Due in part to the severe economic downturn that occurred in the fall of 2008, the State Employee Retirement Commission (SERC) adopted new actuarial assumptions to be used for the most recent State Employees Retirement System (SERS) and the Probate Judges and Employees Retirement System (PJERS) actuarial valuations and experience studies
As a result of these new actuarial assumptions, and in keeping with standard actuarial practice, SERC adopted new option factor tables that incorporated these assumptions. It is important to note that the option factor tables for the State Employees Retirement System (SERS) and the Probate Judges and Employees Retirement System (PJERS) were last updated in 1986. There are no option factor tables used for the Judges, Family Support Magistrates and Compensation Commissioners Retirement System
Briefly explained, there are three different changes incorporated in the new option factor tables:
1. Mortality Tables
Mortality was updated from a 1971 table to a 2000 table with 15/25 years of further projection, so there are 44+ years of mortality improvements built in. This means that the member is expected to receive benefits for a longer period of time before they die and the annuitant’s benefits start. While the annuitant will live longer, as the benefits will be paid to the annuitant further in the future, they have less value in today’s dollars, so the member’s benefit does not have to be reduced as much to “pay for” the annuitant’s benefits.
2. Interest Rate
Interest rate was increased from 6.5% to 8.25%. The interest rate is used to discount future benefits into today’s dollars. Since there is a higher interest rate, benefits expected to be paid many years from now, i.e. benefits to the annuitant are worth less than they were with the old interest rate. Since the benefits have less value in today’s dollars, the member’s benefit does not have to be reduced as much to “pay for” the annuitant’s benefits, so the member can receive a higher benefit, hence a higher option factor.
3. COLA
COLA was decreased from 3% to 2.7%. Since there is a lower COLA, benefits expected to be paid to the beneficiary many years from now will be lower than they were with the old COLA. Since the benefits have less value in today’s dollars, the member’s benefit does not have to be reduced as much to “pay for” the annuitant’s benefits, hence a higher option factor.