SENATE BILL REPORT

SB 6456

BYSenators Johnson, Gaspard, McDonald and von Reichbauer; by request of Department of Retirement Systems

Modifying public retirement benefits for persons who have attained age seventy and one-half and are still employed.

Senate Committee on Ways & Means

Senate Hearing Date(s):

Senate Staff:Charles Langen (786-7715)

AS OF JANUARY 25, 1988

BACKGROUND:

The Federal Tax Reform Act of 1986 includes a provision, to be effective July 1, 1989, which requires that a person who is so entitled must be receiving the retirement benefit in the year following the year in which the individual attains the age of 70 and one-half years, regardless of employment.  Failure to do so subjects the individual to a 50.0 percent tax on what the payment would have been if the person were retired.  This provision was enacted despite other federal legislation which prohibits discrimination against an individual receiving pension benefits based on age and requiring retirement based on age in almost all job categories.

SUMMARY:

A member of a retirement system of the state with five or more years of service in such system having attained 70 and one-half years of age on or after January 1, 1988, may request a pension payment in lieu of actual retirement and continue in employment.  The member shall continue to accrue benefits and contribute to the respective retirement system.  Upon actual separation from service or upon death while in service, the retirement benefit is to be recomputed based on the member's additional service and compensation.

No change in the survivor option and related beneficiary designation originally selected by the member shall be allowed except as otherwise authorized by the member's respective system.

The stated intent is to provide temporary relief from the provisions of the 1986 Federal Tax Reform Act.  No contractual rights from this act are to accrue to the member of a retirement system, and the legislature may modify or eliminate the benefit provided.

The receipt of the retirement benefit while continuing to work shall cease should Congress repeal the penalty section of the 1986 Federal T6x Reform Act.  Any such retirement benefit payments made will be actuarially considered in determining the retirement benefit when the member separates from service and requests retirement.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested January 21, 1988

Effective Date:July 1, 1989