News & Updates

October 26, 2011

Changes to Retirement Contribution Rates and Insurance Premiums

Changes made during the 2011 Regular Session increased not only the amount a state employee or teacher will be required to contribute to his or her retirement plan, but also the amount a future retiree will have to contribute toward his or her state-subsidized health insurance.  Without a doubt, these changes were necessary.  Increases to the employee retirement contribution rate – the first such increases since 1975 – will help alleviate the almost $1 billion paid into the retirement systems each year by Alabama’s taxpayers.  Similarly, increases to the premium rates will offset the state’s ever-growing costs – costs that have increased by approximately $480 million since 2004 – of subsidizing health insurance to non-Medicare retirees. 

Many factors must be considered when contemplating retirement.  Chief among those factors, of course, is timing.  Deciding when to retire impacts not only a person’s retirement benefits – the longer you work, the higher your benefit – but also his or her insurance premiums – the longer you work and the older you are, the less your premium.  Therefore, the true impact of these laws can be determined only on a case-by-case, fact-specific basis.  Nevertheless, the following example may be helpful: a fifty-five year-old with twenty-five years of service making $45,000 annually will be able to more than offset his fully-implemented PEEHIP health insurance premiums by working two additional years, or his fully-implemented SEIB health insurance premiums by working one additional year.

It is also important to note two things: (1) a person can only retire on the first of each month, and (2) a person must submit his retirement paperwork (which can be withdrawn prior to the date of retirement) at least thirty days prior to his retirement date.  Since increases in retiree insurance costs apply to those who retire after December 31, 2011, a person seeking to avoid these increases would have to retire on December 1, 2011, and his retirement papers would have to be submitted no later than November 1, 2011. 

To better explain these admittedly confusing issues, four state agencies – the State Employees’ Insurance Board (SEIB), the Public Education Employees’ Health Insurance Plan (PEEHIP), the Employees’ Retirement System (ERS), and the Teachers’ Retirement System (TRS) – have posted helpful items on their respective websites.  I encourage you to use these resources to help answer questions your constituents may have about their retirement or insurance plans. 

• SEIB (contains a video on SEIB law’s impact, a retiree premium calculator, a list of frequently asked questions, and a fact sheet outlining various retirement considerations): https://www.alseib.org/Information/LatestNews/Default.aspx

• PEEHIP (contains a webinar on the PEEHIP law, information about the law’s changes, and a retiree premium calculator): http://www.rsa-al.gov/PEEHIP/peehip.html

• ERS (contains information about the SEIB law, updated employee contribution rates, and a video outlining “legislative impact on benefits”): http://www.rsa-al.gov/ERS/ers.html

• TRS (contains updated employee contribution rates):  http://www.rsa-al.gov/TRS/trs.html

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