Employer Digest

Winter 2023

LEGISLATIVE UPDATE ON SECURE ACT, HB 512

A major retirement bill, which is commonly known as the SECURE Act 2.0, in the end-of-year omnibus appropriations bill, cleared Congress on Dec, 27, 2022, and was signed into law by President Biden. OP&F is pleased this legislation has moved forward, having worked on many of the provisions in the SECURE Act 2.0 and also being the originator and sponsor of the language which removed the “direct payment” requirement from the public safety officers’ tax exclusion for health care.

Several key provisions affect public safety employees:

• Makes the requirement for direct payment by a retirement system under the HELPS health care exclusion for retired first responders optional instead of mandatory;
• Exclude from income certain disability payments to retired first responders;
• Modify the exemption from the early withdrawal penalty for first responders from age 50 to “age 50 or 25 years of service under the plan, whichever is earlier;” and
• Extend the exemption from the early withdrawal penalty to include private sector firefighters and certain state and local corrections employees.

Additional provisions of interest to state and local governmental retirement plans include the following:

• Increase the age trigger for Required Minimum Distributions from defined benefit and defined contribution plans; in the case of an individual who attains age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033, the age trigger is 73; in the case of an individual who attains age 74 after Dec. 31, 2032, the age trigger is 75;
• Increase the annual limits on catch-up contributions to $10,000 for those age 60, 61, 62, and 63 for 457(b), 403(b), and 401(k) plans beginning in 2025;
• Permit employer matching contributions on account of student loan payments for 457(b), 403(b), and 401(k) plans;
• Provide flexibility for plan fiduciaries when seeking to recoup inadvertent retirement plan overpayments;
• Eliminate the first day-of-the-month rule for 457(b) plans to provide more flexibility for participants to make changes in elective deferral amounts; and
• Require the Roth method (contributions must be made with after-tax dollars) for catch-up contributions for those who earned more than $145,000 from the employer sponsoring the retirement plan.

In other legislative news closer to home, Ohio House Bill 512 did not pass in 2022. This legislation was introduced by OP&F late in 2021 and would have made long overdue changes to the employer contribution rates, which have not been changed since 1986.

However OP&F’s work was not in vain as it provided early warning of our funding issues, educated members, members of the General Assembly and the public about the looming funding issues and lack of equalization between police and fire employer rates. We are hopeful our efforts have created opportunities in the current General Assembly, which began Jan. 1. HB 512 remains historic as the first to be introduced to equalize and raise the employer share on behalf of Ohio’s municipal public safety officers since 1986.

As always, we will keep employers informed about all important news from our Statehouse and in Washington as we continue to work on behalf of our membership.

PENSIONABLE PAYMENTS

Not all wages earned by a police officer or firefighters are considered salary under the laws and rules that govern OP&F. The Report of Retirement Deductions should only include pensionable wages. Ohio Revised Code Section 742.01(L)(1) defines salary as “all compensation, wages, and other earnings paid to an employee by reason of employment, but without regard to whether compensation, wages, or other earnings are treated as deferred income for federal income tax purposes. Pensionable salary does not include compensation for services outside the scope of the employee’s regular employment.

Periodically certain payments are reevaluated to determine if they are pensionable wages. One such example is bonuses which can include signing, retention and referral bonuses. Employers should reference the Employer Manual often and read the Employer Digest for any changes concerning pensionable wages. Please keep your email address updated with OP&F as well to receive the Digest and any notifications. If an employer should have any questions on pension issues please contact your Employer Services Group Specialist or John Gresh, Employer Education Manager.

FULL TIME STATUS NEEDED FOR OP&F MEMBERSHIP

To be a member of OP&F, qualifying police officers and firefighters must be full-time employees according to the rules which govern OP&F. An employer may have different guidelines determining full-time status of their employees for different purposes; however, OP&F defines full-time as it relates to membership in the pension system.

In order to be considered full-time, the person must have received a full-time appointment as a regular police officer or firefighter and work on a full-time basis, as defined in OP&F’s governing regulations. Individual requirements employers may have for full-time status upon employment may not always meet the qualifications for OP&F membership. If an employer has questions about whether a position is eligible for membership, the employer may request a determination from OP&F. The request must include a copy of the official position description.

OP&F cannot accept contributions for part–time employees, volunteer and part-time firefighters, and other public safety officers that may or may not be covered by the Ohio Public Employees Retirement System (OPERS) law enforcement division or Social Security. If a part-time law enforcement officer or firefighter employee becomes full-time and meets the requirements of ORC 742.01, the employer must enroll that employee as a member of OP&F.

When a member requests to transfer prior service to OP&F, OP&F will send a certification form to the prior employer. The employer must certify on OP&F’s form whether or not the prior service was full-time and provides earnings information to OP&F. OP&F will review the employer’s certification and ensure that the prior service meets OP&F’s criteria for the service to be considered full-time. OP&F will then contact the member about whether or not the transfer of service credit has been accepted. It is also important to note that part-time service credit is not accepted in a transfer to OP&F.

ACCRUED LIABILITY FIRST-HALF BILLINGS TO BE DISTRIBUTED TO OP&F EMPLOYERS

Later this spring, Employers who still have accrued liability balances dating back to the creation of OP&F in the 1960s will receive correspondence from OP&F, including amounts due. Not all employers are subject to accrued liability, so only those that still have a remaining balance should have received the correspondence. Accrued liability balances can be traced back to the beginnings of OP&F when in 1965, the Ohio General Assembly created the pension fund. This action resulted in the replacement of 454 separate local police and firefighter relief and pension funds around the state, with one consolidated retirement system which began operations on Jan. 1, 1967. On that date, the local funds transferred their assets and liabilities to OP&F. Unfortunately, the transferred assets totaled approximately $75 million, while the total accrued liabilities were approximately $490 billion.

To address this shortfall, the Ohio legislature enacted a statute which enabled those employers who had a shortfall to pay off their share of the unfunded liability over a substantial period of years from 1969 to 2035. Under the law, OP&F bills employers subject to accrued liability two times per year, in April and October. These bills are made up of two components, principal and interest. The interest on an employer’s invoice is accrued at a rate of 4.25 percent of the outstanding balance. Employers that wish to pay off the balance of their accrued liability in a lump sum may do so. Such a payoff can result in significant savings by eliminating the interest portion of the cost.

Payments are due on May 15 for the April billing, and Nov. 15 for the October billing. If payments are not received within 30 days following the due date(s), a penalty of five per cent of the amount due will be assessed against the employer. If the payment and penalty have not been paid within 90 days following the date the payments are due, annual interest at the rate of six per cent will be assessed against the payment and penalty from the date the payment is due.

REPORTING ANNUAL PAYMENTS

At this time of year, many OP&F employers report annual member payments such as unused holiday, longevity, physical fitness incentives, sick leave incentives, certification pay, and merit bonuses, which require earning dates different from the standard earning dates of the regular pension reports. However, all retirement calculations are based on when payments are earned. For annual payments, these dates would most likely be Jan. 1 through Dec. 31 of the calendar year. If an employer’s payroll software does not assign annual earning dates to these payments, they may have to be manually adjusted so the dates are correct.

Once the pension reports are updated by OP&F the payments will be pro-rated across the earning period for the member(s), so that each reporting period in a member’s account will contain one-twelfth of the total annual payment. If the employer self-service web application is being used, the system will flag payments that don’t have the annual earning dates that are required. This will enable employers to correct these dates before submitting their report. It is also important to remember that all annual payments must be included in the regular pension reports, as OP&F is not able to process supplemental reports.

EMPLOYER SERVICES GROUP UPDATE

The OP&F Employer Services Group ensures the accuracy and completeness of employer payroll reports, often working one-on-one with an employer's payroll clerk. Please feel free to contact the employer’s designated payroll representative for any questions or assistance in completing and submitting a payroll report or other pension issues, including questions on the new pension administration system that is on track to go live in 2024. Employers will be notified of any updates ahead of this event taking place.

The designated payroll representative for each employer changes from time to time so be sure to check the OP&F website regularly for updates. The Employer Services Group chart has recently been updated for 2023 and can be found on the OP&F website by clicking here.

IMPORTANT DATES AND DEADLINES

Important dates and deadlines are also posted on OP&F’s website under the Employers menu in the Calendar of Billing Deadlines and Events section.

February

28 OP&F Payroll deductions, member and employer contributions and payroll reports due for January 2023.

March

31 OP&F Payroll deductions, member and employer contributions and payroll reports due for February 2023.

April

30 OP&F Payroll deductions, member and employer contributions and payroll reports due for March 2023.

May

15 1st Semi-Annual Accrued Liability Bills

31 OP&F Payroll deductions, member and employer contributions and payroll reports due for April 2023.

OP&F provides the Employer Digest as a general reference material in order to assist employers in properly reporting required contributions to OP&F, as well as submitting the required forms and materials that are necessary to provide benefits for our members. As a general reference material, the Employer Digest may not sufficiently represent all of the details applicable to the subjects discussed. Nothing contained in this newsletter is meant to interpret, extend or change, in any way, OP&F’s governing statutes, administrative rules or policies. If you have any questions or need information on any subjects referenced in the Employer Digest, please contact OP&F.

COPYRIGHT © 2023 by Ohio Police & Fire Pension Fund, All Rights Reserved.

Posted 2/21/2023