Relates to the post-retirement benefit payable upon the death of a retiree of the New York state teachers' retirement system within the first 3 years of retirement

Summary and justification

Given increased longevity, it often makes sense for a retiring public school teacher to take his/her benefit in the form of an annuity for his/her life only. Teachers retiring with the single life annuity can expect to receive the maximum possible retire- ment benefit over what will be a long life in retirement. Conversely, electing an optional form of retirement involving the receipt of a less- er annual benefit in exchange for some form of survivor protection may well not make sense to many retirees. The selection of an option results in an immediate and permanent reduction in the retiree's benefit while the survivor portion is only payable far in the future, if at all.

Although it often makes sense for retirees to retire with a single life annuity, inevitably some of those retirees will die unexpectedly in their first year of retirement. Such incidents previously led the Legis- lature to provide for the continuation of death benefit coverage into retirement so as to provide a measure of additional financial security to a retiree's spouse and dependents in the event of the retiree's untimely death early in retirement. Specifically, sections 448(a)(2), 508(a)(2) and 606(a)(2) of the Retirement and Social Security Law provide a death benefit payable upon the death of a Tier 2, 3 or 4 member who has retired from active service in the first year of retire- ment equal to 50% of the death benefit in force at retirement. If the retiree dies in the second year of retirement, the death benefit is 25% of the benefit in force at retirement. Beginning in the third year of retirement and continuing thereafter, the post-retirement death benefit is 10% of the death benefit in force at age GO or at retirement, if retirement occurred prior to age 60. On the other hand, there is no post-retirement death benefit coverage in Tier 1.

Notwithstanding the existence of these measures to ameliorate the impact of a retiree's untimely death early in retirement, recent untimely deaths of retirees in their first year of retirement have generated calls for even greater protection for retiree spouses and dependents in such circumstances. Many of these calls arise because the deceased reti- rees were in Tier I which, as already noted, has no post-retirement death benefit protection.

Unfortunately, many of the proposals advanced to address this situation have considerable problems of their own. For example, there have been proposals to require married members to retire under an optional form of benefit providing a lifetime benefit to the surviving spouse. Most married members of the System, however, feel their freedom to make what they believe is the best choice at retirement should not be interfered with merely because they happen to be married. Mandatory spousal survi- vor benefits also require escape hatch procedures for those couples who would not want or need survivor protection. These procedures can be extremely difficult to implement and can result in a whole different set of unfortunate incidents in which retirees wind up with mandated options they neither wanted or needed. Other proposals would require the System to make investigations of the circumstances of the retiree's death with the payment of an additional benefit dependent upon the finding of supposedly special circumstances warranting such payment while leaving the prospect that the benefit will be denied in other circumstances.

Rather than some new approach which could very well create its own set of problems and complexities for retirees and their spouses and depen- dents, the Retirement Board believes the best approach to addressing the untimely deaths of retirees early in retirement continues to be the approach which the Legislature has already adopted, namely, the provision of a significant post retirement death benefit in the first years of retirement. The post-retirement death benefit is simple and straightforward. If the member dies within the stated period of time, the benefit is paid.

The renewed concerns about untimely deaths are in all likelihood the result of the fact that there is no post-retirement death benefit in Tier I, as well as a possible perception that the post retirement death benefit in the later Tiers is not fully adequate. These concerns can be addressed by an improvement in the post-retirement death benefit, as this bill proposes, namely to a full three times salary for Tier 2,3 and 4 members dying within the first year of retirement and extending the same post-retirement death benefit to Tier I members who die in the first year of retirement.

This bill adds a new subdivision g to section 512 of the Education Law providing for a death benefit payable upon the death of a Tier 1 retiree in the first year of retirement equal to three times the regular compen- sation earned during the member's last 12 months of service. The bill would also amend RSSL §§448, 508 and 606 by adding a new subdivision to each section. Under the new subdivision the existing reductions in the Tier 2, 3 and 4 death benefit would be delayed by a year in each case. The subdivision would provide Tier 2,3 and 4 retirees with a post-re- tirement death benefit equal to 100% of the benefit in force at retire- ment if death occurs in the first year of retirement, 50% of the benefit in force at retirement if death occurs in the second year of retirement, 25% of the benefit in force at retirement if death occurs in the third year of retirement. After the third year of retirement, the post-re- tirement death benefit would be 10% of the benefit in force at retire-

ment (disregarding any reductions in the benefit in force at retirement by reason of the member having attained an age greater than 60).

The Retirement Board believes these modest steps would appropriately resolve the concerns expressed in a programmatic fashion which is easy to administer without imposing any significant additional cost on participating employers.

Budgetary implications of the bill

The Actuary of the New York State Teachers' Retirement System has estimated that the additional annual cost to employers of members of the New York State Teachers' Retirement System would be $16.8 million or .12% of payroll if this bill is passed.

Effective date of the bill

The bill would take effect effect June 30, 2010, except that if this act shall have become a law on or after June 30, 2010, this act shall take effect immediately and shall be deemed to have been in full force and effect on and after June 30, 2010,