Member Contributions

Why do I contribute to HCRS?

Massachusetts public employees do not pay (FICA tax) into the Social Security Administration. Instead of Social Security you contribute to the Massachusetts Public Employee Retirement System, which is a "defined benefit plan" authorized by M.G.L. Chapter 32. Massachusetts established its government pension plan beginning in 1911, long before the establishment of the Social Security Administration in 1935. Originally, Social Security excluded government employees, but over the years many state pension plans changed to become supplemental plans to Social Security. However, Massachusetts remains a non-Social Security state, with a government pension plan designed to replace Social Security.

What is my contribution rate?

Your contribution rate is based on your membership date. Contributions are made on "Regular Compensation" only. Overtime and other types of compensation are not included as salary subject to retirement contributions.

If your membership date is:

1. prior to January 1, 1975, you contribute 5%;
2. between January 1, 1975 and December 31, 1978, you contribute 7%;
3. between January 1, 1979 and December 31, 1983, you contribute 7% on first $30,000 of salary and 9% (7% + 2%) on the remainder;
4. between January 1, 1984 and June 30, 1996, you contribute 8% on first $30,000 of salary and 10% (8% + 2%) on the remainder;
5. July 1, 1996 or later, you contribute 9% on first $30,000 of salary and 11% (9% + 2%) on the remainder.

If you had service and membership with another Massachusetts public retirement system you may be eligible to retain your original contribution rate, provided you have not previously withdrawn your contributions, thus terminating your membership rights.

What happens to the money that I contribute to the system?

Your employer makes pre-tax deductions from your pay and forwards your contributions to us on a monthly basis. HCRS establishes and maintains an annuity savings account on your behalf for your retirement. Your annuity savings account consists of two parts:

1. your contributions, which are deducted from your paycheck (pre-tax) by your employer and forwarded to HCRS
2. statutory interest, which is earned on your prior year's ending balance and credited at a rate determined annually by the Public Employee Retirement Administration Commission (PERAC). The interest credited to your annuity savings account is a guaranteed rate set by law at the average annual passbook savings rate.

How do I know how much money I have in my annuity savings account?

Each year a statement of account will be mailed to all active and inactive members. This statement will also include your primary beneficiary of record. It is important that you review your statement annually and update your personal data, especially your mailing address and beneficiary of record.

Can I direct the investment of my contributions?

No! Although individual contributions and annual interest are attributed to individual members' annuity savings accounts, the total contributions from active members as well as employer appropriations and investment income are pooled and invested by the Board to fund present and future benefits. Although member contributions and investment income contribute to the funding of your retirement benefit, the amount individually contributed does not determine the amount of your retirement benefit. Your retirement benefit is guaranteed and defined by a formula of age, service and salary.

While you cannot direct the investments, you are also not burdened with the investment risk and fees associated with directed investments. The investment risk and investment cost is held by the plan and the plan sponsor.

Interest rates on contributions are low, but you do not lose money in negative investment environments and you do not pay fees.

This is a basic difference between defined benefit plans and defined contribution plans (401(k)types). A Defined Benefit Plan guarantees an employee a set, predetermined monthly retirement check based on years of service and salary. Investment risk is held by the plan sponsor. A Defined Contribution Plan is one in which the monthly retirement check depends on the amount of contributions and the investment performance of the individual account. Investment risk is held by the individual employee. There are no guarantees with defined contribution plans. There are also no disability provisions in defined contribution plans.

Why is the interest rate I earn on my annuity savings account so much lower than the returns now generally being earned on investments?

The interest rate earned on your annuity savings account is set by law as the average passbook savings rate obtained from a representative sample of financial institutions. The interest rate is established annually by the Public Employee Retirement Administration Commission (PERAC). There is no relationship between the interest rate paid to your annuity savings account and the investment return earned by the fund. Although the interest rate is low, it is guaranteed and it is always positive even when investment returns are negative.

Your retirement benefit is not determined by your annuity savings balance but rather by a guaranteed formula based on your age, service, and salary at time of retirement.

As an actively employed member, do I have access to the funds in my annuity savings account?

No! Your annuity savings account is not an individual retirement account. Remember that you contribute to HCRS instead of Social Security, not in addition to Social Security.

By law, you are not eligible to withdraw your annuity savings account balance as long as you are 1) actively employed, 2) receiving workers compensation, or 3) on authorized leave of absence by or from any Massachusetts public employer.

May I borrow against my annuity savings account?

No! Under State Law, there are no provisions to borrow against your annuity savings account under any circumstance. However, the good news is that your account also cannot be assigned or attached by any lien, except in very limited circumstances as authorized by law (i.e. court-ordered child support or domestic relations orders).

What happens to my contributions if I change or terminate public employment?

If you terminate with HCRS, but are or become employed with another Massachusetts public employer, your funds and service credit must be directly transferred to your new Massachusetts public employee retirement system. Upon a direct transfer of your annuity savings account to another Massachusetts public retirement system, you retain your current contribution rate and service credit. Notify us if you have service with another Massachusetts public employer.

If you terminate all Massachusetts public service and you are not receiving workers' compensation benefits, you may be eligible to receive a deferred retirement benefit (10 years vested) or you may be eligible for a withdrawal of your contributions. Contact HCRS for further information.