Pension Reform at a Glance

Leader Tom Cross & Rep. Nekritz introducing pension reform
This morning, the House Committee on Personnel and Pensions passed  SB001 HA#1, legislation sponsored by Speaker Mike Madigan to reform the states ailing pension system. This bill mirrors bipartisan-crafted legislation introduced earlier this year by House Republican Leader Tom Cross and Democrat Pension Committee chairperson Rep. Elaine Nekritz. That legislation stalled in the House after passing committee on March 14 of this year.  The Cross/Nekritz provisions from HB3411 remain intact in this new bill.

Here is a quick peek at this pension initiative:
This measure makes immediate pension benefit changes to current members and retirees in the General Assembly Retirement System (GARS), State Employee Retirement System (SERS), State University Retirement System (SURS), and Teachers Retirement System (TRS).  Does not include the Judges Retirement System (JRS).

Language specifying the need for pension benefit changes in order to stabilize the State and the pension systems required by the court is included.  Does not include a cost shift or any changes to benefits for newly hired employees. 

Statement and Findings
  • Gives background to structural and financial problems facings Illinois including the bond rating, bill backlog, and pension debt.
  • Details General Assembly action already taken to address finances: tax hike, deep spending cuts (highlighting cuts in GSA, DHS and Corrections), Medicaid reform and new-hire pension reforms.
  • Substantial reforms are needed to avoid “devastating and dramatic cuts” in State programs.  Further cuts could have an “extremely severe” impact on the Illinois economy.           
  • Reforms will prevent “severe and irreparable harm to the public welfare.” Reforms are needed to ensure that the State can pay future pension benefits in full

Applicability
  • Makes changes to SERS, TRS, SURS, and GARS and is effective immediately. 
  • Impacts current Tier 1 (hired before January 1, 2011) members and retirees.
  • Has immediate effective date. 
  
Benefit Changes
Cost of Living Adjustments COLA
  • Cost-of-living adjustments would be capped at 3% of $1,000 per year of service. An employee under that cap will grow at 3% compounded until they hit that cap. For example a 30 year employee will earn a 3% COLA only on the first $30,000 of their annuity while a 15 year employee would get a COLA based on $15,000.  The $1,000 per year of service is $800 for employees in SERS covered by Social Security.

COLA Examples with the Same Starting Annuity but Varying Years of Service
Years of Service
10
15
20
25
30
Year 1 Annuity
$50,000
$50,000
$50,000
$50,000
$50,000
3% COLA Based On
(Years of Service x $1,000)
$10,000
$15,000
$20,000
$25,000
$30,000
Annual COLA Increase
$300
$450
$600
$750
$900
Year 2 Annuity
$50,300
$50,450
$50,600
$50,750
$50,900
Year 3 Annuity
$50,600
$50,900
$51,200
$51,500
$51,800


  • COLAs will take effect as of the effective date of the bill when the employee turns 67 or five years after they retire, whichever comes first.

 Retirement Age
  • Retirement age for current members increases as of July 1, 2013 by:
    • No increase for employees age 45 and older
    • One year for employees age 40 to 44
    • Three years for employees age 35 to 39
    • Five years for employees age 34 and younger

 Employee Contributions
  • Employees will pay a total of 2% more towards their pension phased in at 1% per year over the next 2 years starting July 1, 2013.  

 Pensionable Salary Cap
  • Pensionable salary will be capped at the higher of either the current Tier 2 cap ($109,971) which will grow annually at ½ CPI or the participant’s current salary.  No pension will be earned on any amount above the cap and the employee will not pay in contributions on income above the cap.  
  • Employees in current collective bargaining agreements that have raises scheduled that will exceed the cap are exempt until the agreement expires or is renewed.  

Tier 2 Benefit Change
COLA provisions in GARS are changed to match Tier 2 COLA provisions in other systems so that the GARS COLA and salary cap grows with ½ CPI instead of full CPI.  

State Funding
  • FY2015-2044:
    • State contribution is employer normal cost and amortization of unfunded liability to 100% funding by 2044
    • State contribution is calculated as level percentage of payroll using entry age normal method
  • FY2045 and beyond:
    • State contribution is amount needed to maintain 100% funding
    • $1 billion in additional funds is contributed from 2020 going forward until systems are 100% funded or 2045.  These additional funds will come from the retirement of pension bond payments and will be deposited in the Pension Stabilization Fund to be evenly distributed among the state funded pension systems. 

Funding Guarantee
  • The systems are required as part of their fiduciary duty to take the State to court over nonpayment of the statutorily required contribution and the pension additional contributions from the Pension Stabilization Fund.  

Abuses
  • Restricts new hires of Illinois Municipal Retirement Fund (IMRF), Cook County, State Employees Retirement System (SERS), State Universities Retirement System (SURS), Teacher's Retirement System (TRS), and Chicago Teacher's from using unused sick or vacation time to increase a member’s pension. Pension benefits currently can be increased by using payment from unused sick or vacation time to add to member's final average pay and adding unused time to a member's service credit.
  • Prohibits private employees from earning a pension in IMRF, SURS and TRS.  The following groups are removed from public pensions for employees hired after the effective date; current employees are grandfathered into the systems.
  • IMRF
    • Illinois Association of Park Districts
    • Illinois Supervisors
    • County Commissioners and Superintendents of Highways Association
    • Township Officials of Illinois
    • United Counties Council
    • Will County Governmental League
  • SURS
    • Community College Board Associations 
    • Association of Illinois Middle-Grade Schools
    • Illinois Association of School Administrators
    • Illinois Association for Supervision and Curriculum Development
    • Illinois Principals Association
    • Illinois Association of School Business Officials
    • Illinois Special Olympics
  • TRS
    • Illinois School Board Association

Collective Bargaining
Exempts pension benefits changes in SERS, SURS, and TRS from requiring collective bargaining. This bill and future changes to those systems can be made without the need to collectively bargain those changes.

SURS Interest Rate
Changes the standard for calculating the interest on an annuity in the money purchase option in SURS.







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