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IRS cracks down on Connecticut pensions, could place “heavy burden” on some state retirees

Photo by Tim Stewart @flickr.com

The Internal Revenue Service has issued rules that will possibly lower pension payouts for some retired Connecticut state employees, or force others to pay money back to the state retirement system, according to a memorandum from the Office of the State Comptroller.

In some cases, the pensioner may see an increase in their pension payment, including retroactive increases.

Under the new Voluntary Compliance Program, implemented in April of 2020, SERS will have to adjust an unknown number of retiree pension payments.

The new rules will end a long-standing conflict between the IRS and the Connecticut State Employee Retirement System, which was paying pensions well in excess of the $230,000 limit outlined by the federal government. 

But to whom the new rules apply will depend on a more complicated formula based on the age of the retiree, when they entered the SERS system, when they retired, how much they were paid during state service and how much they receive from their pension.

“The implementation of the corrections that are required under the VCP Approval will place a heavy burden on some SERS members,” wrote John W. Herrington, Director of the Retirement Services Division for the Office of the State Comptroller.

The implementation of the corrections that are required under the VCP Approval will place a heavy burden on some SERS members.

John W. Herrington, Director of the Retirement Services Division

“The Internal Revenue Service ruled that SERS must take certain steps to be in compliance with those rules,” Herrington wrote. “In some cases, this ruling will cause the future benefits of a SERS retiree to be reduced. In others, the member’s benefits will be increased – both prospectively, and retroactively.

“In a very few cases, it is possible that a retiree both will have his or her future benefits reduced and will also be responsible for reimbursing SERS for past overpayments,” Herrington wrote.

The Comptroller’s Office says it has not yet identified who will be affected by the changes or how their payments might be adjusted.

The SERS system had, since 2011, been awaiting guidance from the IRS on how to handle pension payments that exceeded federal limits in order to maintain its qualified status.

The caps on retirement income are also related to the age of the employee and “the amount of salary earned during any one of the employee’s working years that may be taken into account when calculating the amount of the employee’s pension,” according to Herrington’s memorandum.

The limits will not apply to hazardous duty employee like state police and firefighters.

The limit on the amount someone can receive from a pension will not apply to state employees who retired before 1990, and the limit on salary that can be calculated for a pension will not apply to those who retired before 1996. 

For those who retired before 2011, the limits will be applied going forward.

Connecticut has nine retirees receiving over $230,000 per year from the state’s pension system in 2020, according to information provided by the Comptroller’s Office, but because the state’s Open Data website does not list dates of hire or retirement dates it is not yet possible to determine who might be affected by the change.

However, the changes will not just affect Connecticut’s top pension recipients because the limits are based on age and pensionable income received while they were still working.

Some members who have been subject to previous limitations will receive additional payments because under the new rules they should have been exempt from previously imposed limits. Others will not see any change because they are grandfathered in and some will see their pensions reduced.

Still, some members who retired after 2011 may have to reimburse for overpayments, although the Comptroller’s Office has not yet identified who those members may be.

Herrington wrote that it is essential that members understand this is a federal change and there is nothing the state can do about it.

“Compliance with that federal law is essential to maintaining the status of SERS as a qualified plan – a status that confers important benefits on every member,” Herrington wrote.

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(11) Comments

  1. Thad Stewart

    July 3, 2020 6:14 am

    The unions are not a political system, yet the taxpayer is held up by them at every turn in this state. When are we gonna start calling the unions what they truly are, an organized crime syndicate. They need to be broke up and tried under the RICO statute. Then and ONLY then can the state of Connecticut begin to rebuild and prosper.

  2. Dan

    July 2, 2020 7:32 pm

    This ain’t nuthing… wait until the pension system is insolvent. Short of a Federal cash infusion, the pension train is about to hit a brick wall. Do we hire a police officer or firefighter or do we pay the pension? Do we raise taxes and drive more businesses and citizens out and collect less revenue? Sorry retirees but your union bosses and the Democrat politicians lied to you. There is no money tree regardless what they told you.

    • Stan

      July 3, 2020 10:42 pm

      Keep dreaming, people have been saying that for the last 25 years and it still has not happened!

  3. Donald Forcash

    July 2, 2020 3:56 pm

    The IRS has been working this issue since 2011, knowing aspects of their answer would be retro-active to affected citizens? That is our government at work – The same one some people want to manage our entire healthcare system. Did the IRS and Gail Hardy collude on this delay? 🙂

  4. Patricia Kiely

    July 2, 2020 1:39 pm

    Most of us used our retiree pension Cash figure when calculating when to retire and in making other critical decisions before leaving state service. when we did..
    Many , like me , worked at a very low salary ( compared to Private industry ) for years and worked my way up the ladder to a comfortable wage.
    We also gave up salary for medical benefits and assurance of a comfortable retirement during years of union & state negotiations. We had our pensions misused once and would hope that those in places of power and negotiation will look out for those of us who put in many years of “ generic “ state service Thankyou

    • Peter J Gay

      July 2, 2020 4:06 pm

      Thank you for your post, worked our ass off and now this is the thanks we get. I hurt my back 30 some years ago had surgery then got put down the road with a pension and insurance, had back work paid for in full, this year the same treatment and the insurance changed there plan and didn’t pay all, I had to pay out of pocket $ 500.00 difference never told me nor the staff at the Dr’s office of the change thank you St. Of Ct. (Union should take care of us but it looks like they give in to the State) not fair!!!

    • Matthew

      July 4, 2020 7:31 am

      As a retired teacher, my pension is one seventh of what these state workers pensions are. This malfeasance on the part of Democrats and state union thugs puts my meager pension in jeopardy! We have over 120 billion in pension debt. Six times the one year budget for CT. . Criminal. And Lamont and company continue their spending spree. No cuts. Just tax and spend.

      • Retired

        July 19, 2020 3:17 pm

        You do know that nobody making a pension anywhere near that max amount is not unionized, right?🙄

    • James Hagan

      July 4, 2020 11:00 am

      I respectfully disagree with your statement “very low salary ( compared to Private industry) “.
      I have from valid and contemporary information shared from personal friends and folks I have met who work for the state of CT, confirming that the pay for state employees is in fact far and above what is typical in private industry.
      And, I have yet to meet someone in private industry who received a 5.5 % (aggregate) raise, effective for state of CT employees, starting on July 1 2020.

    • Lucy

      July 5, 2020 1:28 pm

      Happens all the time in the private sector. I was promise health insurance until I qualified for Medicare and took that into account when I planed my retirement. Nope, taken away and I had to go without insurance for a year and a half. I know someone who’s company went under after he retired and although I don’t remember the details, I know he lost his pension when he was in his late 70’s

  5. Lesley D Neal

    July 1, 2020 7:46 pm

    Is any attempt going to be made to pay back the Connecticut’s teacher pension debt of $50 billion??

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