Legislative Update
Disability Retirement Applications
Legislation was enacted to allow the South Carolina Retirement Systems to accept a disability retirement application from an otherwise eligible member if the application is received by the Retirement Systems within 90 days of the member’s date of termination from employment.
Active contributing members of the South Carolina Retirement System (SCRS) and the Police Officers Retirement System (PORS) may apply for disability retirement if they meet certain eligibility requirements, one of which is that they still be in service with an employer covered by the South Carolina Retirement Systems. For disability application purposes, a member is considered to be in service on the date the application is received by the Retirement Systems if he is not retired and the last day he was employed by an employer covered by the Retirement Systems occurred not more than 90 days prior to the date of filing.
The Legislation applies retroactively to any application for disability retirement benefits filed on or after May 12, 2008, the date on which a decision was issued by the South Carolina Supreme Court that changed the Retirement Systems’ longstanding interpretation of the disability retirement statutes. A member’s disability retirement application will be rejected if it is received by the Retirement Systems more than 90 days after the member’s last day of employment with an employer covered by the Retirement Systems.
Incidental Death Benefits
The South Carolina General Assembly passed legislation that modified the group life insurance benefit provided by the Retirement Systems. The legislation removes all references within the statute to “insurance” and “premiums,” and replaces them with “benefit” and “contributions.”
The most significant change, however, involves the treatment of the death benefit payment to beneficiaries. This benefit will no longer be considered life insurance proceeds. The benefit will now be treated like any other lump-sum distribution paid by the Retirement Systems. This means that the distribution paid to a beneficiary of an active or retired member who dies on or after July 1, 2010, will be subject to state and federal taxes. It also means that the death benefit payment will be eligible for a tax-deferred rollover into another qualified retirement plan.
These changes were necessary to not only keep the Retirement Systems in compliance with the Internal Revenue Code, but to also ensure that our members are not taxed on the premiums paid by their employers for the death benefit. In other words, if the death benefit continued to be considered life insurance proceeds, then certain members would have to pay income taxes annually on the premiums paid by their employer.
If you have any questions about this change, please contact the Retirement Systems’ Call Center at 803-737-6800, toll-free at 800-868-9002 (within SC only), or at www.retirement.sc.gov.
Cost Savings When Filling Vacancies Created by Retirements
Proviso 89.114 of the General Appropriations Bill passed in June by the South Carolina General Assembly reads as follows:
“During the current fiscal year, whenever classified FTEs become vacant because of employee retirements, it is the intent of the General Assembly that state agencies should realize personnel costs savings of at least 25% in the aggregate when managing these vacant positions. Prior to filling a classified FTE which has become vacant because of a retirement, an agency must review and determine the appropriate salary for the position as well as determine whether the agency can manage without filling the position or by delay in filling the position. Prior to filling the vacant FTE, agencies must follow all laws and regulations concerning posting and competitive solicitation and consideration of applicants. No agency shall enter into any agreement with any employee that violates the terms of this proviso.”
For more information about proviso 89.114, please contact the SC Budget and Control Board Office of Human Resources at 803-896-5300.
Please note that proviso 89.114 does not affect participants in the Teacher and Employee Retention Incentive (TERI) program since they do not terminate employment at the onset of TERI participation.
Teacher and Employee Retention Incentive (TERI) Program Still Intact
The General Appropriations Bill proviso number 89.109 which would have closed the TERI program was deleted by the Senate. Since this proviso was unsuccessful, no changes were made to the TERI program during this legislative session and TERI will continue to be available to members.
Other Updates
Board Approves Employer Rate Increases
At its June 30, 2010, meeting, the SC Budget and Control Board approved the following contribution rate increases for employers participating in the South Carolina Retirement System (SCRS) and the Police Officers Retirement System (PORS).
Effective July 1, 2011, the SCRS employer contribution rate will increase 0.145 percent and the PORS employer contribution rate will increase 0.2325 percent. Effective July 1, 2012, the contribution rates for SCRS and PORS employers will increase another 0.145 percent and 0.2325 percent, respectively.
The Board approved the increases based on the recommendations of the actuaries who conducted the annual valuations of the two retirement plans.
The rate increases are illustrated in the following table:
TERI Participants and Return to Work Retirees: Employment Status Reminder
Under the State Employee Grievance Procedure Act, TERI participants and retirees who return to work and are employed by an agency that adheres to state personnel policies will be exempt from the State Employee Grievance Procedure Act. For more information, contact the SC Budget and Control Board Office of Human Resources at 803-896-5300.If a TERI participant or a return to work retiree works for an employer that is not governed by state personnel policies, then he would be subject to his employer’s policies regarding employment status and rights.
Termination at Retirement
In order for a member of the South Carolina Retirement System (SCRS) or the Police Officers Retirement System (PORS) to retire and begin receiving benefits, he must first separate from service. This means that the member must terminate employment before he may begin receiving a benefit from SCRS or PORS. In fact, this separation of service, whether it is terminating covered employment or death, is a prerequisite to receiving any type of distribution from these plans.
While on the surface these may seem to be simple concepts, there are actually important Internal Revenue Services’ regulation requirements that generally prohibit a tax-qualified pension plan, such as SCRS and PORS, from distributing benefits to members prior to separating from service. This is because the tax deferrals allowed under these types of pension plans are designed to provide benefits to a member after retirement, not while a member is still in service.
Under these requirements, a separation from service must be a complete and total severance or termination of the employment relationship between the member and a covered employer. It may not merely be a cessation of a member’s performance of his job duties or the beginning of a period of unpaid leave.
A member who is serving as an appointed official will typically be required to resign from his office in order to terminate the employment relationship with the covered employer and make the separation from service required for retirement.
Without a legitimate termination of the employment relationship, a member is not eligible to retire and begin receiving benefits. If a member does not have a true termination of employment, his retirement is not valid and any benefits he receives have to be repaid to the appropriate system. After a member has terminated employment and been retired for 15 days, he may be rehired by a covered employer without affecting his retirement benefit.
Because of the importance of this separation from service requirement, when a member of SCRS or PORS files a retirement application, the member’s most recent employer is required to certify his date of termination to the Retirement Systems. This certification of the member’s date of termination is required on both the Employer Certification of Last Day Paid (Form 6201) and on the Certification of Final Retirement Deductions (Form 6202), as well as on other forms such as the Employer’s Disability Employment Status Report (Form 6253) which is required for a disability retirement application.
When certifying a member’s date of termination, you should ensure that the date certified is not simply the day the member last performed his job duties or last earned compensation from the employer or was last paid by the employer, but is the date that the member’s employment relationship with the employer was completely severed. While some of these dates may overlap, the crucial date for determining a member’s eligibility to retire and receive a benefit is the date on which the member terminated from all covered employment and separated from service. Therefore, in completing the relevant retirement paperwork, you should only certify a date of termination for a retiring member if that member has made a complete, bona fide severance of the employment relationship with the employer on that date.
There are a few limited exceptions to the separation of service requirement. The most notable exceptions are SCRS members who participate in the Teacher and Employee Retention Incentive (TERI) program and certain elected officials.
TERI participants may retire and begin deferring their retirement benefit without terminating employment. However, TERI participants must terminate their employment upon completion of their TERI period and are not eligible to receive the benefits they accrued while participating in the TERI program until such termination of employment occurs.
An elected official whose annual compensation is less than the earnings limitation set out in Section 9-1-1790 and who is otherwise eligible for retirement may retire and begin drawing a retirement benefit without resigning his office.
State Optional Retirement Program
Investment Provider's Representatives Available for Onsite Visits
Those of you who handle benefits and/or payroll for a state agency, a pubic or charter school district, or a higher education institution, already know that the State Optional Retirement Program (State ORP), a defined contribution plan alternative to the South Carolina Retirement System (SCRS), is available to your newly hired employees.
You also know that there are four investment providers from which State ORP participants may choose from:
- VALIC
- MetLife Resources
- The Hartford
- TIAA-CREF
What you may not know is that each of these investment providers has representatives who are available to come to your worksite to help educate new employees about the State ORP and meet with existing participants periodically to review their accounts.
We encourage you to take advantage of the services available through the State ORP investment providers. Please contact the investment providers directly if you would like to schedule an onsite visit for your employees.
Social Security/FICA Reminder
Employers that are eligible to participate in the South Carolina Retirement Systems are mandatorily covered by the Social Security Act before they join the Retirement Systems. In fact, in 1983, the Social Security Act was amended to prohibit state and local governments from opting out of the program. State law continues this mandatory Social Security coverage once an employer resolves to participate in the Retirement Systems. State law also provides that the South Carolina Retirement Systems is responsible for administering the State’s Section 218 Social Security coverage agreement.
All participating employers are required to withhold Federal Insurance Contributions Act (FICA) taxes from an employee’s pay and are required to match the amount of the employee’s mandatory contribution. FICA contributions are reported and paid to the Social Security Administration.
For more information about your responsibilities and obligations as an employer covered by the Social Security Act, check out the Social Security Administration’s website at www.ssa.gov.
Online Employer Training Modules Now Available
The Retirement Systems is pleased to announce the addition of our online employer training area to our website. Here you will find a host of computer-based-training (CBT) modules that contain the same information covered in our on-site and regional employer training classes. Topics include membership and enrollment, the reporting process, leaving covered employment, service purchase process and the death claims process.
These training modules are available to you 24 hours a day, seven days a week and are a great way to save money. Now you’ll be able to complete the training at your worksite instead of travelling to Columbia.
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THE LANGUAGE USED IN THIS DOCUMENT DOES NOT CREATE ANY CONTRACTUAL RIGHTS OR ENTITLEMENTS AND DOES NOT CREATE A CONTRACT BETWEEN THE MEMBER AND THE SOUTH CAROLINA RETIREMENT SYSTEMS. THE SOUTH CAROLINA RETIREMENT SYSTEMS RESERVES THE RIGHT TO REVISE THE CONTENT OF THIS DOCUMENT.
If you have any questions or need additional information, please contact Customer Services at 803-737-6800, toll free at 800-868-9002 (within SC only), or at www.retirement.sc.gov.