In the June 2020 HR Update, we discussed the impact of a layoff of an employee (position eliminated due to shortage of funds, etc.) on MOSERS benefits. We have recently received several questions concerning the impact of furlough days on an employee’s retirement.

 – Furlough days are treated as an approved leave that is not illness-related. Pension benefits may be impacted as described below.

A Furlough of One FULL Pay Period or MORE

 – If a furlough period lasts one or more full pay periods, an employer should submit a Leave of Absence/Back to Work form indicating the approved leave to MOSERS. Upon an employee’s return to work, an employer should submit a new Leave of Absence/Back to Work form to MOSERS.

Impact:

• An employee does not earn service or salary credit during a furlough period that is one FULL pay period or longer.
• This could result in lower credited service towards retirement.
• It could also delay when the employee becomes eligible for retirement.
• During the furlough period, the employee is responsible for paying any premiums due for life insurance and/or long-term disability coverage directly to MOSERS to continue coverage. MOSERS will work with the employee to arrange the direct bill process. Upon an employee’s return to work, premiums will revert to being paid via payroll.

A Furlough of LESS than One Pay Period

 – If a furlough period lasts less than one pay period, an employer should not submit a leave of absence form to MOSERS.

Impact:

• An employee does earn service credit and salary credit during a furlough period that lasts less than one pay period.
• An employee does earn salary credit during a furlough period, but the salary credit is based on actual pay during the period. As a result, if the employee receives a reduced salary, this could result in a lower final average pay (FAP) if the leave occurs during the employee’s highest 36 consecutive months of pay.
• A lower FAP will reduce the employee’s retirement benefit.

  Please inform your employees of the difference in these scenarios if you are providing options concerning furlough days.

  If you have further questions, please contact Juanita Libbert juanita@mosers.org, Cindy Barbarick cindyb@mosers.org, or Shelley Lehmann shelleyl@mosers.org.

In the June 2020 HR Update, we discussed the impact of a layoff of an employee (position eliminated due to shortage of funds, etc.) on MOSERS benefits. We have recently received several questions concerning the impact of furlough days on an employee’s retirement.

 – Furlough days are treated as an approved leave that is not illness-related. Pension benefits may be impacted as described below.

A Furlough of One FULL Pay Period or MORE

 – If a furlough period lasts one or more full pay periods, an employer should submit a Leave of Absence/Back to Work form indicating the approved leave to MOSERS. Upon an employee’s return to work, an employer should submit a new Leave of Absence/Back to Work form to MOSERS.

Impact:

• An employee does not earn service or salary credit during a furlough period that is one FULL pay period or longer.
• This could result in lower credited service towards retirement.
• It could also delay when the employee becomes eligible for retirement.
• During the furlough period, the employee is responsible for paying any premiums due for life insurance and/or long-term disability coverage directly to MOSERS to continue coverage. MOSERS will work with the employee to arrange the direct bill process. Upon an employee’s return to work, premiums will revert to being paid via payroll.

A Furlough of LESS than One Pay Period

 – If a furlough period lasts less than one pay period, an employer should not submit a leave of absence form to MOSERS.

Impact:

• An employee does earn service credit and salary credit during a furlough period that lasts less than one pay period.
• An employee does earn salary credit during a furlough period, but the salary credit is based on actual pay during the period. As a result, if the employee receives a reduced salary, this could result in a lower final average pay (FAP) if the leave occurs during the employee’s highest 36 consecutive months of pay.
• A lower FAP will reduce the employee’s retirement benefit.

Please inform your employees of the difference in these scenarios if you are providing options concerning furlough days.

If you have further questions, please contact Juanita Libbert juanita@mosers.org, Cindy Barbarick cindyb@mosers.org, or Shelley Lehmann shelleyl@mosers.org.

Due to the COVID-19 pandemic, we have received questions from members about the possibility of state employee layoffs and furloughs and how it could affect their benefits. 

We encourage you to remind your employees that the impact of a salary reduction or furlough/layoff without pay on retirement benefits depends on the employee’s individual pay history and their service credit relative to retirement eligibility.

FAP refers to final average pay and it is one part of the 3-part formula used in calculating retirement benefits:

FAP x Multiplier x Credited Service = Monthly pension benefit payment. 

FAP is calculated from the employee’s highest 36-consecutive months of pay, not necessarily their last 36 months of pay. See some FAP calculation examples that illustrate the impact of a salary reduction or a furlough/layoff without pay on FAP and monthly pension benefits. A furlough/layoff without pay may also delay eligibility for retirement since the employee would not be earning service credit.

Departments and benefit providers may use different terms. However, for MOSERS' purposes, a "layoff" occurs when a department lays off an employee by reason of a shortage of work or funds, the abolition of the position, or other material change in the duties or the organization, or for other related reasons, which are outside the employee's control.

• This definition is intended to include any instance where the employer eliminates a position due to the above reasons, regardless of the term (i.e. layoff, furlough, reduction in workforce, etc., which are all considered a leave of absence).
• Employers should submit a leave of absence form to MOSERS indicating layoff status.
• An employee does not earn service or salary credit during a layoff period. However, an employee in their BackDROP period can continue to work toward BackDROP eligibility while on an approved leave of absence.
• After twelve months on layoff status, the employee is automatically terminated and MOSERS group life and long-term disability insurance coverage ends.

 As always, please encourage employees to contact a MOSERS benefit counselor to discuss their individual situation and options and to see our PDF on the Impact of a Layoff on Your MOSERS Benefit for more information.