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In the August edition of the Journa , the early retirement proposals pending in the General Assembly was discussed. Since then the Chamber has had time to further investigate the financial impact of these proposals and, as suspected, these bills are far from revenue neutral.
To recapitulate the history of the early retirement proposals, two bills were introduced in 1989, one in the House and one in the Senate. Each would lower the number of years of service required to qualify for full state retirement benefits.
The House version of the bill passed and was sent to the Senate for consideration in early May. Rather than waiting for the bills to make their way through the regular legislative process, a Senate Finance Committee proposal was inserted into the Appropriation Bill. Fortunately, it was deleted from the final bill.
There are three components of the proposed legislation: raising the annuity or benefit factor, increasing the assumed earnings on investments and lowering the service requirement from 30 years to 25 years. The issue is clouded even further when the effects of Davis vs. Michigan are brought into the picture. (The Davis decision requires the state to tax state and federal retirement pensions equally.)
Two of the three components were enacted in 1989, those being an increase in the benefit factor from 1.7 percent to 1.82 percent, and an increase in the assumed earnings on investments by .5 percent. The cost to the state and local governments for raising the benefit factor only is roughly $18.6 million. The state's share of this is some $10.6 million, which was offset by the $10.6 million raised by taxing state retiree benefits in response to the Davis decision. Local governments and school districts have no such offset and are having to fund their share through the usual means, which...