As the baby boom generation reaches retirement age, many Pennsylvania municipalities face the potential of substantial knowledge and skill loss. To confront this challenge, municipalities continue look for ways to keep their seasoned employees long enough for knowledge transfer to occur. The problem can be finding sufficient incentives. For these employees, the most important benefit is often their pension. Therefore, municipalities’ ability to entice these employees to stay is often directly linked to pension distributions.
Enter in-service distributions. In 2010, the Pennsylvania Municipal Retirement System (PMRS) began permitting in-service distributions – i.e., employees could receive full pension distributions and receive full wages as an employee. The in-service distributions, however, were limited to specific circumstances. The employee had to legitimately terminate his or her employment, a reasonable period of time had to pass after the termination, and then the employee had to be rehired by the same municipality without a prearranged agreement. Only in this specific circumstance was an employee eligible to receive in-service distributions and wages.
In June, PMRS announced that participating municipalities now have the option to skip these formalities. Municipalities can now allow employees who have reached retirement to receive pension distributions without the ceremonial severing of their employment. As explained in PMRS’s bulletin, “an employee could be an accruing service as an active plan participant on Friday and can begin collecting retirement benefits (via in-service distribution) on Monday.” Current employees who elect this option will stop accruing plan service, can no longer make plan contributions, and will no longer be eligible for plan disability benefits.
The change can also impact employees that have already retired. Municipalities have two options with respect to retirees. First, it can require rehired retirees to cease receiving distributions and rejoin the plan. Upon the employee’s subsequent retirement, their retirement benefit will be recalculated to account for the additional service. For the second option, municipalities can give the retiree the choice: continued benefits or rejoin the plan.
Regardless of which approach is best suited for your municipality, now may be the time to review your plan and decide whether to amend it to include a simplified in-service distribution option. In the end, it may give your municipality renewed approach to incentivize your baby boomers to stick around long enough to transfer their knowledge.