64, at: The Federal minimum
wage; the nationwide median earnings level; and the maximum con-
tribution base under social security.
The proposed resolution would also define "essential benefit pro-
tection" by illustrating the total benefits which would be expected to
be paid under the following circumstances:
Retirement benefits for (a) a worker at age 65; (b) a worker 62, a
wife 59, and an unmarried child aged 15; and (c) a worker 65 and a
Disability benefits for (a) a worker at age 35; (b) a worker age 35
with a wife 32 and two children ages 3 and 5, and (c) a worker age 50
with a wife 47 and two unmarried children aged 15 and 17.
Survivors benefits for (a) a widow age 32 with two children ages 3
and 5; (b) dependent parents ages 65 and 62, and (c) a widow age 45
with three unmarried children ages 11, 16, and 18.
Hospital benefits for (a) a disabled worker age 35; (b) a worker
at age 65, and (c) a worker 65 and wife 62.
F. MODIFICATION OF MINIMrUM BENEFITS UNDER SOCIAL SECURITY
The present minimum social security benefit paid to a worker at 65
is $107.90. It is paid to workers with average yearly earnings after
1950 of $923 or less. Originally intended in the law to provide reason-
ably adequate benefits to workers with extremely low lifetime earnings,
the provision has operated more and more to the advantage of people
who have relied primarily on employment not covered by social secu-
rity for their livelihood.
As a result of moonlighting or work after retirement, many State
and local government employees have become entitled to the artificially
high minimum benefits. There has been considerable concern about the
windfall this represents.
Eleven percent of all beneficiaries receive benefits based on this
In the 1972 amendments to social security, a "special" minimum
benefit was introduced into the system. The special minimum is de-
signed to help people who had low earnings for many years. Workers
who reach 65 in 1976 and qualify for a special minimum benefit re-
ceive $153 a month with 27 years of coverage, or $180 a month with 30
or more years of coverage.1 The special minimum benefit, however, is
not tied to the cost of living. S. 650, introduced by Senator Frank
Church on February 11, 1975, would provide this automatic adjust-
If the regular minimum benefit were "frozen" at $107.90, over time
the artificially high portion of the benefits would wash out. In the
future, then, the benefits could be computed strictly according to the
benefit formula, and would be increased as the cost-of-living increases.
At the same time, the careful attention-which has been paid in past
years to the regular minimum benefit-could be shifted to the special
minimum benefit. It, then, would become the primary vehicle within
the social security system for assuring reasonably adequate benefits
for people with low lifetime earnings. The benefit structure, thus,
would be tuned more finely to accomplish what has, in fact, always
been the purpose of a "minimum benefit" under social security.
At the same time, the supplemental security income program could
operate more as it was intended-to backstop efficiently the social se-
curity system with needs-related payments to those people whose
attachment to the labor force has truly been extremely casual or
G. MODIFICATION OF SOCIAL SECURITY FINANCING
Social security is now financed by a payroll tax on the first $15,300
of earnings. The maximum amount of earnings taxed (called the tax
base) increases automatically as wages increase. Employees and em-
ployers each pay 5.85 percent of earnings within the tax base toward
social security. Self-employed people pay 7.90 percent.
The tax rate is scheduled to increase in 1978 for employees and
employers each and for the self-employed to 6.05 percent and 8.10
percent, respectively; in 1981 to 6.30 percent and 8.35 percent, respec-
tively; in 1986 to 6.45 percent and 8.50 percent, respectively, and in
2011 to 7.45 percent and 8.50 percent, respectively.
The 1976 annual reports of the board of trustees of the social secu-
rity trust funds identify a need for additional financing. In the 1990's
the payroll tax necessary to finance monthly cash and hospital in-
surance benefits will increase dramatically. The percent of payroll
needed in addition to the increases in the rates already scheduled in
the law will be 2.77 percent in 1990 and 5.51 percent in 2000. These
figures are based on the reports' intermediate cost assumptions. They
assume no change is made in the taxable base beyond the automatic
increases already a part of the law.
A The special minimum benefit is computed by multiplying $9 by a worker's number of
years in covered employment in excess of 10 years up to 30 years. This produces a special
minimum benefit of $180 a month for a worker retiring at age 65 (or disabled) who has
been employed for 30 years under social security coverage. This benefit is paid as an
alternative to the regular benefits in cases where a higher benefit would result. Only a
small proportion of social security beneficiaries now receive the special minimum monthly
benefit. In almost all cases, an individual's regular social security benefit is greater than
the special minimum. In order to qualify for a year's coverage under the special mini-
mum, a person must have earnings equal to at least one-fourth of the maximum wage
base for that year. In almost all cases the regular benefit based on these earnings would
be greater than the special minimum benefit.
The additional tax rate needed-2.77 percent in 1990 and 5.51 per-
cent in 2000-would be divided among employees, employers, and the
self-employed. In 1990 employees and employers each could expect to
pay about 7.85 percent. In 2000 they could expect a social security tax
rate of about 9.20 percent.
Many questions are being asked in light of these projected costs.
The debate on this issue focuses on whether general revenues should
be used at some future time to help defray the costs of social security.
Those who support general revenue financing cite the regressive tax
structure of social security (that is, the tax hits people with low in-
come the hardest), the inequity of some people in jobs not covered
by the system receiving artificially high benefits nonetheless, and the
precedents in other countries where worker-employer-government con-
tributions finance social insurance. Opponents believe general revenue
financing would lead to examinations into individual's personal finan-
cial worth, thereby changing social security to a system paying benefits
based on need. In addition, they cite the inequity of having higher paid
and noncovered workers contributing to a system from which they
would derive only an indirect benefit.
The general revenue financing debate is certain to grow in intensity
as future social security costs increase. There are about 145 cosponsors
to H.R. 33, introduced by Mr. James A. Burke, chairman of the Social
Security Subcommittee of the House Ways and Means Committee.
H.R. 33 would finance social security partially through general
H. MODIFICATION OF COVERAGE AGREEMENTS
The resolution suggested earlier in this part would cover points A
through E and would not modify the existing coverage agreements
between the States and the Federal Government.
There are a number of additional possibilities if agreements are to
Independent actuarial evaluation of proposed replacement plans
could be mandated.
Results of evaluations of social security and proposed replacement
plans could be required to be given to all affected employees and
other interested groups.
Certification of benefit protection comparability could be mandated.
The current provision for termination of coverage after a 2-year
notice could be eliminated.
All of these raise questions concerning whether the Federal Govern-
ment has the legal right to alter unilaterally the State agreements.
Elimination of the termination provision also raises the constitutional
question of Federal taxation of States. Given the scope and nature
of these questions, the probability of devising ways to change State
agreements seems slim indeed.
I. ADMINISTRATIVE POSSIBILITIES
Because so many decisions to terminate coverage seem to be based
on shortsighted, incorrect, and incomplete considerations of the im-
plications of termination, additional administrative steps are needed.
The Social Security Administration (SSA) has withheld taking
an aggressive-perhaps even an active-role in the termination of
coverage issue. Its field personnel are trained to process claims rather
than to discuss considerations aboat termination. But SSA is now
training selected field employees in the termination of coverage issue.
Both steps seem appropriate.
Without legislative action and remaining completely objective, SSA
could tighten its ties with State and local governments so it would
learn of groups in the early stage of consideration. SSA could identify
the key points for those groups and assist them in obtaining relevant
data. It could provide the information called for in points B and E
of this part.
Those, and any additional steps to assist State and local govern-
ments in arriving at informed decisions, appear to be totally appro-
priate actions for SSA to take.
PAROCHIAL EMPLOYEES' RETIREMENT SYSTEM
SUMMARY OF PRINCIPAL FEATURES
ACT 205 OF 1952
Amended by acts 508 and 708 of 1954, act 448 of 1956, act 216 of 1958.
act 417 of 1960, act 392 of 1962, act 83 of 1964, act 83 of 1965, act 212 of
1966, act 184, act 538, and act 525 of 1968. act 65, act 363, act 36 of 1970,
act 115 of 1971, act 169 of 1971, act 172 of 1971, act 46 of 1972, act 47 of
1972, and act 183 of 1973, act 441, act 302, and act 644 of 1974, act 396,
act 618, and act 548 of 1975.
This retirement system is operated by a board of trustees, a secretary-
manager, an actuary, and a legal advisor, the latter being the attorney
general. The secretary-manager is an ex officio member of the board, as
is the president of the Police Jury Association of Louisiana. The four
other members are elected by members of the retirement system for
4-year staggered terms, so that one member is elected each year. Each
member is required to take an oath of office like other public officials.
Meetings are held quarterly.
The cost of operation, including salaries, printing, telephone, travel,
and so forth, is borne by the parishes or boards participating. This
administrative fee is assessed annually in January as follows: $11 per
member for the first 10 members; $8.50 per member for the next 90
members; $4 per member for the next 100 members; and $2 per mem-
ber for all over 200 members.
All employees of parishes as of January 1, 1953, who did not sign
a nonmembership form by April 1, 1953, are members. This also applies
to police jurors. All employees hired by any parish or board subject
to this law after January 1, 1953, shall become members on date of
employment without choice, providing they earn over $100 per month,
and are not over 50 years of age. This includes former employees who
have returned to service, whether or not they have taken a refund of
contributions. No prior service is allowed employees rehired after
taking a refund until 5 years of continuous service is completed. The
refund amount, plus interest, must be paid into the system to claim
this prior service. Police jurors elected since January 1, 1953, cannot
exceed age 50, and enroll in the system. Employees of special taxing
districts may enroll under special agreement with the board.
CANCELLATION OF MEMBERSHIP
Membership in this system is canceled only by death, resignation, or
retirement. Those leaving the system who have less than 10 years of
service may leave their money on deposit for 5 years. A refund is
mandatory after 5 years. Those with 10 or more years of service should
leave their money in the system and. draw deferred benefits.
The secretary-treasurer or other payroll officers shall deduct 4 per-
cent of all wages in excess of $100 per month. Employees, at their
option, may pay on total wages-not skipping the first $100-or may
make a lump-sum payment or regular periodic payments over and
above the 4 percent outlined above. These payments, however, are not
matched. A separate schedule of benefits is provided for these un-
All employee deductions are reported by the 10th of the month fol-
lowing the close of the quarter. Quarterly reports and remittances,
therefore, are delinquent after April 10, July 10, October 10, and
January 10. Each member has a separate account to which his pay-
ments are credited.
The sheriff in each and every parish except the parishes of East
Baton Rouge and Orleans shall remit one-quarter of 1 percent of
total taxes collected as a matching fund. This money goes into the
Pension Accumulation Fund, and is never refunded. A pro-rata share
may be transferred to other systems under our reciprocity agreement
with them to cover employees changing jobs.
At least 10 years of service is required to qualify for any type of
retirement benefits. Normal retirement age is 62, although one may
retire at age 55 with 30 or more years of service. Early retirement is
permissible at age 60, but unless the member has over 30 years of
service, a penalty of 3 percent per year is assessed for each year under
One may retire on the maximum payable during life, which makes
no provision for the survivors, or he may take a reduced allowance,
which will provide monthly benefits at his death to his survivors.
Two factors govern the amount of benefits: (1) number of years of
service, and (2) amount of average salary for the best 36 consecutive
Example: A member age 62 with 32 years of service applies for
maximum retirement benefits. During the best 36 consecutive months
the member earned $21,125. This amounts to $7,041.67 per year, but we
must deduct $1,200 which we skipped in salary. This leaves a net
annual income for retirement purposes of $5,841.67. By multiplying
.02 times 32 we find that the member is entitled to 64 percent of
$5,841.67, or $3,738.66 per year. This amounts to $311.55 per month,
plus social security benefits.
This same formula is used to figure all retirements with two excep-
tions: (1) act 65 of 1970 placed a ceiling on benefits of $30 per month
for each year of service, and (2) when figuring disability benefits,
you do not deduct $1,200 from average annual salary for the best
36 consecutive months.
If one becomes totally disabled, and it seems to be permanent, he
may apply for disability benefits up to age 60. After age 60, he must
take regular retirement. The disability benefits are more liberal than
the regular service retirements, since we do not deduct $1,200 from
average annual salary before applying the percentage of wages. Credit
is given for years up to age 60, just as though the employee had
reached that age, regardless of his age at time of disability. The
biggest disadvantage, however, is that no options are available and at
death, all benefits cease. Our medical board certifies those eligible
All benefits described in this booklet are over and above any social
security benefits. We urge you to contact your closest social security
office for details of that coverage.
SUPPLEMENTAL RETIREMENT BENEFITS
Act 538 of 1968 allows parishes and boards to stop paying social
security taxes after giving 2 years notice to Public Employees' Board.
Act 441 of 1974 provides for additional benefits and contributions
from both the employer and the employee for those members who are
covered by the supplemental retirement plan. Police juries and boards
agree to make employer contributions equal to 5.85 percent of all
salary of each employee UD to age 70, and it agrees to collect from the
employees and remit to this retirement system an amount equal to
5.85 percent of all salary of each employee quarterly. All employees
covered under this agreement receive an additional annuity of 1 per-
cent of average compensation for each year of creditable service
earned, plus $36 for each such year. Benefits under this agreement
when combined with the benefits under the regular plan shall not
exceed 100 percent of the average of this highest 3 consecutive years
salary. This act guarantees that employees under the supplemental
system will not receive less than they would have had they continued
under social security. It further provides that any employee covered
under this supplemental retirement plan may, under certain condi-
tions, be entitled to earlier retirement, as follows: Any employee who
has 30 years of creditable service, regardless of age, or any employee
who has attained age 55 with 25 years of creditable service, shall be
entitled to retirement without any reduction for such earlier retire-
Any person who has been a member of the system for at least 2 years
any time subsequent to August 1, 1953, who served on active duty in
the Armed Forces of the United States, shall be entitled to service,
excluding that duty under the Reserve Forces Act, not to exceed 4
years, provided that he pays into the retirement system an amount
equal to the contributions which would have been required based on
his current salary, plus interest thereon of 2 percent compounded
annually from date of membership until date paid. The amount to be so
paid may be paid in one lump sum or installments provided all such
installments shall be paid not later than 4 years after becoming a
A cost-of-living allowance is provided for those members retired
prior to July 1, 1973. The benefit is paid from interest earnings on
investments of the system in excess of normal requirements, in an
amount not to exceed 2 percent of the original benefit for each year
of retirement, and is paid annually.
SUMMARY OF AMENDMENTS
Act 508 of 1954 made coroners and their assistants eligible for member-
ship in this retirement system.
Act 448 of 1956 allows full retirement benefits (no penalty) for those
age 60 with 30 or more years of service, with penalty of 3 percent
to apply for each year under age 60, also provides option No. 2
benefits for widows of those who die with 20 or more years of serv-
ice, and such widow is not eligible for social security.
Act 216 of 1958 reduces disability benefits by the amount of social
security payments when he or she becomes eligible for social
security (this becomes the same as a service retirement); also
requires employees returning to service who have taken a refund
of contributions to remain on the job for 5 years before becoming
eligible to repay this amount, and claim credit for service period
forfeited by said refund; also provides for the purchase of an
additional annuity by covering the first $1,200 of wages.
Act 417 of 1960 allows up to 10 years prior service credit with State of
Louisiana (see act 115 of 1971); provides option No. 2 benefits
for widows regardless of their eligibility for social security bene-
fits for rest of her life, if her husband has 20 or more years service.
Act 83 of 1964 eliminated the Pension Reserve Fund from our system.
This leaves five funds for accounting purposes: Annuity savings
fund, annuity reserve, pension accumulation fund, disability re-
serve, and expense fund.
Act 83 of 1965 provides retired employees may be retained on 25 per-
cent of wages or $1,200 per year, whichever is greater, on a tem-
porary basis; also provides for membership of employees of other
taxing districts such as hospital districts, and allows one member
of the board of trustees to be retired.
Act 212 of 1966 increases benefits by one-third by raising the rate from
11/ to 2 percent for each year of creditable service, with an annuity
equal to 2 percent of $1.200 for each year of creditable service, this
amount to be paid only if the parish where the member is employed
pays to the retirement system, either in a lump-sum or in annual
contributions, an amount determined by the system's actuary to be
necessary to provide this additional benefit (optional basis).
Act 184 of 1968 allows up to 2 percent cost-of-livingf adjustment for
each year one has been retired prior to July 27, 1966.
Act 538 of 1968 provides parish with power to cancel social security
by 1970, and to come under supplementary benefits in Parochial
Employees' Retirement System.
Act 525 of 1968 provides for dual memberships in actuarially funded,
public-supported retirement systems, whereby any employee, after
10 years of service in a system, may transfer his credits to another
system on approval of both boards of trustees. At retirement time,
the last system will retire him. and each system will pay its pro-
rata share. (State Employee's Retirement Svstem, Teachers' Re-
tirement System, and School Employees' Retirement System ex-
cluded at their request).
Act 65 of 1970 raises the ceiling on benefits from $25 to $30 per month
for each year of creditable service.
Act 363 of 1970 allows a member who has not withdrawn his contri-
butions, and who has become an employee of the Supreme Court.
Court of Appeals, or any other court, to continue as a member of
Parochial Employees' Retirement System, providing the court,
through its clerk, undertake the obligation of employer as defined
by act 205 of 1952.
Act 36 of 1970 permits transfer of credits only between State, munic-
ipal, or parochial employees' retirement systems for which he
meets eligibility requirements, upon approval of both boards of
trustees: at retirement time, the system to which he last belongs
will compute his benefits, and ask the first system also to compute
his benefits, and the former system will pay its uro-rata share
annually to the system under which he retires. (Our board dis-
Act 115 of 1971 increased maximum State service credit to 12 years.
Act 169 of 1971 provides change in membership of board of trustees:
to make the maximum benefit retroactive to persons already re-
tired: to increase the expense fund: to limit membership to those
employees earning more than $1,200 per year, and to provide
for retirement at age 55 with 30 years service.
Act 172 of 1971 provides that any parish may provide supplementary
retirement benefits which shall be in addition to those provided by
the parochial employees' retirement system and membership in
such a supplementary retirement plan shall not affect their mem-
bership in this system.
Act 46 and act 47 of 1972 provides for transfer between State, munici-
pal, or parochial retirement systems.
Act 183 of 1973 provides for retirement at age 62 computed on earnings
for best consecutive 36 months; discontinues interest on member's
contributions; exempts retirement benefits from State income tax;
admitted to membership certain elected officials previously ineligi-
ble because of age, and changed procedures for electing members
of board of trustees.
Act 441 of 1974 to provide for the purchase of military service credit;
immediate membership in the system at date of employment; to
provide that no retired member shall receive in retirement benefits
an amount less than the amount of his contributions; defines an
employee of the parish; provides for a cost-of-living adjustment
for those persons who retired before July 1, 1973; additional as-
sessments for administrative purposes; and to provide for addi-
tional benefits for contributions from employer and employee for
those members in the supplemental retirement plan.
Act 302 of 1974 to allow certain members to convert accrued annual
and sick leave to retirement credit.
Act 644 of 1974 to include any coroner, his assistants and employees as
eligible for entrance into the retirement system.
Act 396 of 1975 to provide for retirement and membership under cer-
tain conditions; to provide for expense contributions to the supple-
mental system; to provide for vesting after 10 years of creditable
service; to provide for payment of interest on back contributions;
to provide for a limit on disability benefits; to provide for retire-
ment under the supplemental plan with less than 10 years of
creditable service; and to provide a termination date for agree-
ments to participate in the supplemental plan.
Act 618 of 1975 authorizes purchase of credit in this system for certain
Act 548 of 1975 to permit transfer between public retirement systems.
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT
PUBLIC EMPLOYEES' RETIREMENT SYSTEM
LOCAL MISCELLANEOUS MEMBERS
THE o/50th at age 60 FORMULA
This pamphlet is meant to familiarize you with the Public Employees'
Retirement System. We cannot hope to answer all of your questions in a
short booklet, but we do have Area Offices set up just for that purpose with
trained personnel to answer many of your retirement questions. Don't
hesitate to get in touch with them if you have a problem. You will find their
addresses listed at the back of the booklet.
These people will also be traveling to your area periodically to hold
interviews. We recommend that you have an interview before retiring, to
help you with some of the important choices which you will have to make.
So, if you are nearing retirement age, or if you just want to know more about
the System, contact your personnel office and they will arrange an appoint-
ment for you. Or, write directly to the Area Office nearest you and we will
let you know when we will be in your area and can give you an interview.
While reading this material, remember that we are governed by the "Pub-
lic Employees' Retirement Law" and it is the basis of all of our decisions.
The statements in this booklet are general and simplified as much as possi-
ble while still being accurate. The Retirement Law is sometimes very com-
plex, but when there is a conflict, any decision will have to be based on the
law and not this booklet.
GETTING FAMILIAR WITH PERS
What Is PERS And Who Belongs To It?
PERS stands for the Public Employees' Retirement System. Your em-
ployer has made a contract with the System to provide you with a package
of benefits. For example, if you become injured or sick so that you cannot
continue working at your job, you may be able to collect disability retire-
ment. Or, if you die, this System may help to provide for your family. This
applies whether you are still working or already retired at the time of death.
In addition, this System helps you to build up a fund from which you may
receive monthly payments after your retirement.
Some specific benefits are optional-meaning that your employer may or
may not have chosen to provide them. Optional benefits arc clearly marked
in this booklet. If you have a question about whether a particular benefit
applies to you, just check with your Personnel Office.
The fact that you are called a "local miscellaneous member" tells us two
things: First, you are employed by a public agency such as a city, county,
special district or other local agency rather than the State of California.
Second, most members are called "miscellaneous". This merely means that
you are nor a "safety member", a special classification for those involved in
law enforcement or the protection of public safety or in a position designat-
ed by law as a "safety member" position.
How Does Social Security Figure In?
Many members under this formula are also contributing part of their
paychecks to Social Security. If you are, you need to know whether this will
affect your PERS contributions. If your PERS service is "coordinated" with
Social Security, you will contribute less to the Retirement System than
those members not covered by Social Security and your allowance from us
will be correspondingly less. But your PERS coverage may be "supplemen-
tal" to your Social Security. This means that you will pay the full amount
of Retirement System contributions and you will receive the full benefit,
just as though you had not been paying into Social Security. You will, of
course, still be eligible for your Social Security benefits. Check with your
Personnel Office if you are not sure which situation applies to you.
Who Pays For These Benefits?
1. YOUR CONTRIBUTIONS-As a member of PERS, a portion of
your monthly pay will be deducted to put into the Retirement Fund. If you
are nor coordinated with Social Security (either you do not pay into Social
Security or your PERS contributions are supplemental to your Social Secu-
rity), each month 7% of your earnings will be contributed to PERS. If you
are coordinated with Social Security, you will contribute 7% of your
monthly salary in excess of $133.33. This does not include overtime. The
money which you contribute earns interest for you, currently 5% percent
2. YOUR EMPLOYER'S CONTRIBUTIONS-To guarantee the pay-
ment of your benefits, your employer will pay for you at least as much as
3. INVESTMENTS-PERS invests the money it receives from you and
your employer. The income from these investments helps to pay for your
Do I Lose My Contributions If I Leave My Job Before I Retire?
1. REFUNDS-The money you contribute and the interest credited on
it are yours. If you permanently leave your job and do not take a position
with another agency covered by PERS, you may request a refund of your
money from the System. To avoid confusion, this should be referred to as
a refund and not just "retirement money" when communicating with our
offices. When you leave your job, for any reason, you will be given a Report
of Separation to fill out. On this form is a place to indicate whether or not
you want a refund. If you have less than 5 years of service and your separa-
tion from employment covered by PERS is permanent, you must accept a
refund. You will receive interest through the last June 30th that PERS has
your contributions. Normal contributions made by the employer on yoir
behalf are not refundable.
2. LEAVING YOUR CONTRIBUTIONS-If you have at least five
years of PERS credited service, you may choose not to withdraw your
money, even though you are leaving your job. It will continue to earn
interest and you may withdraw it at any later date. Or, if you leave the
money in until you reach retirement age, you may apply for a monthly
What If I Later Rejoin PERS?
After you have withdrawn your contributions, if you return to your old
job or take a new job covered by PERS, you will again become a member.
Then you have the option of putting back, with interest, any money you
withdrew. If you do this, you will again get credit for those years of service.
If you do not pay back the contributions, you will start fresh under the
System as a-new member. For more information on how to redeposit your
money, see our separate pamphlet called "Service Credit".
Can I Remain A Member Of PERS If I Move To Another Job?
Under certain circumstances you can continue your membership in
PERS even if you leave your job. Almost all jobs for the State are covered
by PERS. Many cities, counties and other public agencies have contracts
with PERS which make their employees members. In addition to this,
PERS has an agreement with many counties and other public agencies with
local independent retirement systems so that you would not lose your PERS
credit if you go to work for them and you leave your money with PERS.
This is commonly called "Reciprocity"
LET'S TALK MORE SPECIFICALLY ABOUT THESE BENEFITS
When May I Retire?
To be eligible for service retirement anytime before age 67, you must have
at least 5 years of PERS credited service. You may retire as early as age 50,
effective January 1, 1976, with a discount in your allowance. The amount
of your monthly allowance will continue to increase the later you retire.
You must retire no later than the first of the month following your 67th
birthday, even though you may have less than 5 years credited service.
How Much Will My Retirement Allowance Be?
1. FINAL COMPENSATION-To figure out how much your retire-
ment allowance will be, you need to know your "final compensation". This
usually means the average monthly pay rate during your last three years of
work. If you think there was another period of three consecutive years when
your average pay rate was higher, you should note this on your Retirement
Application. Then we will use whichever "final compensation" is higher.
For some agencies a one year period, instead of three, is used to figure the
2. BASIC FORMULA-There is a basic formula for figuring how much
your retirement allowance will be. These are the things you need to know,
to do the figuring:
a) The number of your years of PERS credited service (see your PERS
b) The percent of pay you are entitled to for each year of service. This
is determined by your age at retirement. See Table A below for the amount
that applies to you.
c) Your "final compensation".
Percent per year of service
Age of retirement Male Female
50.------------------------- 1.026 1.092
51-------------------------- 1.092 1.156
*Effective January 1, 52--..------------------------ 1.162 1.224
1976 3. --------------- 1.238 1.296
54 ----------------------- 1.322 1.376
55--------------------- --- 1.412 1.460
56..-------------------------- 1.510 1.552
57.---.--------------------- 1.616 1.650
58--------------------------- 1.734 1.758
59-------------------------- 1.862 1.874
60-.------------------------- 2.000 2.000
61-------------------------- 2.134 2.128
62-------------------------- 2.272 2.262
63-67---------------------- 2.418 2.400
We have rounded these figures off for your convenience. The percentages
actually increase for each quarter year of age. Therefore, it may be to your
advantage to retire either on your birthday, 3 months later, 6
or 9 months later, to get the full benefit of your age.
WORKING THE FORMULA-With this information,
work the retirement formula.
you too can
Number of years of service X % per year (from Table A) = % of final compensation which
you are eligible for as an allow-
First Let's Take An Example And See How It Works
Pete Peers has been working under PERS for 26 years. He wants to retire
at age 56 and Table A tells us that this entitles him to 1.510% per year. Using
our formula, we can figure out what Pete's retirement allowance will be.
(Percent of final compensation
Pete's agency uses a three year period to figure final compensation.
During the last three years before retirement, these are Pete's earnings.
One year his salary was $900 a month. The next year he got a raise to $1,000.
The year before his retirement his salary was $1,100. If we take the average
of these three figures, we can see that Pete's final compensation was $1,000.
He may receive 39.26% of this as a retirement allowance.
(Final compen s ation)
(Percent of final compensa-
(.Mlonthly retirement allow-
But, if Pete's retirement had been coordinated with Social Security, he
would have contributed a little less to PERS. Therefore, we will figure his
(Percent of final compensa-
(Monthly retirement allow-
NOW YOU WORK THE FORMULA
Number of years of service
% per year which you are en-
titled to-(find this in Table
c of your final compensation
which you may receive as a re-
For your convenience, Tables B (Male) and C (Female) in the back of
this pamphlet (see pages 17-18) provides the answer to Step 1 for most
If you are Nor coordinated with Social Security, figure
Your final compensation
% of final compensation (the
answer from Step #1)
Your monthly retirement al-
If you arecoordinated with Social Security, you paid less in PERS contri-
butions so you must reduce your final compensation by $133.33 before you
figure Step #2. Your formula becomes:
Your final compensation
%c of final compensation (the
answer from Step 91)
Your monthly retirement al-
If you have a combination of service, that is, some of your PERS credited
service was coordinated with Social Security coverage and some of it was
not, then your retirement allowance will be figured taking this into account.
PERS can do a calculation for you if you are considering retirement. This
will tell you approximately what your retirement allowance will be and
what options are available to you. Just write to Public Employees' Retire-
ment System, Benefits Division, P.O. Box 1953, Sacramento, California
95809, and include this information: Name, Social Security Number, pro-
spective Retirement Date, mailing address, your beneficiary's Date of Birth
and his/her relationship (for example, spouse).
We try to provide this information as promptly as possible. However, at
times our workload is so great that some delay occurs, so we hope you will
bear with us. Priority in giving estimates always goes to those who are close
What Is "Service Credit"?
In calculating your retirement allowance, you had to use the number of
years of service. Basically, this is just the number of years that you are
credited with under PERS. However, you may be entitled to extra service
credit to figure into your retirement formula. For example, Military Service
may sometimes give you credit. If you have unused sick leave when you
retire, this may be credited as service if your agency provides this benefit.
There are other possible additions which are explained in a separate pam-
phlet on "Service Credit".
Any credit that you receive for service before the date on which your
agency came under PERS is called "prior service". Credit given for work
after that date is "current service".
What Is A "Temporary Annuity"?
A "temporary annuity" is aimed at making early retirement possible for
those who could not otherwise do so. This plan provides a temporary
monthly payment to add to your retirement allowance until you reach the
age when you can begin receiving Social Security benefits. For more infor-
mation on who qualifies and the cost and benefits under this plan, see our
separate pamphlet called "Temporary Annuity".
What About The Rising Cost of Living?
With rising prices, it is sometimes difficult to get by on a fixed income.
That is why a special provision has been built into your retirement plan to
allow for a cost of living increase. This is a yearly adjustment you do not
have to apply for. It will automatically be applied to your account if appro-
priate. The first adjustment will be made in the second calendar year follow-
ing your retirement. Currently, these increases are limited to a maximum
annual adjustment of 2% for most agencies. Some agencies have amended
their contracts to make the maximum annual adjustment 5%.
What If I Cannot Work Because Of Injury Or Illness?
You must have at least five years of service to qualify for-disability retire-
ment. If you are considering applying for disability, you should request a
copy of our separate pamphlet called "Ordinary Disability".
Who Is My "Beneficiary"?
For some of the death benefits, you have a right to name anyone you
choose as your beneficiary. If you-name a beneficiary and then marry, annul
or dissolve your marriage, have a child or adopt a child, you should check
with PERS about updating your beneficiary designation. Otherwise, the
beneficiary you named may no longer be eligible. If you do not choose
another beneficiary, the law provides that death benefits payable will go to
1) Your spouse.
2) Your children (if no spouse).
3) Your parents (if none of the above). In some cases, parents must be
financially dependent to qualify.
4) Your estate (if none of the above).
For some death benefits only specific family members are eligible.
What If I Die Before I Retire?
If you should die before you retire, PERS provides several benefits for
your family or a beneficiary named by you. Since there may be choices to
make, you should discuss these with your beneficiary.
1. Basic Death Benefit
Under this benefit your contributions, with interest, will be returned to
your beneficiary. Your beneficiary will also receive one month of your
average salary for each year of credited current service which you have.
There is a maximum payment of six months' salary.
2. 1959 Survivor Benefit-(Monthly Allowance) (Not all agencies offer
Only members notcovered under Social Security may have this coverage.
If you are covered under the 1959 Survivor Benefit, you will notice a $2
deduction from your monthly paycheck or a lesser amount if you are paid
more than once a month. This benefit consists of a monthly allowance
which may be paid to your surviving spouse and children.
a) A spouse is eligible if he/she has not remarried and has eligible chil-
dren, or has reached age 62 if female, or 65 if male.
b) Your children are eligible if they are under age 18 and unmarried, or
under 22, unmarried and full-time students.
If you are covered, your survivors may receive one of these monthly
1. An eligible surviving spouse, until remarriage, with two
or m ore eligible children .............................................................................. $430
2. Or three eligible children only.......................................................... $430
3. An eligible surviving spouse with one eligible child.................... $360
4. Or two eligible children only............................................................. $360
5. O ne eligible child only ........................................................................ $180
6. A surviving widow at age 62 or widower at age 65, until
rem marriage ....................................................................................................... $180
7. Dependent parents may also be eligible if there are none of the
above........................................................................................................ $180 each
This benefit may be paid along with the Basic Death Benefit previously
3. 1957 Survivor Benefit-(Monthly Allowance)
This applies only if you are eligible for retirement at the time of death
(have reached age 50, effective January 1, 1976, with at least 5 years of
service). It is a monthly allowance equal to one-half of what your unmodi-
fied retirement allowance would have been if you had retired on the date
of your death.
The beneficiaries eligible to receive this after your death are:
a) Your surviving spouse, if you were married at least one year before
death. Your spouse cannot receive this benefit if remarried.
b) If you do not have an eligible spouse, your unmarried children may
collect this benefit until the youngest reaches age 18.
If your beneficiary is eligible for this benefit and the Basic Death Benefit,
only one of them will be paid. However, either of them may be paid with
the 1959 Survivor Benefit.
What Could My Beneficiary Receive If I Die Before Retirement?
If you are not eligible for retirement at the time of death (under the
minimum retirement age or less than 5 years of credited service):
1) Refund of Contributions 1
\ Basic Death Benefit
2) Up to six months pay Basic Death Benefit
3) Monthly allowance for spouse and children 1 If you are covered by the 1959 Survivor
($180 to $430) f Benefit
If you are eligible for retirement at the time of death (have reached the
minimum retirement age and have at least 5 years of credited service), your
eligible beneficiary may receive the benefits listed above or this combina-
1) Monthly payment of one-half unmodified
retirement allowance to spouse and chil- 1957 Survivor Benefit
2) Monthly allowance for spouse and children \ If you are covered by the 1959 Survivor
($180 to $430)f Benefit
Is My Family Protected If I Die After Retirement?
There is a $500 Retired Member Death Benefit (see page 14). If your
employer provides it in the PERS contract, you will also be covered by the
Survivor Continuance. In addition, you may choose to provide one of the
optional settlements which are explained later in this section.
Survivor Continuance (Monthly Allowance)
Not all agencies offer this benefit. This benefit provides that part of your
monthly retirement allowance will be continued to your eligible survivor.
Your spouse will be eligible if you were married to each other at least one
year before retirement. Your spouse may receive this monthly allowance
until death or remarriage. If there is no eligible spouse, this benefit may go
to your unmarried children under age 18. The allowance will continue until
the youngest unmarried child reaches 18. If there is no eligible surviving
spouse or children, the benefit will be paid to qualifying dependent parents.
These are the only people eligible to receive the Survivor Continuance. If
you are not coordinated with Social Security, the Continuance will amount
to Y of your unmodified retirement allowance. If you are coordinated with
Social Security, the Continuance will be % of your unmodified allowance.
If you have a combination of service under PERS with the State or local
public agency or some time covered and some time not covered by Social
Security, special consideration will have to be given to figure the amount
of your Survivor Continuance.
When you retire with an allowance, you may, of course, take the highest
unmodified amount for which you are eligible. On the other hand, you may
want to take a smaller allowance and provide some additional security for
your family or other beneficiary. If you have survivors who may receive the
Survivor Continuance described above, you will only be dealing with part
of your allowance in figuring options 2, 3 and 4 below. If you are coordinat-
ed with Social Security, you would be able to modify % of your allowance
since Y is set aside for the Survivor Continuance. If you are not coordinated
with Social Security, have eligible survivors, and your agency offers the
Survivor Continuance, you may modify 5 of your allowance. If you do not
have any eligible survivors and you retire, or if your agency does not offer
the Survivor Continuance, you may modify your full allowance to provide
for anyone you choose. In figuring Options 2, 3 and 4, the sex and age of
you and your beneficiary will have to be taken into consideration. You
should keep in mind that your beneficiary under these options may be
anyone, not necessarily a family member. This does not have to be the same
person who will receive your other benefits.
Under this option you take a reduction in your retirement allowance. In
return for this, your surviving beneficiary will receive whatever is left of
your contributions at the time of your death. How much is left will depend
mainly on how long you have been retired. Each month when you receive
your retirement allowance, a portion of it comes directly from your contri-
butions. So the lump sum which you have on account gets smaller each
month. Under Option # 1, whatever you have left at the time of your death
is payable to your surviving beneficiary.
This option requires the largest monthly reduction in your allowance.
But, in return, when you die your surviving beneficiary will receive the
same modified amount you were getting for his/her life.
Example #1: Without Survivor Continuance-
Pete Peers is retiring at age 60 with a $350 unmodified allowance. His
agency does not offer the Survivor Continuance, so he will modify the
whole amount to provide for his 55 year old wife. He takes a reduction of
$94.50, which makes his modified retirement allowance $255.50. His wife
will be eligible for this same amount each month after his death, if she
Example #2: With a % Survivor Continuance-
(Not covered by Social Security)
Sid Service is retiring at age 55 with a $300 unmodified allowance. His
agency offers the Survivor Continuance and, since Sid is not coordinated
with Social Security, this will be Y/ of his unmodified allowance, or $150.
To provide more security for his 57 year old wife, Sid chooses Option #2.
He takes a reduction of $28.80 on his remaining $150. This makes the
modified part of his allowance $121.20.
For his life he will now be receiving:
$150.00 Ear-marked for future Survivor Continuance
+ 121.20 Modified portion for life
$271.20 TOTAL MONTHLY ALLOWANCE
He has now guaranteed that his wife, if she survives him, will receive the
same modified amount of $121.20. She will also receive the Survivor Con-
tinuance of $150.00 until she remarries.
After his death, Sid's wife will receive:
,$150.00 Survivor Continuance, until remarriage
+ 121.20 Modified portion for life
$271.20 TOTAL MONTHLY ALLOWANCE
This means that both Sid and his wife are entitled to $271.20. He will
receive it until his death and at that time his wife will become eligible.
Example #3: With a Y Survivor Continuance-
(All service covered by Social; Security)
Joe Benefits is retiring at age 58 with a $400 unmodified allowance. His
wife, who he wants to provide for, is age 54. She may receive a Survivor
Continuance of / of Joe's unmodified allowance, or $100. Therefore, Joe can
modify the remaining / of his allowance, which is $300. On this amount he
takes a reduction of $75.00, making it $225.00.
For his life he will now receive:
$100.00 Ear-marked for future Survivor Continuance
+225.00 Modified portion for life
$325.00 TOTAL MONTHLY ALLOWANCE
He has now guaranteed that his wife, if she survives him, will receive the
same modified amount of $225 upon his death. She will also receive the
Survivor Continuance of $100 until she remarries.
After his death, Joe's wife will receive:
$100.00 Survivor Continuance until remarriage
+225.00 Modified portion for life
$325.00 TOTAL MONTHLY ALLOWANCE
This requires less of a reduction than Option #2, but it provides less for
the beneficiary. The payment to the beneficiary will be one-half of the
modified part of the monthly retirement allowance.
Example # 1: Without Survivor Continuance
Pete Peers is retiring at age 60 with a $350 unmodified allowance. His
agency does not offer the Survivor Continuance, so he will modify the
whole amount to provide for his 55 year old wife. He takes a reduction of
$54.60, which makes his modified retirement allowance $295.40. His wife
will be eligible for half of this amount, or $147.70 each month after his death,
if she survives him.
Example #2: With a 3 Survivor Continuance-
(Not covered by Social Security)
Sid is retiring at age 55 with a $300 unmodified allowance. His agency
offers the Survivor Continuance and, since Sid is not coordinated with
Social Security, this will be % of his unmodified allowance, or $150. To
provide more security for his 57 year old wife, Sid chooses Option # 3. He
takes a reduction of $15.90 on his remaining $150. This makes the modified
part of his allowance $134.10.
For his life he will now be receiving:
$150.00 Ear-marked for future Survivor Continuance
+134.10 Modified portion for life
$284.10 TOTAL MONTHLY ALLOWANCE
He has now guaranteed that his wife, if she survives him, will receive /
of the modified amount, or $67.05. She will also receive the Survivor Con-
tinuance of $150 until she remarries.
After his death, Sid's wife will receive:
$150.00 Survivor Continuance until remarriage
+67.05 /2 of modified portion for life
$217.05 TOTAL MONTHLY ALLOWANCE
Example #3: With a Y Survivor Continuance-
(All service coordinated with Social Security)
Joe Benefits is retiring at age 58, with a $400 unmodified allowance. His
wife, who he wants to provide for, is age 54. She may receive a Survivor
Continuance of '/ of Joe's unmodified allowance, or $100. Therefore, Joe can
modify the remaining Y of his allowance, which is $300. On this amount,
he takes a reduction of $42.90, making it $257.10.
For his life he will now receive:
$100.00 Ear-marked for future Survivor Continuance
+257.10 Modified portion for life
$357.10 TOTAL MONTHLY ALLOWANCE
He has now guaranteed that his wife, if she survives him, will receive '
of the $257.10 modified portion, or $128.55.
After his death, Joe's wife will receive:
$100.00 Survivor Continuance, until remarriage
+128.55 2 of modified portion for life
$228.55 TOTAL MONTHLY ALLOWANCE
This option can be tailor made to fit your special needs. It lets you leave
a certain amount for the beneficiary of your choice. The plan must be equal
to the other options in cost to your employer. This takes into account many
elements, such as the life expectancy of you and your beneficiary. If you are
considering an Option #4, contact PERS for assistance in setting up an
acceptable plan. All Option 4's must be approved by the PERS Board of
Retired Member Death Benefit
Regardless of what allowance you choose, you are covered by this benefit.
Upon your death after retirement, $500 will be paid to your beneficiary.
HOW DO I APPLY FOR THESE BENEFITS?
1. Get a copy of Form 369 from your Personnel Office. This is the Ap-
plication For Retirement you need to complete and mail to the System. To
ensure timely processing, it should be received by the Retirement System
at least 90 days before you intend to retire.
2. If you intend to select either Options 2, 3 or 4, you may need to present
proof of your beneficiary's date of birth. If your beneficiary is your spouse,
you will need to provide your marriage license.
3. About one month before your retirement date, you should receive
Form 898, Election of Retirement and Beneficiary Designation. Read this
form carefully and fill it out completely. You will be asked to choose
whether you want one of the four Optional Settlements. Then sign it, have
it notarized and return it promptly through the mail to PERS headquarters
I. If you die while still working, your employer will notify PERS. If you
are retired at the time of death, a family member or a friend should notify
PERS by a letter or a phone call.
2. Your beneficiary will receive an affidavit from PERS with a request
for a certified copy of the death certificate and a newspaper clipping an-
nouncing the death.
THINGS TO REMEMBER WHEN YOU GET READY TO RETIRE
1. HEALTH INSURANCE-Before you retire, check into the possibil-
ity of keeping your present health insurance or getting a new plan. It is
important that you do this before your retirement date, since retired people
sometimes find it difficult to get health insurance.
2. TAXES-Make an appointment with an IRS Agent and a representa-
tive of the State Franchise Tax Board, or your private tax consultant. They
can explain the situation regarding the taxability of your retirement allow-
3. SOCIAL SECURITY-If you have been contributing to Social Secu-
rity, you should check with your local Social Security office and see what
your benefits may be.
WHAT ABOUT WORKING AFTER RETIREMENT?
It is sometimes possible to come back to your old job or to take a new State
or Public Agency position after retirement. PERS must agree to reinstate
you before you begin work with any agency covered by the System. You
will have to meet health, age, and other requirements to be reinstated. When
you return to work, you will stop receiving your retirement allowance until
you retire again. Then we will re-figure your allowance, adding your new
years of service. There is also a provision which allows you to work up to
90 days in a calendar year (effective January 1, 1976) without it affecting
LET'S EXPLAIN SOME OF THE TERMS
BASIC FORMULA-This is the formula we use to figure your unmodi-
fied (highest) retirement allowance. You will find it'explained on Page 6.
BENEFICIARY-A beneficiary is a person who will receive PERS bene-
fits in case of your death. See Page 9.
DISABILITY-You are unable to perform the duties of your job due to
an illness or injury. See Page 8.
FINAL COMPENSATION-This is an important figure used in cal-
culating your retirement allowance. It means the highest average monthly
pay earnable by you during a certain period of time. For employees of some
agencies we use a twelve month period to figure final compensation, and for
others a 36 month period.
MODIFIED-You may modify (reduce) your retirement allowance to
provide extra security for your beneficiary. This means that you receive a
smaller allowance for the rest of your life. See "Optional Settlements", Page
RECIPROCITY-This is an agreement between PERS, many counties
and other public agencies with local independent retirement systems. It
provides that if you go to work under any of them and leave your money
with PERS, you will not lose your PERS credit.
.SERVICE CREDIT-Basically, this is credit for the number of years you
have worked under PERS. See Page 8. There are some additional types of
service credit which are explained in a separate pamphlet on that subject.
UNMODIFIED RETIREMENT ALLOWANCE-This is the max-
imum retirement allowance payable to you by the System without taking
into account the effect of any option you might choose.
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Whom Do I Contact If I Have Further Questions?
You may write directly to these addresses, or you may arrange an inter-
view with Area Office Representatives who travel to your area regularly.
To set up an interview, contact your Personnel Office, or write to the Area
Office nearest you.
ADDRESSES OF AREA OFFICES
Los Angeles Area Office
107 South Broadway
Los Angeles, CA 90012
Telephone: (213) 620-4430
San Francisco Area Office
I lth Floor
100 Van Ness Avenue
San Francisco, CA 94102
Telephone: (415) 557-0582
Sacramento Area Office
P.O. Box 1953
Sacramento, CA 95809
Telephone: (916) 322-5180
San Bemrnardino Office
Room 446, State Building
303 West Third Street
San Bernardino, CA 92401
Telephone: (714) 383-4431
San Diego Office
Room 5068; State Building
1350 Front Street
San Diego, CA 92101
Telephone: (714) 236-7653
PERS HEADQUARTERS is located at:
1416 9th Street
Sacramento, CA 95814
P.O. Box 1953
Sacramento, CA 95809
UNIVERSITY OF FLORIDA
11111lUllHllll 1111111111111111111HEUEll i
3 1262 09113 1044
.. .... *. .'. ....
j .. .
I ; f; * *
Appendix 3 .
LETTER FROM DAVID H. DOTY, CITY MANAGER, BELL-
AIRE, TEX.; TO GARY GOOD, SENATE SPECIAL COM-
MITTEE ON AGING, DATED APRIL 13, 1976
DEAR MR. GOOD: There are two primary reasons for the city of
Bellaire's interest in seeking to resume social security coverage for
its employees. ,
First, we participate in the Texas Municipal Retirement: System
which has a relatively long-term vesting period and is transferable
only to other participating agencies. An employee who comes to us
from private industry or a municipality which does not participate
in the Texas Municipal Retirement System cannot transfer retire-
ment benefits. Likewise, an employee leaving our service, going to
private industry, or a nonparticipating city, will lose retirement
The second reason that we attempted to reestablish social security
coverage is a firm staff belief that somewhere in the future-probably
not too distant-taxes assessed by the National Government will be
used to support social security retirement benefits; thus, employees of
agencies that do not participate will be excluded from the benefits
their tax dollars are helping to provide.
Should you wish more information with regard to these matters,
please contact me.
DAvm H. Dorr, City Manager.