PENSION UPDATE2013 IEA-NEA Representative Assembly

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TOPICS FOR DISCUSSION IEA Pension Principles HB 3411 Weekly Order of Business SB 1 SB 2404 / HB 3162: Our Proposal Moving Forward

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IEA PENSION PRINCIPLES

Fair to the members Sustainability of the pension systems Constitutional

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HB 3411 – Cross (R)/Nekritz (D)Comprehensive Pension Cutting Legislation

The bill applies to all active and retired members in the Teachers’ Retirement System (TRS), the State Universities Retirement System (SURS) and the General Assembly Retirement System (GARS).

Raises active member contributions Raises the retirement age for younger members Reduces the Cost of Living Adjustment (COLA)

for all current and future retired members Delays all COLA payments

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HB 3411 - In Detail1. Cuts the Cost of Living Adjustment (COLA) for

current and future retirees. The new COLA would become the lesser of 3 percent or $750.

2. Members would not receive a COLA until age 67 or five years after they retire, whichever comes first. This would apply to all retired members already receiving a COLA under the old rules. These members could see their COLA suspended for a period of time, but would not lose any COLAs previously received.

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HB 3411 - In Detail (Continued)

3. Active member contributions would increase. TRS/SURS members would see their contributions increase 1 percent of salary over the next 2 years. TRS would go from 9.4 percent to 11.4 percent and SURS would go from 8 percent to 10 percent.

4. The retirement age would be set on a sliding scale based on the member’s age at the time the law takes effect: • 40 through 44 years old:  Members in all systems would have to work

1 additional year to reach eligibility for an unreduced pension. (Age 56 with 35 years, age 61 with 10, or age 63 with 5 -TRS)

• 35 through 39 years old: Members in all systems would have to work 3 additional years to reach eligibility for an unreduced pension. (Age 58 with 35 years, age 63 with 10 years, or age 65 with 5 years - TRS)

• 34 and younger: Members in all systems would have to work 5 additional years to reach eligibility for an unreduced pension. (Age 60 with 35 years, age 65 with 10 years, or age 67 with 5 years - TRS)

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HB 3411 - Tier II & Tier III For all Tier II members (beginning TRS or SURS service

between January 1, 2011 and the effective date of HB 3411).

Tier II members can irrevocably elect to join the new Tier III benefit plan or remain in Tier II.

The Tier III benefit structure is a “hybrid” combination of:

1. A TRS/SURS-style defined benefit annuity - a guaranteed lifetime pension,

2. A 401(k)-style defined contribution plan.

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HOUSE:Weekly Order Of BusinessAll changes apply only to TRS, SURS, SERS and GARS

HB 1154, HA 2: Caps pensionable salary for actives at the Social Security Wage Base (currently $113,700)

HB 1166, HA 6: The retirement age would be set on a sliding scale based on the member’s age at the time the law takes effect:• 40 through 44 years old:  Members in all systems would

have to work 1 additional year to reach eligibility for an unreduced pension. (Age 56 with 35 years, age 61 with 10, or age 63 with 5 - TRS)

• 35 through 39 years old: Members in all systems would have to work 3 additional years to reach eligibility for an unreduced pension. (Age 58 with 35 years, age 63 with 10 years, or age 65 with 5 years - TRS)

• 34 and younger: Members in all systems would have to work 5 additional years to reach eligibility for an unreduced pension. (Age 60 with 35 years, age 65 with 10 years, or age 67 with 5 years - TRS)

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HOUSE:Weekly Order Of BusinessAll changes apply only to TRS , SURS, SERS and GARS

HB 1165, HA 6: COLA Cap and Delay Applicable to current and future retired members

1. Caps COLA (to the lesser of 3 percent or $750)

2. Delays COLA until age 67 or five years after retirement, whichever occurs first

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SB 1 – Cullerton (D)/Madigan (D)

“Choice and Consideration Proposal”

Only applicable to current actives in TRS

Current collective bargaining agreements that include salary increases are exempted from the legislation.

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SB 1 Active Tier 1 members would be required to make a

decision on two choices between January 1, 2014, and May 31, 2014. (The irrevocable choice would be in effect on July 1, 2014). 

The choices are: 1. Choose to keep the current 3% compounded post-

retirement increase of their annuity (COLA).

This choice would result in the member's pension being based on their salary prior to the effective date of the decision (July 1, 2014) and the member would not be able to participate in a state health insurance plan. 

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2. Choose to have future salary increases included in the calculation of their annuity and have access to an undefined state health insurance plan.

Choosing this option would reduce and delay the post-retirement increase of their annuity (COLA).  The new post-retirement increase would change to a simple (non-compounded) increase that would be 3% or one-half the rate of inflation (CPI), whichever is less.  

SB 1 (Continued)

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SB 2404 Holmes/Althoff – HB 3162 Hoffman/Poe

"We Are One Illinois" Coalition Proposal Senate Bill 2404/HB 3162: Creates a funding guarantee in state law; makes the

state’s funding of public pensions a contractual obligation of state government to public employees

Pension Stabilization Fund; dedicated revenue to stabilize the pension systems

Increased the employee contribution rates for those in TRS and the other public pensions systems.

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SB 2404/HB 3162 A Funding Guarantee in State Law

In Illinois, only pension benefits for members are protected as a contractual right by the state constitution. In other states, both pension benefits and state contributions to help fund the benefits are guaranteed as contractual rights for members. We Are One wants a similar contractual protection for contributions to TRS and the other state systems.

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SB 2404/HB 3162 A Funding Guarantee in State Law (Continued)

Senate Bill 2404 calls for a new state law that guarantees the state will make an actuarially required contribution to TRS and SURS every year.

Under Senate Bill 2404, if the state does not pay its annual contribution to TRS and SURS within a set period of time, TRS and SURS would go to court to force the state to pay the contribution. Members would also have standing in court to compel the state to fund the pension funds.

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SB 2404/HB 3162 Pension Stabilization Fund

The proposal uses pension bond payments, which the state currently makes to pay off pension obligation bonds (POBs), to supplement the funding of the pension systems.

The state sold POBs in 2003, 2010 and 2011 to fund pensions. When each set of bonds are paid off, the proposal would redirect those dollars, which are already included in the state budget, to go toward the pension funds.

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SB 2404/HB 3162Member Contributions

Contribution rates for active TRS members would increase from the current 9.4 percent to 10.4 percent in the first year after enactment and to 11.4 percent in the second year.

Contribution rates for active SURS members would increase from the current 8 percent to 9 percent in the first year after enactment and to 10 percent in the second year.

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MOVING FORWARD

Uncertainty in the House

Ongoing Discussions in the Senate

“We Are One Illinois” Coalition