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A look at the retirement system
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This week, the Savannah-Chatham public schools announced that 35 teachers and other certified personnel will be retiring to take advantage of an expiring provision in the Teachers Retirement System. These teachers would be among the last group to take advantage of a tax rate offset that has become unnecessary due to changes in the state tax code. Over the next few weeks, we will look at the retirement systems of state employees and teachers.

Income tax offset going away
You may remember that in 2010 and again in 2012, Georgia lawmakers passed into law a series of changes for seniors that, beginning Jan. 1, 2013, allows the exclusion of $65,000 of non-work income from state income taxes. These provisions mainly impact income received from pensions, 401(k)s, etc. Senior income tax exclusions came into vogue with Gov. Sonny Perdue as a way to encourage wealthy seniors to locate to Georgia and to compete with no-income-tax states.

Prior to the election of Gov. Perdue in 2002, less than $15,000 was excluded from retirement income. His efforts raised it to the current amount of $65,000 and was one of the offsets to the Hospital Provider Fee passed in 2010.

But this is a relatively new change. Georgia, many years ago, attempted to keep seniors in the state by shielding members of the Employees’ Retirement System (ERS) or the Teachers Retirement System (TRS) from a portion of their income taxes. TRS covers teachers and most Regents staff while ERS covers most state agency employees. Laws were enacted that allowed income from these two systems to be exempt from state income taxes.

However, in 1989, a U.S. Supreme Court decision declared this to be unfair. The Justices declared that all retirement income, whether federal, state, or local in origin, needed to be taxed in the same manner. This decision voided laws allowing the exemption of only state retirement income from taxes.

The General Assembly responded by giving the retirement systems the authority to offset these taxes with increased benefits in order to continue taxing other retirees. Both ERS and TRS began giving a 3 percent enhancement in benefits for the first $37,500 in yearly retirement benefits. This offset worked for many years but needed to be reevaluated given the new senior income tax exemption of $65,000. TRS announced earlier this year that they would be phasing out the tax offset effective Jan. 1, 2013, as a result. ERS is set to follow suit effective July 1, 2013.Delete -Merge Up

The important fact to know is that this change only impacts individuals who retire after these dates. Those who have or will have retired by these dates will be grandfathered into the system.  This deadline is creating a small incentive to move up an individual’s retirement date in order to receive the 3 percent offset as well as the income tax break. Savannah-Chatham Public Schools expects that 35 teachers, principals, and others would be retiring on November 30 in order to meet this deadline.

Statewide, preliminary data indicates that 1,500 TRS employees are planning on retiring in December 2012 compared to 259 in December 2011. January 2013 (after the changes take place) is expected to see a sharp falloff with 131 retirees compared to over 500 in January 2012.

It may seem that people are rushing to the doors to qualify but projections paint a much more consistent picture. TRS expects that impending retirements might be moved up a few months, but should not impact the overall retiree rate too much. It is too early to tell how this change will impact ERS.

If you have ideas for my “10 Reasons to Be Optimistic About 2013” column, get in touch!

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