State of Connecticut Office of the State Comptroller MEMORANDUM NO. 97-23






May 12, 1997


ATTENTION:Personnel and Payroll Officers

  1. Introduction

    On April 27, 1997 there occurred legislative ratification of a collective bargaining agreement (SEBAC V) between the State of Connecticut and the State Employees Bargaining Agent Coalition which addresses pension and health care issues for a twenty year period commencing on July 1, 1997 and terminating on June 30, 2017. As it is the responsibility of the Comptroller's Retirement & Benefit Services Division (Division), under the guidance of the State Employees Retirement Commission and the Health Care Cost Containment Committee, to administer SEBAC V, the purpose of this memorandum is to describe in summary fashion the major changes contained in the agreement and present an implementation strategy for each such revision.

    Parenthetically, the legislative ratification which occurred operates to cover only bargaining unit employees by the provisions of SEBAC V. However, the Division is advised that the state intends to issue administrative orders under Connecticut General Statutes, Section 5-200(p) for the purpose of extending SEBAC V to members of the unclassified service, as well as employees who are not included under any prevailing bargaining unit contract.

    The summary which follows is not intended to be a comprehensive review of SEBAC V's entire contents; rather, its purpose is to highlight those provisions of the agreement which the Division believes are especially meaningful for agencies, employees, and retirees. Along these lines, please note that SEBAC V does not authorize an early retirement incentive program; instead, it provides for interim negotiations on early retirement which, as of this writing, have commenced but remain unresolved.

    Finally, as the dissemination of information is critical to the Division's implementation and administration of SEBAC V, feel free to share this memorandum with employees of your agency.

  2. Discussion

      1. Cost of Living Adjustment.

        1. For retirements from the State Employees Retirement System (SERS) with an effective date of June 1, 1997 or earlier, the cost of living adjustment (COLA) provisions remain unchanged, meaning that retirees are eligible for a 3.0% increase in their pension on their anniversary date. That anniversary date is either January 1 or July 1, whichever first follows at least nine full months of retirement. Additionally, a retiree who has reached age sixty-two and was not covered by social security for at least one-half of his or her years of state service, may be eligible for a higher COLA, from 3.0% to 6.0% depending on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This higher COLA does not apply to retirees who prior to retirement transferred from Plan A to Plan B in Tier I.

        2. Those Tier I and Tier II members who retire between July 1, 1997 and June 1, 1999 will be in the unique position of being eligible to choose between the present COLA provisions described in paragraph (a) above and the new COLA provisions described in paragraph below.

        3. For Tier I and Tier II members retiring effective July 1, 1999 and later, the COLA will range from a minimum of 2.5% to a maximum of 6.0% based on a formula which utilizes the increase in the CPI-W for the twelve months immediately preceding the retiree's anniversary date. Specifically, within the 2.5% to 6.0% range the COLA will be determined in accordance with the following formula:

          60% of the annual increase in the CPI-W up to 6.0%


          75% of the annual increase in the CPI-W above 6.0%

          As examples:

          If the increase in the CPI-W is 4.0%, then the COLA would be the minimum, 2.5%. (60% of 4.0% = 2.4%)

          If the increase in the CPI-W is 5.0%, then the COLA would be 3.0%. (60% of 5.0% = 3.0%)

          If the increase in the CPI-W is 8.0%, then the COLA would be 5.1%. (60% of 6.0% + 75% of 2.0% = 5.1)

        4. As previously referenced, Tier I and Tier II SERS members retiring on July 1, 1997 through June 1, 1999 will be afforded the opportunity to irrevocably select the COLA provision described in either paragraph (a) above or paragraph (c) above and waive the other. The Division is currently developing a form to be used in making this irrevocable choice; the form will be transmitted to state agencies under cover of a separate memorandum adding detail to this issue.

      2. Employer "Pick-Up" of Employee Retirement Contributions. Effective with the pay period from July 4, 1997 to July 17, 1997 (check date: August 1, 1997), the mandatory contributions required of Tier I, Tier II hazardous duty, and Tier IIA members will be picked-up by the employer under Internal Revenue Code, Section 414(h). This means that such mandatory contributions will be made on a pre-tax basis; accordingly, no federal or state income taxes will be withheld from mandatory, payroll-deducted employee retirement contributions. The employer pick-up applies exclusively to mandatory retirement contribution deductions and will have no effect on purchase of service credit payments made through the Comptroller's payroll system or on any other basis. For affected SERS members, this change will increase the amount of their net paychecks while reducing the taxable wages reported at the end of the year to the Internal Revenue Service and the Department of Revenue Services; it will not, however, lower gross wages for determining retirement and social security benefits.

        Be aware that by decreasing taxable gross income, the employer pick-up may affect employees who defer a high percentage of their salary through the deferred compensation (457) plan or the tax-sheltered annuities (403b) program.

        Agencies will be provided with a separate memorandum from the Division addressing specific changes in payroll procedures necessitated by this provision of SEBAC V; and employees will be furnished with a paycheck insert reminding them of the employer pick-up implementation.

      3. Tier II Five Year Vesting. Effective July 1, 1997, Tier II SERS members may retire on the first of any month on or after attaining age sixty-five with at least five but less than ten years of actual state service. The basic benefit will be calculated in accordance with the Tier II normal retirement formula for both those members who transition directly into retirement status as well as for those who earn and retain a vested right to a benefit. All other service requirements to receive pension benefits under Tier I and Tier II will remain unchanged. Finally, this change has no bearing on employees who terminated their state service prior to July 1, 1997.

        This provision of SEBAC V will be incorporated in the revised Summary Plan Description for Tier II.

      4. Additional Retirement Credit Opportunities.

        1. Vietnam War Service. Effective October 1, 1995, Public Act No. 95-300 converted military service rendered from December 22, 1961 to December 31, 1963 from national emergency service to war service. However, the legislation did not waive the respective deadlines in Tier I and Tier II for obtaining retirement credit for military service; accordingly, members of Tier I and Tier II who joined SERS before October 1, 1995 and remained in active employment on or after this change were ineligible to obtain additional credit as a result of the conversion of the time period cited herein. SEBAC V addresses this retirement-related matter by waiving the applicable deadlines for SERS members with qualifying military service between December 22, 1961 and December 31, 1963.

          Veterans may now obtain retirement credit for all or part of the period in question. Further, to the extent that the conversion of the period in question to war service diminishes the national emergency service previously obtained as retirement credit, additional credit for national emergency service, if any, may be obtained.

        2. SEBAC II Leaves. Employees who were temporarily laid-off, furloughed, or on voluntary leave under the terms of a February 1992 Memorandum of Understanding (SEBAC II) between the State of Connecticut and the State Employees Bargaining Agent Coalition may be granted retirement credit for such absences consistent with SERS plan provisions.

          These provisions of SEBAC V will be the subject of separate communications from the Division to state agencies; and those SERS members who retired after October 1, 1995 will be contacted directly by the Division concerning the opportunity to purchase additional retirement credit for their military service.

      5. TIER IIA. Employees hired on and after July 1, 1997 will become members of Tier IIA, the new SERS defined benefit plan. Employees rehired on and after July 1, 1997 will also become members of Tier IIA, unless the application of SERS service bridging provisions mandates placement in either Tier I or Tier II. Tier IIA plan is essentially the existing Tier II plan (including five year vesting) with the following exceptions:

        1. Employee contributions are required; specifically, 5.0% of salary for hazardous duty members and 2.0% of salary for all others.

        2. Tier IIA members may receive credit for the same non-state service allowed in Tier II, provided that payment is made for such in the amounts determined under the formulas set forth in Tier I.

        3. The COLA formula will range from a 2.5% minimum to a 6.0% maximum as earlier outlined in this memorandum for Tier I and Tier II members retiring effective July 1, 1999 and later.

        4. Tier IIA members must have at least ten years of actual state service or make a direct transition into retirement in order to be entitled to receive a COLA.

        To implement this provision of SEBAC V, the Division will be formulating a new Summary Plan Description, revising existing and generating new Division forms as needed, and issuing a separate memorandum addressing specific changes in payroll procedures necessitated by Tier IIA.

      6. Alternate Retirement Program Cash Withdrawals. Alternate Retirement Program (ARP) members, who terminate their service on or after attaining age fifty-five with a minimum of ten years of participation in this defined contribution plan based on state employment, may receive all or part of their accumulations in a lump sum. Such cash withdrawals will be governed by applicable TIAA-CREF provisions and subordinate to federal and state laws which may restrict lump sum benefit payments.

        The Division will communicate with agencies through a separate memorandum to address ARP cash withdrawals and discuss the impact of lump sum distributions on the availability of health insurance coverage.


      Effective July 1, 1997, SEBAC V makes a number of health care changes, the most significant of which are summarized below.

      1. Preservation of Coverage. For its twenty year term, SEBAC V preserves employee and retiree health care coverage, which the agreement defines as access and benefits.

      2. Rate Structure. The rate structure for all health care plans will be on a three tier basis: Individual, Individual plus One, and Family.

      3. Two New Plans. As a result of the discontinuation of the Blue Cross State Premier Point of Enrollment plan and the Blue Cross State Advantage Point of Enrollment plan effective June 30, 1997, the state will be offering two new Blue Cross plans in addition to the Blue Cross State Preferred Point of Service plan; these are: State BlueCare Point of Service and State BlueCare Point of Enrollment. The Blue Cross State Preferred Point of Service, M.D. Health Plan, and Kaiser Permanente offerings will remain in effect with no changes in benefits. The two new health plans, State BlueCare Point of Enrollment and State BlueCare Point of Service, will have the same benefits as those available through the Blue Cross State Preferred Point of Service plan with two exceptions: (a) both new plans will utilize the standard BlueCare provider network, which is about 70% to 80% of the size of the provider network which supports the Blue Cross State Preferred Point of Service plan; and (b) although the State BlueCare Point of Service plan allows for in-network and out-of-network services, the State BlueCare point of Enrollment plan does not cover any non-emergency services out-of-network.

      4. Active Employee Coverage. In an effort to encourage employees to choose health care plans which deliver services in the most cost effective, efficient manner, the method of calculating the employee portion of the premium has been restructured. Accordingly, this new structure results in employees assuming a larger portion of the premium costs for less efficient plans than they paid previously.

        Set forth below is the rate chart for the active employee portion of the health care premium. The chart illustrates the three tier rate structure and the increased employee premium shares. These rates will remain in effect through June 30, 1999, at which time the employee shares will increase in proportion to any increase in health care rates.

        For Coverage Effective July 1, 1997
        (Employees on Semimonthly pay schedules will have slightly higher deductions)
        Plus One
        Family Family Less
        Employees Spouse
        State BlueCare (P.O.E.) $ 0.00 $21.87 $30.98 $12.76
        State BlueCare (P.O.S.) $ 6.46 $36.41 $42.98 $16.12
        State Preferred (P.O.S.) $17.40 $58.96 $70.02 $39.06
        Kaiser Permanente $ 0.00 $ 0.00 $ 0.00 $ 0.00
        M.D. Health Plan $ 0.00 $21.87 $30.98 $12.76
        Blue Cross Dental $ 0.00 $ 5.46 $ 5.46 $ 2.80
        CIGNA Dental $ 0.00 $ 1.81 $ 3.49 $ 1.46

        As announced in Comptroller's Memorandum No. 97-18, the health insurance open enrollment for active employees will be conducted from May 15, 1997 to June 3, 1997; Health Care Planners are scheduled to be mailed to employees at their home addresses on or about May 13, 1997.

      5. Retiree Coverage. Effective with retirements occurring on and after July 1, 1997, the state will no longer pay 100% of the premium for all plan offerings for retirees and their eligible dependents. All present retirees and those retiring before July 1, 1997 will continue to have 100% of the premium cost paid by the state. Those retiring on or after July 1, 1997 may be required to assume a share of the premium cost depending on the plan they select.

        More specifically, for those who retire July 1, 1997 through and including June 1, 1999, the state will pay 100% of the premium cost for the retiree and eligible dependents up to the cost of the State BlueCare Point of Service plan, or a plan providing equivalent coverage. Those who select the Blue Cross State Preferred Point of Service plan will be required to pay the difference in rates between State BlueCare Point of Service and Blue Cross State Preferred Point of Service.

        For those who retire July 1, 1999 and after, premium payments will be required, effective July 1, 2000, for both the Blue Cross State Preferred Point of Service and the State BlueCare Point of Service plans. The state will pay 100% of the premium up to the cost of the State BlueCare Point of Enrollment plan, or a plan providing equivalent coverage.

      6. Retiree Entitlement. Employees hired on and after July 1, 1997 must have at least ten years of actual state service or transition directly into retirement in order to be eligible for health insurance as retirees. Employees hired on or after July 1, 1997 who work at least ten years for the state but fail to transition directly into retirement will be treated as active employees for health insurance purposes once their pension payments commence.

        To implement the health care provisions of SEBAC V, additional follow-up from the Division will occur as needed.

  3. Conclusion

    Questions on the pension issues discussed herein should in the first instance be directed to the Division's Retirement Counselling Services Unit at (860) 702-3490; inquiries on health insurance matters should be made of the Division's Health Care Analysis Unit at (860) 702-3535.

Very truly yours,

Nancy Wyman
State Comptroller

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