PERAC Memo #13 - 2005: Buybacks subject to Buyback Interest
Buybacks subject to Buyback Interest
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This memo notifies boards that, effective July 1, 2005, Chapters 279 and 280 of the Acts of 2004 change the interest methodology for buybacks/make-ups under specified sections (e.g., §§3(2)(a)(vii), 3(3)-3(6), 3(8)(b)), requiring use of "buyback interest" (half the actuarial assumed rate) for the entire repayment period, rather than regular interest; other buyback sections (§4(1) and §4(2)(c) categories) remain calculated using regular interest. Boards must apply the new methodology and enclosed worksheets to any buybacks calculated on or after July 1, 2005 (existing schedules already in place are unaffected), and should contact PERAC if their applicable interest rate is not included in the worksheets.
Full Text
Memorandum 13/2005
M E M O R A N D U M TO: All Retirement Boards FROM: Joseph E. Connarton, Executive Director RE: Buybacks subject to Buyback Interest
DATE: March 18, 2005
In 2004, the Legislature approved two acts, Chapters 279 and 280 of the Acts of 2004, which will increase the cost of buying certain creditable service. These changes will take effect on July 1, 2005. The following sections are affected by the acts: §§3(2)(a)(vii), 3(3), 3(4), 3(4A), 3(5), 3(6)(c), 3(6)(d) and 3(8)(b). Any buyback or make-up schedules in place prior to July 1, 2005 would not be affected by this change. The methodology to be used under these sections will be similar to the methodology used in years past except that “buyback interest” will be used in the calculation of the repayment amount instead of regular interest. Please note that “buyback interest” is based on one-half of the actuarial assumed interest rate (the investment return assumption) in the most recent actuarial valuation. Also note that the “buyback interest” rate applies for the entire period of the buyback/make-up, not just the period after July 1, 2005.
Any buybacks/make-ups that are calculated under the following sections will continue to use regular interest in the calculation of the repayment amount: §§4(1)(g½), 4(1)(l), 4(1)(l½), 4(1)(n), 4(1)(o), 4(1)(o½), 4(1)(p) and 4(2)(c).
Enclosed are the worksheets to be used in determining the amount of the member’s repayment based on the new legislation. If the interest rate your system uses is not listed, please contact this office for all applicable factors.
We trust the foregoing is of assistance. If you have any questions, do not hesitate to contact this office.