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| IS - 2050 Employee Retirement Plan | Human Resources Release Date: 3/29/01 Revision 1: 4/26/02 Revision 2: 10/2/05 |
| Policy | |
Employee Handbook 6.04, Educational Retirement
The Educational Retirement Act (ERA) assures a sustained program of retirement benefits for public school, college and university employees, and other employees of state educational institutions and agencies. The legal body responsible for administering the ERA is the Educational Retirement Board (ERB). All inquiries regarding retirement should be directed to the Educational Retirement Board.
As a condition of employment at Central New Mexico Community College (CNM), all employees except student employees, substitute instructors, New Mexico educational system retirees, employees working with a full-time equivalency (FTE) of .25 or less per year, and employees enrolled in a degree or certificate program are required to join the Educational Retirement Act benefit plan and retiree healthcare systems.
Note: The majority of the information contained in this policy is taken directly from the New Mexico Educational Retirement Board Member Handbook and has been reordered to offer maximum use for CNM employees.
As part of Human Resources Employee Orientation, each eligible employee is required to complete an ERB Form 42 to establish a retirement account. Employees covered under the ERA are referred to as members.
1.1 Employees eligible for membership include all employees except student employees, substitute instructors, New Mexico educational system retirees, New Mexico educational system retirees certified for the Return to Work Program, employees with a full-time equivalency of .25 or less per year, and employees enrolled in a degree or certificate program.
1.1.1 If not eligible, as part of Human Resources Employee Orientation an exemption form must be completed and submitted to the Payroll Department.
1.1.2 If an employee becomes eligible after a period of being exempt, an ERB Form 42 must be completed to establish a retirement account.
1.1.3 If an employee falls below .25 FTE after a period of being a contributing member, membership status does not change and the employee continues to make ERA contributions.
1.2 Contributions are deducted each pay period and credited to the retirement account on a quarterly basis. The amount deducted is listed on each pay stub.
2.1 Members contribute 7.675% (percentage reviewed annually) of their total earnings through a pre-tax deduction from each payroll check. Earnings covered include all salary remuneration to the member for services rendered whether included under a contract or not.
2.2 CNM contributes an amount equal to 9.40% (percentage reviewed annually) of the member's total salary.
2.3 Contributions made by the member after July 1, 1983 are deferred from federal income tax based upon a ruling by the Internal Revenue Service. Member contributions are exempt from taxes by the State of New Mexico as well.
2.4 Each member receives an annual statement of contributions to date and can also contact the Educational Retirement Board for an up-to-date report of contributions and interest earned as of the last posted quarter.
3.1 An employee becomes vested after 5 years of continuous employment with CNM. Vesting gives the employee ownership of CNM's contribution to his or her retirement account upon retirement in addition to the employee's individual contribution. Note: CNM's contribution is only applicable as a qualified retirement benefit. These funds cannot be withdrawn by the employee at any time.
3.2 When a member terminates employment before the completion of five years, funds paid into the retirement account by the member must be withdrawn.
The effective retirement date for a member who completes the academic school year is set by state statute (NMSA 22-11-28) as July 1.
4.1 Retirements are effective the month following the postmarked receipt of the application for retirement.
Sixty (60) to ninety (90) days before the desired effective date of retirement, a member must make application for retirement through CNM's Payroll department, which then submits the application to the Educational Retirement Board.
A member is eligible to retire when:
5.1 The member's age and earned service credits add to the sum of 75 or more. This is referred to as the "Rule of 75." (A benefit reduction will apply if the member is under 60 years of age.)
5.2 The member has service credit totaling 25 or more years. This is referred to as the "25 and Out" provision.
5.3 The member's age is 65 or more with at least five years of earned service.
When members have accrued five or more years of earned service credit, they may terminate employment, leave their contributions in the retirement fund and retire when the other eligibility requirements have been met.
6.1 If the member is eligible to retire, there is no advantage in deferring retirement beyond age 60, as the benefit does not increase beyond that age when the member is on deferred status.
6.2 The member who is on deferred status, and becomes eligible for benefits, forfeits all benefits from the date of eligibility to the date application is made for retirement.
Retirement benefits are determined by a formula. The formula includes three components:
- The member's Final Average Salary (FAS);
- The number of years of service credit earned; and
- The .0235 factor
FAS x service credit x .0235 = annual benefit
The Final Average Salary is the greater of:
- The member's average annual earnings in the last twenty calendar quarters (five years) immediately preceding retirement; or
- The member's average annual earnings in any twenty consecutive calendar quarters (five years) in which there are earnings.
An ERA benefits calculator is provided at the ERA website.
8.1 When the member is less than age 60 and has less than 25 years of earned service credit, a reduction of benefits applies.
8.2 The reduction is 2.4% for each of the first five years under age 60, plus 7.2% for each year under age 55.
The retiring member will receive benefits at the end of the following month of application for retirement if the application and related documents have been filed with the Educational Retirement Board in a timely manner.
9.1 The first few payments will be an estimated amount since the actual earnings from CNM will not have been reported to the Educational Retirement Board at the time of the first payment.
9.2 After the actual earnings are reported, the benefit will be re-calculated and adjusted as necessary.
10. Contribution Withdrawals / Refunds
Members may withdraw their contributions only when they terminate employment with an ERA-covered employer in New Mexico and the former employer has provided certification of termination.
10.1 A refund may be in the form of a direct roll-over, direct refund, or a partial roll-over/direct refund.
10.1.1 Request for Refund/Roll-Over forms are available at Human Resources.
10.1.2 A roll-over, direct or partial, may be a payment of the member's retirement contributions to an individual retirement account (IRA) or a qualified employer plan.
10.2 CNM contributions are not placed in the member's account and are not refundable to the member upon termination.
10.3 Interest paid to members upon withdrawal of contributions will be calculated at a rate of 75% of the average interest earnings rate of the fund during the five fiscal years preceding the year of withdrawal (NMSA 22-11-15).
10.3.1 Interest is not earned on contributions credited to accounts prior to July 1, 1971 or on contributions on deposit for less than one year.
10.3.2 The interest rate changes annually.
10.4 Post-1983 contributions and interest are subject to federal income tax as ordinary income and are subject to a 10% penalty tax as well.
10.5 The Educational Retirement Board is required to withhold 20% of the taxable balance paid to the member on a partial roll-over or direct refund and forward it directly to the IRS as income withholding.
10.6 A member who dies prior to retirement and does not have Option B coverage will have the total contributions plus interest paid to a designated beneficiary or to her or his estate.
10.6.1 The interest paid in this case is determined by the rate of interest earned by the fund in the fiscal year preceding death.
10.6.2 Minors designated as a beneficiary will not receive beneficiary payments until the age 18, or until the court appoints a guardian of the minor's estate.
10.7 A member who has withdrawn contributions in the form of a refund may regain credit for those contributions by paying the Educational Retirement Board the sum withdrawn plus interest compounded monthly for the period during which the funds were withdrawn.
11. Restoration of Contributions
A member wishing to restore his or her contributions and receive credit for the years involved may "buy back" as many years as desired up to the maximum withdrawn.
11.1 Members may do this in one of three ways:
- Members may make a lump sum payment to buy back all withdrawn service; or
- Members may elect to have CNM deduct, on a pre-tax basis, monthly payments to the Educational Retirement Board for the purchase of withdrawn service; or
- Members may “roll-over” retirement contributions from one plan to another to the extent allowed by the IRS. This provision allows members to transfer funds from another retirement plan like this one, which is a 401(a) plan.
11.2 If the member subsequently withdraws contributions or dies prior to her or his retirement, the interest paid on restored contributions is not refundable.
Service credit under the Educational Retirement Act may be either "earned" or "allowed."
12.1 Earned service credit is granted for the time when a member is contributing to ERA, or for employment prior to July 1, 1957. The member thus receives earned service credit for all the time s/he has been employed in New Mexico and has been a member of the educational retirement plan.
12.2 Allowed service credit is included in the computation of the member's retirement benefit and is also included in determining retirement eligibility in the "25 and Out" retirement provision, but is not included in determining eligibility for retirement under the "Rule of 75" provision. For types of allowed service, click here.
The first Cost of Living Adjustment (COLA) to a retiree's annuity will be made on July 1 of the year in which the retired member attains age 65, or on July 1 of the following year in which the member retires, whichever is later.
13.1 Each July 1, a retiree's annuity will be adjusted by either one-half the percent change in the Consumer Price Index (CPI) of the preceding calendar year or four percent, whichever is less.
13.1.1 The annual adjustment will be no less than two percent unless the CPI is less than two percent. In this case, the COLA will be the same as the percent change in the CPI.
13.1.2 There is an exception to the age requirement of 65. A COLA is provided for those members who retired under regular retirement and can provide evidence to the Educational Retirement Board medical review board that they were disabled at the time of retirement. The adjustment is calculated as described above and will occur on July 1 of the third year following retirement.
13.2 Also provided is a COLA to members on disability status. The annuity will be adjusted on July 1 of the third year following the date of disability and is calculated the same as for regular retirees.
14.1 The member, upon retirement, has three options as to how s/he may receive benefits:
Normal Benefit - If the member elects the Normal Benefit there is no reduction to the monthly benefit, and there will be no continuing benefits due a beneficiary or estate upon the retiree's death, except the balance, if any, of contributions.
Option B - If the member elects Option B, the monthly benefit is reduced to provide for a 100% survivor's benefit. The reduced benefit is payable during the life of the member with the provision that, upon the retiree's death, the same benefit is paid to the beneficiary for her or his lifetime. The named beneficiary may not be changed after the effective date of retirement since the amount of the option is calculated by using both the age of the member and the beneficiary. If the beneficiary pre-deceases the member, the member's benefit will be adjusted by returning it to the "Normal Benefit" amount. The IRS prohibits selection of Option B for a non-spouse beneficiary more than ten (10) years younger than the member.
Option C - If the member elects Option C, the monthly benefit is reduced to provide for a 50% survivor's benefit. The benefit is payable during the life of the member with the provision that, upon the retiree's death, one half of the member's benefit is paid to the beneficiary for his or her lifetime. The named beneficiary may not be changed after the effective date of retirement. If the beneficiary pre-deceases the member, the member's benefits are adjusted by returning it to the “Normal Benefit” amount.
14.2 Under the provisions of Options B and C coverage, the beneficiary must be a person, and only one beneficiary may be named.
14.3 Additional information and the approximate benefits payable in individual cases may be obtained from the Educational Retirement Board.
15.1 Any member who has accrued at least five years of earned service credit is entitled to the coverage of Option B from that point to the point of actual retirement, provided that the member's contributions remain in the fund.
15.1.1 This coverage provides protection to the beneficiary in the event of the member's death prior to actual retirement.
15.1.2 Under the Option B coverage provided the member must name one beneficiary; however, that named beneficiary can be changed as often as needed prior to the member's actual retirement.
15.2 If a member who has chosen the Option B coverage should die prior to actual retirement, the deceased member's retirement benefit would be computed as of the first of the month following the date of death, and the appropriate benefit due the beneficiary may be commenced as of that date.
15.2.1 The beneficiary may choose to defer receipt of the deceased member's benefit to any future date up to the date on which the deceased member would have become age 60, had s/he lived.
15.2.2 If the deceased member was under age 60, and did not have 25 years of service, deferring the benefit to a future date will result in a higher benefit to a beneficiary since the annuity is reduced for the member's age at death. Click here for an explanation of this age reduction. The surviving beneficiary would have the right to withdraw the member's contributions plus interest in lieu of the monthly benefit. Changes can be made by contacting the Educational Retirement Board.
15.3 A member eligible for Option B coverage may reject such coverage by completing the appropriate form.
15.4 In the event of the death of a member prior to retirement who does not have Option B coverage, the beneficiary or the member's estate would receive the member's contributions plus interest.
The Public Employees Retirement Reciprocity Act (PERRA) allows service credit under ERA and PERA (Public Employees Retirement Act) to be combined for retirement eligibility and benefits.
16.1 The retirement application must be filed with the system (PERA or ERA) where the member is last employed.
16.2 Educational employees having credit under PERA must contact the Educational Retirement Board six months prior to retirement for an analysis of credit which may be due under this Act.
16.2.1 Failure to notify the Educational Retirement Board of such service will result in a loss of benefits for that eligible service.
A member may be eligible for disability benefits:
- After s/he has completed ten years of earned service credit; or
- Is totally disabled and unable to continue employment; or
- Is unable to gain or retain other employment commensurate with her or his education, background and experience.
17.1 In order to receive benefits, the disabled member must have terminated employment because of the disability and must file an application with the Educational Retirement Board.
17.1.1 This application must include a full accounting of the disability by a personal physician or physicians including a diagnosis and prognosis.
17.1.2 The member must also have an examination by physicians appointed by the Educational Retirement Board.
17.1.2.1 The cost of this examination is borne by the Board, but transportation and other personal expenses incurred by the applicant in presenting her/himself for such an examination are paid by the applicant.
17.2 The disabled member may file an application for benefits prior to termination of employment, however, the effective date of the benefit will be the first day of the month following termination of employment, or the first day of the month following the filing of application with the Educational Retirement Board, whichever is later.
17.3 The annual disability benefit is approximately one-third of the member's Final Average Salary.
18. Continuance of Disability Benefits
18.1 Prior to becoming age 60, the disabled member's case is reviewed by the Educational Retirement Board annually or more frequently if necessary.
18.1.1 If the results of a review show that the disabled member is able to return to work, the benefits are stopped.
18.1.2 Subject to severe penalties, the disabled member is required to report any substantial improvement in her or his physical condition within 30 days after such improvement is known.
18.2 When a disabled member becomes age 60, the member is deemed to have retired and, thereafter, the disability benefit becomes a retirement benefit at the higher benefit rate, subject to a reduction if the member elects Option B or Option C.
A retired member may return to work with an Education Retirement Act-covered employer and earn up to $10,000 (amount changes annually, contact the Educational Retirement Board for the current limit) or an amount calculated under the .25 or less FTE (full-time equivalency) provision, whichever is greater, without affecting retirement benefits.
19.1 The member must notify the Educational Retirement Board in writing.
19.2 The salary is calculated on a fiscal year basis, (July 1 through June 30).
19.3 The determination of whether a position equals .25 FTE is made by the employer.
19.4 If the member exceeds the established limits of $10,000 (or an amount calculated under the .25 or less FTE) in a fiscal year, s/he will be removed from retirement status and will forfeit the retirement benefits starting on the first day of the month in which cumulative earnings exceed $10,000 or the .25 FTE provision.
19.4.1 While a retired person's benefit is canceled if s/he returns to ERA-covered employment, the "Option" or type of benefit previously chosen remains in effect throughout periods of re-employment and subsequent retirements.
19.4.1.1 For example, if a member chose Option C at the time of her or his first retirement and dies during a period of re-employment while benefits were canceled, the member's surviving beneficiary would begin receiving monthly benefits under the terms of Option C.
19.5 With regard to ERA benefits, there is no limit on a retired member's earnings if the employer is not covered by the provisions of the Educational Retirement Act.
19.6 Full-time employment with a non-ERA covered employer will not affect a member's ERA benefit.
20. Re-retirement after Re-employment
Upon re-retirement, the benefit is re-computed giving consideration to the additional service credit and salary acquired during re-employment.
20.1 When a member completes this period of re-employment, s/he must re-apply for retirement.
20.1.1 The application for retirement should be submitted thirty to sixty days before the desired effective retirement date. If the member completes the school year, the effective date is July 1 if the application has been received prior to July 1.
20.2 In no case will the benefit be less than it was at the time of first retirement.
21.1 The retired member's annuity is subject to New Mexico and federal income tax immediately upon retirement. This includes pre-1983 contributions and purchases of service.
21.2 At the member's request, upon retirement the Educational Retirement Board will compute the amount of the member's taxable income and withhold both state and federal taxes.
New Mexico is a community property state. As such, all property that is acquired during the marriage is divisible upon a divorce.
22.1 Contributions to ERA that have been received during the marriage are community property.
22.2 The Educational Retirement Act protects members' contributions from assignments or attachments in a legal process with the exception of community property settlements or child support obligations.
23. Alternative Retirement Program
An amendment to the Educational Retirement Act permits the establishment of an Alternative Retirement Plan (ARP) for employees with no prior contributions to the current Educational Retirement Act Plan and who hold positions eligible for ARP. Eligible employees have 90 days from the date of hire to exercise this option. Contact Human Resources for additional information.
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| Forms: | New Mexico Educational
Retirement Board (ERB) Form 42 Application for Retirement Request for Refund and/or Roll-Over New Mexico Educational Retirement Board Exemption Form |
| Support Materials: | Positions Approved for ARP |
| Reference Materials: | Employee Handbook 6.04, Educational Retirement |