RULES AND REGULATIONS
Title 22--EDUCATION
PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD
[22 PA. CODE CH. 213]
Benefit Payment Plan
[28 Pa.B. 2688] The Public School Employes' Retirement Board (Board) is adopting an amendment to § 213.45 (relating to change in benefit payment plan) to read as set forth in Annex A, by removing the requirement that once an application for an annuity (benefit payment plan) has been filed, the option selection is irrevocable.
Purpose of the Final-Form Rulemaking
The amount of a member's retirement annuity depends on many factors, chief of which are the member's final average salary and years of service. Although the Public School Employes' Retirement System (PSERS) maintains records on these factors for each of its 300,000 members, the source of this information is the members' employers. The collection and verification of this data, particularly when a member retires, has the potential to delay a member's annuity.
As a consequence, PSERS, in an effort to provide an immediate source of income to newly retired members, calculates the amount of a member's annuity using the information then available to the PSERS. This results in a member receiving his first annuity check within 2--3 weeks of retirement and thus avoids a major disruption in a member's lifestyle. Once benefit payments commence, PSERS proceeds to audit the final salary and service information from the member's annuity. If this final audit shows that the initial annuity payments made to the member were either over or under stated, then an adjustment is made prospectively to reflect the correct final annuity. Further, all over or under payments, if any, made to the member from the date of retirement to the date of the final audit of the annuity are collected from or paid to the member, as the case may be.
Because of this delay between the initial payment and final audit of the member's account, a trap is created to the unwary member by the current regulation. The purpose of the final-form regulation is to eliminate that trap. The final-form rulemaking has not enlarged the scope of the proposed rulemaking.
Specifically, the present regulation requires a member to finalize the retirement contract (by selecting from a series of complex retirement options) when the member files the retirement application. Because this application is what commences PSERS' process in determining a member's initial and final annuity, the member is, in effect, forced to make irrevocable choices which could adversely affect a member's pension for the rest of the member's life, without full knowledge of the final status of his account. For example, a member may decide to retire believing that he has 30 years of service and thus is eligible to retire below the normal retirement age (known as ''30 and out'') without suffering an early retirement reduction in his pension. Having made the decision to retire with expectations of an annuity at a certain amount, the member learns for the first time after the final audit is conducted that, in fact, he has only 29.9 years of service. The result is that the member suffers a large and permanent reduction in his pension benefit.
The final-form rulemaking seeks to correct this problem by making the member's retirement contract final, not when the retirement application is filed with incomplete knowledge, but when the final audit has occurred. The amendment will allow the member a reasonable period of time to make an informed and final election. In short, PSERS is seeking to revise the present regulation to conform its rule on the finality of retirement application with its current practice on the payment of final, audited retirement benefits. By doing so, PSERS will not only have a consistent operating procedure but, more important, will eliminate a potential significant hardship for its members.
Statutory Authority
The Board's authority to promulgate rules and regulations for the uniform administration of the PSERS is in the Public School Employes' Retirement Code (Retirement Code) 24 Pa.C.S. § 8502(h).
The final-form rulemaking is authorized by 24 Pa.C.S. §§ 8307(a), 8345(a), 8505(g) and 8507(j). The Board's authority to promulgate rules and regulations for the uniform administration of the PSERS is under 24 Pa. C.S. § 8502(h).
Public Comment
The Board received no comments from the public on the proposed amendment.
Comments from IRRC, the House Education Committee and the Senate Finance Committee
The Board received comments from the standing committees, the Public Employee Retirement Commission (Retirement Commission) and IRRC. These comments are considered as follows:
1. IRRC commented that the definition of ''effective date of retirement'' provided in the proposed amendment contained substantive requirements rather than defining the term in question.
To remedy this concern, the amendment to the definition of ''effective date of retirement'' has been deleted from the final-form regulation. Further definition of ''effective date of retirement'' is not necessary to the administration of the change in benefit payment plan regulation.
2. The House Education Committee recommended that PSERS ''provide language to limit the discretionary nature of the benefit.'' The Committee was concerned that the regulation was providing a general right to all members, even though only 21 out of approximately 20,000 members who filed an application for an annuity since February 1994 have appealed their retirement elections to the Board.
To address these concerns, subsection (a) in the final-form regulation has been redrafted to limit eligibility to annuitants who file an intent to change the final terms of the benefit payment plan within 30 days of the member's receipt of the initial benefit letter sent to the member by the PSERS. The letter is deemed received by the member 3 business days after mailing by the PSERS. This change in the final-form regulation was deemed necessary to address the issue of the members having to make a complicated set of retirement decisions in a short time frame, which was part of the rationale for the proposed amendment.
Subsection (b) of the final-form regulation has been added to address the issue of limiting the discretionary nature of the ability to file an intent to change the benefit payment plan. Subsection (b) allows the filing of an intent to change the benefit payment plan within 30 days after the member's receipt of the statement provided in 24 Pa.C.S. § 8505(g) (relating to the initial annuity payment and certification of accumulated deductions, service credit, final average salary and total annuity payable). The statement is deemed received 3 business days after mailing. An intent to change may be filed, only if: (1) the annuitant's retirement records contain a mistake and the mistake results: (i) either in a change in the monthly annuity of 5% or more; or (ii) the member losing eligibility for a benefit other than an annuity; or (2) there is a written error on the application.
3. IRRC commented that the window of opportunity for an annuitant to request a change in annuity payment has been left wide open because the Board has not established any time limit within which annuitants must take advantage of the opportunity. IRRC suggested a 60-day window. This would limit the amount of time that the Board could expect 2-year old accounts to resurface for consideration. The Retirement Commission also commented that it is not clear why the regulation was proposed to be retroactive to February or April 1994.
To address this concern, subsection (j) of the final-form regulation has been redrafted. The regulation will be effective upon final promulgation in the Pennsylvania Bulletin, except for the relatively few annuitants, who, prior to the effective date: (1) requested a change in their benefit payment plan; (2) appealed the PSERS's denial; and (3) otherwise qualify under the regulations.
4. Both IRRC and the Retirement Commission commented that the proposed amendment should be clarified so it is clear that the PSERS shall provide counseling to the annuitant within 30 days after the Board receives the declaration of intent to change the benefit payment plan. The proposed amendment did not impose a counseling duty on anyone.
IRRC also commented that since a member is not required to go through counseling prior to the initial election, counseling is not necessary for every member requesting a change in benefit payment plan. IRRC suggested a revision to allow members options, such as telephone counseling sessions, to lessen the potential burdensomeness of this requirement.
In response to these comments, the counseling subsection (d) has been rewritten to: (1) make clear that the PSERS has a duty to counsel; and (2) allow the member to waive counseling, or receive telephone counseling. The long paragraphs in the proposed amendment have been simplified in the final-form regulation.
5. The proposed amendment provided that a document is not filed with the PSERS until the PSERS has actual, physical receipt in its offices. The Retirement Commission recommended that at least a 'modified mailbox rule' be adopted.
In response to this concern, subsection (i) of the regulation has been rewritten to allow the PSERS to accept the postmark date as the date of filing if a document has been properly sent certified mail, return-receipt requested. The regulation also allows the PSERS to accept the date a document is sent by facsimile as the filing date if the original is received by the Board within 10 days.
6. The proposed amendment lacked language indicating that the so-called ''accelerated benefit option'' is not available to annuitants who retired after January 1, 1995.
In response, subsection (a)(2) of the proposed rulemaking (subsection (c) of the final-form regulation) has been deleted in the final-form regulation. A change to the ''accelerated benefit option'' will not be an allowable change under the final-form regulation.
7. During the final-form regulation review process, several minor technical corrections were made to the proposal, as follows: (i) subsection (a) gives the member 30 days (rather than the originally proposed 15) days to elect to change an option after the member's receipt of the PSERS's initial benefit letter. Receipt is presumed 3 business days after mailing; (ii) the member has another option to change within 30 days after the member's receipt of the PSERS's final benefit letter, if one of the two listed conditions has been met. Receipt is presumed 3 business days after mailing of the final benefit letter; and (iii) the word ''scrivener's'' in the second condition has been changed to ''written'' to clarify that the member can change an option if the member demonstrates that a written error was made on the application for annuity.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), the Board submitted a copy of the notice of proposed rulemaking, published at 26 Pa.B. 232 (January 20, 1996), to IRRC and the Chairpersons of the House Education Committee and the Senate Finance Committee for review and comment. In compliance with section 5(b.1) of the Regulatory Review Act, the Board also provided IRRC and the Committees with copies of all comments received, as well as other documentation.
In preparing this final-form regulation, the Board has considered all comments received from IRRC, the Committees and the public.
IRRC disapproved the final-form regulation at its March 12, 1998, meeting for several minor technical corrections. The revised final-form regulation was deemed approved by the House Education Committee and the Senate Finance Committee on May 6, 1998. IRRC met on May 7, 1998, and approved the final-form regulation in accordance with section 5(c) of the Regulatory Review Act.
Fiscal Impact and Paperwork Requirements
The final-form regulation does not impose increased costs or increased paperwork requirements on the Commonwealth, local governments, the private sector or the general public. The Board will be required to provide additional benefit counseling to members seeking to amend their original retirement contract.
Persons Affected
The final-form regulation affects all retiring members of PSERS, including those members who have multiple service membership.
Effective Date
This section shall be effective immediately upon final promulgation in the Pennsylvania Bulletin. This regulation also applies to those annuitants who, prior to the effective date: (1) requested a change in their benefit payment plan; (2) appealed the PSERS's denial; and (3) otherwise qualify under these regulations.
Sunset Date
A sunset date is not being established for this regulation because it is necessary for the administration of the substantive provisions of the Retirement Code. The Board will closely monitor the regulation for its effectiveness.
Further Information
Individuals who need information about the final-form regulation may contact Frank Ryder, Director, Government Relations, Public School Employes' Retirement System, 5 North Fifth Street, P. O. Box 125, Harrisburg, PA 17101.
Finding
The Board finds that:
(1) Public notice of the Board's intention to adopt the regulation herein was given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202), and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The final-form regulation is necessary and appropriate for the administration of the Public Retirement Code.
Order
The Board, acting under its authorizing statute orders that:
(a) The regulations of the Board, 22 Pa. Code Chapter 213, are amended by amending § 213.45 to read as set forth in Annex A.
(b) The Board shall submit this order and Annex A to the Office of Attorney General and Office of General Counsel as required by law.
(c) The Board shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
JAMES A. PERRY,
Secretary(Editor's Note: The proposal to amend § 211.2 (relating to definitions) included in the proposed rulemaking published at 26 Pa.B. 232 (January 20, 1996) has been withdrawn by the Board.)
(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 28 Pa.B. 2463 (May 23, 1998).)
Fiscal Note: 43-6. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 22. EDUCATION
PART XIII. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD
CHAPTER 213. CONTRIBUTIONS AND BENEFITS § 213.45. Change in benefit payment plan.
(a) Notwithstanding the otherwise irrevocable nature of the election of a benefit payment plan, an annuitant may declare an intent to change the final terms of the benefit payment plan by filing a written intent with the System within 30 days of the annuitant's receipt of the initial benefit letter sent to the member by the System. The letter will be deemed to be received by the annuitant 3 business days after the date of mailing.
(b) Notwithstanding the otherwise irrevocable nature of the election of a benefit payment plan, an annuitant may declare an intent to change the final terms of the benefit payment plan by filing a written intent with the System within 30 days of the annuitant's receipt of the statement provided for in section 8505(g) of the code (relating to statement will be deemed to be received by the annuitant 3 business days after the date of mailing), if one of the following conditions are met:
(1) The annuitant's retirement records contain an error regarding service credit, salary or accumulated deductions which was not corrected by the System until after the application for an annuity was filed, and one of the following applies:
(i) The difference between the monthly annuity as corrected and the monthly annuity calculated with the error is more than 5%.
(ii) The error results in the member losing eligibility for a benefit other than an annuity.
(2) The annuitant demonstrates that the annuitant, or the annuitant's agent, made a written error on the application for an annuity. The System will not consider a change in the life circumstances of the annuitant, beneficiaries or survivor annuitants (for example--death, divorce, illness and accident) as evidence of a written error.
(c) The intended changes may include one or a combination of the following:
(1) A change in the amount of money withdrawn under Option 4.
(2) A change in the retirement annuity type, if the member is otherwise eligible for the annuity.
(3) A change in the retirement option, including a change in the survivor annuitant under the existing option selection.
(4) A voiding of the application for an annuity.
(5) A change in the effective date of retirement, if the date is not:
(i) Before the earliest date the annuitant was eligible to select on the date the original application for an annuity was filed.
(ii) Later than 90 days after the intent to change is filed.
(d) An annuitant who has declared an intent to change under subsection (a) or (b) will not be permitted to complete the change unless the annuitant receives counseling on the benefits available under the code, or executes a written waiver of counseling on a form prescribed by the System. The counseling is subject to the following rules:
(1) The counseling shall be provided by an employe or an authorized representative of the System.
(2) Counseling, or a written waiver, shall take place within 30 days of the filing of the intent to change.
(3) The Secretary of the Board may extend the period for counseling upon written request filed within the 30-day period, but the period for counseling may not be greater than 90 days.
(4) If counseling takes place over several sessions, the sessions shall take place within the allowed time period.
(5) If the annuitant fails to receive counseling, or to file a written waiver, within the allowed time period, the intent to change will be deemed withdrawn.
(6) Counseling may be conducted by telephone when approved, and under conditions specified, by the Secretary.
(e) A formal request to void or change the application for an annuity shall be filed with the System within 30 days of the date of completion of counseling, or within 30 days of the filing of the written waiver of counseling. If the System does not receive the formal request to void or change the application for an annuity within the prescribed time period, the intent to change will be deemed withdrawn.
(f) The right to void or change a benefit payment plan is personal to the annuitant and may only be exercised by the annuitant or the annuitant's attorney in fact. The estate, spouse, alternate payee, survivor annuitants or beneficiaries of an annuitant may neither file nor complete an intent to void or change the benefit payment plan. If an annuitant dies before filing or completing an intent to void or change the benefit payment plan, the intent will be deemed withdrawn.
(g) An annuitant may file an intent to change one time under subsection (a) and one time under subsection (b).
(h) Changes will be retroactive to the member's original effective date of retirement unless the date is changed as part of the changed application for an annuity.
(1) For a changed application to become effective, the annuitant shall return any excess monthly annuity payments or moneys withdrawn under Option 4 by one of the following methods:
(i) A lump sum payment within 30 days after the date of certification of the amount due
(ii) Actuarial reduction.
(2) For an annuity to be voided, the annuitant shall either return all moneys received in a lump sum within 30 days after the date of certification of the amount due or elect a debt to be applied to the annuitant's account.
(3) If the annuitant fails to return the required amounts or elect a debt as the case may be, the intent to change or void will be deemed withdrawn.
(i) For purposes of this section, the System will consider a document as filed only upon actual receipt by the System. For a document properly sent certified mail, return receipt requested, the System will deem the postmark date to be the date of filing. For a document sent by facsimile, the System will accept the date of the facsimile as the date of filing, if the original document is actually received within 10 days of the date of the facsimile.
(j) This section is effective June 13, 1998. This section also applies to annuitants who, prior to June 13, 1998:
(1) Requested a change in their benefit payment plan.
(2) Appealed the System's denial.
(3) Otherwise qualify under this section.
(k) Nothing in this section allows the annuitant to change a benefit payment plan in a manner inconsistent with the terms of an approved domestic relations order under sections 8533.1--8533.4 of the code.
[Pa.B. Doc. No. 98-923. Filed for public inspection June 12, 1998, 9:00 a.m.]
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