The Basics
There are a few public employment pension systems in Massachusetts.
1. The first step is determining if you are a bona-fide public employee or if you are classified as a consultant or other kind of independent contractor for the public sector. This can be found in your terms of employment, or reflected on a pay stub. Generally, if there are no withdrawals for any pension system whatsoever, or if you are compensated as a contractor (receiving a 1099 rather than a W2), you are not a participant in a MA public pension system. If, however, you are contributing to some sort of pension system (that is not Social Security), then you're probably a public employee.
2. After that, we must ascertain whether you are a temporary, per diem, seasonal, less-than-part time, or other kind of employee that does not contribute to the main pension system. In MA, there is the main pension system and then there is an alternative, which is meant for short-term employees or employees are not regularly employed. Being placed into this secondary, "alternative" pension system is usually not beneficial in the long-term. In many cases, however, the time spent in this system can be used as credit toward years in the main pension system, if you become eligible for it. So it is important to preserve your employment records!
3. If you are a public employee in Massachusetts and part of the regular retirement system, the next step is determining what group of employee you are, because each group is treated differently in terms of the general structure of its benefits. Group 1 employees are the largest group, generally: official, administrative, technical workers, laborers, and others. Group 2 employees generally are public safety officers, court, probation, and correctional workers. Group 3 workers are the MA state police. Group 4 workers are other public safety workers, parole officers, and some correctional workers. Different people doing very similar work can be classified into different groups, especially regarding Groups 2 and 4.
4. Next, we need to ascertain what retirement system you're participating in. Some systems are municipal-based, county-based, based on districts, or part of a larger state-wide system. Each system has different idiosyncrasies, though they are largely similar. Some options available in one system might not be available in another.
5. We are finally ready to work on your pension benefits. Generally, they are governed by a formula based on three things: your salary, your age, and your years of service within the public system. Benefits for age generally accrue until you reach a specific age, at which point the age factor reaches a maximum. The total maximum percent of your salary you can replace with your pension benefits is 80%. It is important to remember that different people will get to that 80% at different times, and many never get there at all. What retirement benefit is right for you is based on your particular needs and circumstances.
6. There are many other ancillary benefits to the pension system that many people neglect, including a disability benefit and a death benefit. These benefits can be very valuable to you or your survivors, and there are common mistakes people make in assigning these benefits. A full review of your pensions includes planning for the unwanted contingencies of using these benefits.
A complete review of your options under the MA pension system is a vital part of a public employee's financial planning. CONTACT US today to set up a review of your pension plan.