If you are employed by the Town of Southbridge or one of our member units on a permanent basis and holding a position, which requires you to work a minimum of 20 hours per week (excluding teachers), you are eligible to become a member of the Southbridge Retirement System. According to the Massachusetts General Laws, Chapter 32, you must become a member of the system if you meet these eligibility requirements. Since the Southbridge Retirement System is governed by the provisions of M.G.L., Chapter 32, any changes in the plan must be made through the legislative process. Each employee is required to contribute to the retirement system at a rate which is determined by statute. Rates are as follows
- Employment began on or after July 1, 1996: 9% of regular compensation
- Employment began between January 1, 1984 and July 1, 1996: 8% of regular compensation
- Employment began between January 1, 1975 and December 31, 1983: 7% of regular compensation
- Employment began prior to 1975: 5% of regular compensation
The law also mandates that for members whose employment commenced on or after January 1, 1979, an additional 2% of regular compensation will be withheld on compensation over $30,000. This 2% is in addition to the above set percentage that is already being deducted from regular compensation.
Regular compensation is the portion of your salary that is subject to retirement contributions. Overtime, bonus pay, severance pay and payments made for unused sick time are not considered regular compensation, are not subject to retirement and cannot be used towards your 3-year or 5-year salary average for the purpose of determining your retirement allowance.
What is considered Regular Compensation
Regular compensation is the amount of earnings that a member will pay retirement contributions on. Regular compensation will be used in determining a member's final average salary, which is one of the factors used in calculating a retirement allowance. Compensation must comply with statutory and regulatory requirements in order to be pensionable.
Regular compensation generally includes:
- The annual rate of compensation in a member's salary schedule
- Educational incentives
- Longevity payments made for length of service
- Premiums for holidays and shift differentials for police and fire
- On-call or standby pay
- Hazmat pay for police and fire
- Payments for rendering instructional training
Regular Compensation Generally excludes:
- Amounts paid for hours worked beyond the member's normal work schedule (i.e., overtime)
- Amounts paid as bonuses other than cost-of-living bonuses
- Payments which will not recur, and payments which will recur for only a limited or definite term (i.e., salary augmentation plan)
- Amounts paid for unused vacation, sick leave, or other leave
- Severance pay
- Amounts paid as early retirement incentives
- Any payments made as a result of giving notice of retirement
- Amounts paid for housing and lodging
- Amounts paid for clothing, uniform, tool allowances
- Amounts paid for annuities
- Amounts paid for expense payments
- Amounts paid for travel
- Amounts paid for automobile usage
Changes in the Retirement System
Please note: There will be significant changes in the retirement laws for those who become members of a Retirement System on or after April 2, 2012.
Also, if you refund (withdraw) your account and return to service after April 2, 2012, you will fall under the new guidelines.
Some of the Changes
- Increased minimum retirement age (Group 1 cannot retire prior to attaining age 60)
- New age factors for calculating retirement allowances
- The unavailability of the G.L. c. 32, 10 Termination allowance
- The applicability of G.L. c. 32 105 to elected officials
- Five Year Average Annual Rate of Regular Compensation for calculating allowances rather than a 3-year average
- Proration of benefits earned for service in different Group classifications
- New contribution rates
How to Choose the Option that Is Right for You
At the time of retirement, you will be offered 3choices called "options," of which you must choose 1. Using the formulation previously stated, an estimated percentage is arrived at and this will be your option A amount.
Election of Option A means that you will receive your full retirement allowance in monthly payments as long as you live. All allowance payments will cease upon your death and no benefits will be provided for your survivors.
Option B provides you with a lifetime allowance, which is 2% to 5% less per month than Option A. Your monthly allowance is split between 2amounts, a "pension" amount and a lesser amount called "an annuity". When you retire, the total amount that you contributed while working is noted in an annuity reserve account and the "annuity" portion you receive each month is withdrawn from this amount. Upon your death, your surviving beneficiary of record will be paid the remaining balance of your accumulated total deductions from the annuity reserve account. It roughly takes 10 to 13 years to deplete this reserve account. Once there is a zero balance on the account, there is nothing given to a beneficiary if you die. Your retirement allowance is not reduced because of the depletion of your accumulated deductions. Under Option B, you may designate any person(s) or charity or institution as your beneficiary. You may, at any time after retirement, change your Option B beneficiary (but not your option selection).
Option C is also known as the joint and last survivor allowance. Selecting this option means that the allowance payments that you would receive during your lifetime would be approximately 20% less than those you would receive under Option A. Upon your death, your designated beneficiary will be paid a monthly allowance for the remainder of his or her lifetime. That allowance will be equal to 2/3 of the allowance which was being paid to you at the time of your death. The monthly allowance you receive under Option C depends upon life expectancy factors for you and your designated beneficiary. You may name only 1 beneficiary under Option C. The eligible beneficiaries are limited to your spouse, your former spouse (provided he or she has not remarried at the time you designate him/her as your Option C beneficiary), your child, your parent, or your sibling. Once chosen, you may not change your Option C beneficiary after your retirement becomes effective.
Please note, If you named your former spouse as your Option C beneficiary when you were married, your former spouse will continue to be your Option C beneficiary even if you are divorced after retirement.
Option C "Pop Up": If your allowance was as the result of an application filed on or after January 12, 1988 and your Option C beneficiary dies on or after that date and before you die, you will thereafter be paid the full retirement allowance you would have received had you elected Option A at the time your retirement allowance became effective. (This conversion is commonly referred to as the Option C "Pop-Up".) Any cost-of-living increases that have been granted since your Option C retirement became effective will be reflected in your newly established Option A allowance. All payments will cease upon your death.
Refunding, Withdrawing or Borrowing From Your Plan
The law does not allow an active member to borrow any contributions from the fund under any circumstances.
If you no longer hold a position in the Town of Southbridge or one of its member units and are not going to work for another governmental agency under the provisions of Chapter 32, you may be eligible to receive a refund of your contributions. If you are leaving to accept a position with a Massachusetts political subdivision subject to Chapter 32, you must transfer your retirement contributions directly to your new retirement system. If you are vested and terminate employment in Southbridge, you can choose to "defer" your retirement by leaving your money in the system until you are ready to retire. If you choose to refund, your contributions and all of the interest you receive from your account are subject to federal income tax (with the exception of any contributions made prior to January 12, 1988). When processing a refund of retirement contributions, the Retirement Office is required to withhold 20% of the taxable portion of your refund for federal tax. The 20% tax payment is required only if the refund is made directly to the member. To defer tax payments, you must make a direct rollover of your retirement funds to an Individual Retirement Account (IRA) or another type of retirement account with a financial institution. With a direct rollover, no tax is withheld and the entire taxable portion of your refund is transferred. If you have both taxable and nontaxable contributions, you may accept receipt of the nontaxable portion of your refund with no tax consequence and the taxable portion may be rolled over.
Please note that the amount of interest you receive depends on a few factors. If you withdraw your funds with at least 10 years of creditable service, you will receive 100% of the regular interest that has accrued. If you are terminated or laid off, you may receive 100% of the regular interest you've accrued. As of July 1, 2009, if you have less than 10 years of service and voluntarily resign from your position, your interest is calculated differently. You are entitled to receive 3% interest for each year you have worked. This recalculation of interest is formulated when processing your refund.
If you would like to apply for a refund, please call or email the office to have one emailed or mailed to you.
Please note: If you withdraw your funds and decide to become a new member, you will now fall under the new laws of pension reform.