From time to time a municipality or employer will ask CMERS regarding withdrawal of the employer (“the municipality”) from the Municipal Employees’ Retirement System (MERS). Withdrawal from MERS is allowed provided the municipality follows established statutory procedure and provided that the withdrawal does not relieve the municipality from liability arising from retirement allowances already granted.
In accordance with Connecticut General Statutes, Section 7-444 “[a] municipality may withdraw by the procedure provided in section 7-427 for acceptance of [MERS].” Section 7-427 directs that a municipality seeking participation in MERS must obtain passage by its legislative body of a resolution accepting MERS membership. Once the resolution has passed, it is submitted to the State Employee Retirement Commission for approval. The effective date of participation shall be at least ninety days subsequent to the receipt by the Retirement Commission of the certified copy of such resolution.
Thus, in order for the municipality to withdraw from MERS, it must have its legislative body pass a resolution stating such intent. It must then submit a certified copy of this resolution to the Retirement Commission formally seeking withdrawal from MERS. The State Retirement Commission must approve the withdrawal from MERS and the effective date of withdrawal must be at least ninety (90) days subsequent to the Commission’s receipt of the certified copy of the resolution.
It is important to note that under State statutes, employees who are withdrawn from MERS must be offered a retirement plan of equal value. See Conn. Gen. Stat. Section 7-148(5)(A)(…”the benefits granted to any individual under any municipal retirement or pension plan shall not be diminished or eliminated”…); see also Conn. Gen. Stat. Section 7-450. Thus, upon withdrawal, the municipality will need to offer its employees an alternative retirement plan or program.
The withdrawal from MERS also does not relieve the municipality of its obligation to the retirement fund for liabilities incurred for retirement rights that have already been granted or that are currently vested to that department’s members. Employees not vested would receive a refund of their contributions (plus interest). Under these calculations a refund could be due the municipality or conversely, monies may be owed by the municipality to the fund. Until the precise calculation is performed, it is impossible to know if the municipality is in a deficit or surplus situation relative to its retirement fund obligations. If there is an estimated deficit or if there is a reserve required by MERS to provide for payment of future retirement allowances, it must be paid in full by the municipality.
The liability calculation procedures used by the Retirement Commission for withdrawal from MERS are shown below. The determinations required under Section II – 2(b) and 2(c) of these calculations are done by CMERS’ Consulting Actuary, the costs of which are borne by the municipality. These calculations require the municipality to inform us of all current employees who had prior municipal service (and the name of the municipality) so that vesting (if any) can be determined.
In sum, the procedure is as follows:
- The municipality provides CMERS with both a list of its employees who had prior municipal service and a more definitive expression of its intent to withdraw so CMERS can begin the necessary calculations. CMERS will assist in determining an effective date of withdrawal which, along with the list of employees, will be forwarded to the MERS actuary. The municipality is responsible for the cost of the actuary in making the determination.
- The Retirement Commission through CMERS will furnish to the municipality contemplating withdrawal, at the expense of the municipality, an estimate of the probable cost, deficit or surplus of such withdrawal. CMERS, along with its actuarial consultant, will determine whether a refund is due the municipality or if a deficit needs to be paid to the fund. Any deficit shall be paid in full to the fund prior to the formal acceptance of the withdrawal by the Commission.
- The municipality’s legislative body passes a resolution unequivocally stating that it is their intention to withdraw from MERS. The effective date of withdrawal must be at least 90 days subsequent to the Commission’s receipt of a properly executed resolution. The resolution should also state that the municipality agrees to pay any deficit due and owing the fund (if such deficit is determined to exist) and that the municipality acknowledges that the employees who are being withdrawn from MERS are being offered a retirement plan of equal value.
- The municipality must submit a certified copy of this resolution to the Retirement Commission. Please note that the Commission will require the aforementioned calculations from its Actuary and CMERS prior to taking any formal action on this resolution.
- The non-vested employees of the municipality shall be entitled to a refund of their contributions plus interest. This refund (if any) will be made to the municipality on behalf of the employee and not directly to the employee. It may take 2-4 months from date of withdrawal for such contributions to be refunded.
While these procedures may appear onerous, they reflect the careful consideration that should be exercised in deliberations concerning withdrawal from a retirement plan.
Liability Calculation Procedures For Cmers Withdrawal
The procedure for withdrawal from this system is the same procedure which was used for participation as provided by Section 7-427 or Section 7-474 (f) Connecticut General Statutes. The formula for the liability calculation for withdrawal from this pension system is as follows:
- Determine the total amount contributed by the municipality for all current service contributions, that is, the contributions paid monthly from the date of participation based on the gross monthly payroll of the participating members, and
- The total of all amortization payments received which is payable annually only July 1st of each year for the past pension system from a previous pension plan. Past service liability is the credit granted for retirement purposes at participation for service rendered by the members which was continuous from the date of their employment to the date participation commenced.
- Determine the total amount of retirement allowances paid by the fund from the date of participation to the date of withdrawal.
- Determine the actuarial reserve amount required to fund the future retirement allowance of those currently receiving benefits on the retirement payroll, deducting from that, the amount of the retired members own contribution to the fund.
- Determine the future expected benefit of members vested at the time of withdrawal, deducting from that the amount of the members own contribution to the fund.
- If the sum of the total of one is greater than the sum of the total of two, a refund is due the municipality. If the sum of the total of two is greater than the sum of the total of one, the deficit shall be paid in full to the fund by the municipality seeking to withdraw, in accordance with Section 7-444, Connecticut General Statutes. The non-vested employees of the department or departments withdrawing shall be entitled to a refund of their contributions plus 5% interest.