Pension buyouts begin, another in the works
Friday, May 3, 2019 - Posted by Rich Miller
* SJ-R…
“We were surprised at the level of participation,” said Tim Blair, executive director of the State Employees Retirement System that covers state workers. “We thought it would be somewhat lower because we thought the 3 percent compounded COLA was a very attractive part of the benefit package that people would want to keep that.”
Under the COLA buyout plan, participants in the pension fund can agree to give up the 3 percent compounded annual raises they get in their pension benefits. Those people would still receive an increase in their pension benefits, but it would only be 1.5 percent annually and not compounded.
In exchange, those people would be eligible for a cash payment that would be made to them now. The state would calculate the difference in benefits a person would receive with the 3 percent annual increase and the 1.5 percent increase and a person could get 70 percent of that amount placed in an alternative retirement vehicle.
Blair said that since the plan went into effect at SERS Dec. 1, there were 1,700 people who retired. Of those, 402 opted to take the buyout program. The payouts average $100,000 per person, Blair said, although the range ran the gamut from a couple of thousand dollars to $400,000.
The payouts will cost the pension system $37.7 million, although the systems are expected to save money in the long run by paying smaller annual raises. Studies have shown the annual 3 percent compounded raises are the biggest reason for ongoing increases in pension costs. Money for the payments will come from bonds the state is issuing, although not all of the bonds have been issued yet.
* More…
“We offer two buyouts,” state Rep. Robert Martwick, D-Chicago, said. “One is what’s called vested and active and that’s someone who’s worked for a while and just left government service and they just buy out their whole pension. So that’s No. 1. No. 2 is the [cost of living allocation or] COLA buyout where they can sell their three percent compounded COLA for a one and a half percent simple COLA and a lump sum payout.” […]
Martwick said there are plans for an annuity buyout.
“So they could sell a portion of their annuity, so any amount of their annuity which exceeds the maximum Social Security benefit and still keep their compounding COLA so it’s an easier calculation, it would be easier to administer and probably easier to understand for the retiree,” Martwick said. “And it creates an option so they can say, ‘should I keep my annuity and sell a portion of my COLA or keep my COLA and sell a portion of my annuity,’ and again more options means greater participation.”
- wordslinger - Friday, May 3, 19 @ 11:04 am:
–“We were surprised at the level of participation,” said Tim Blair, executive director of the State Employees Retirement System that covers state workers. “We thought it would be somewhat lower because we thought the 3 percent compounded COLA was a very attractive part of the benefit package that people would want to keep that.”–
Not terribly surprised that there were some who would take the $100K on average, or even better, upfront. There are infinite reasons why someone might take significant quick cash now and give up better returns long-term.
For those who gave up a 3% compounded COLA “for a couple of thousands dollars” upfront, I have some amazing time-share ownership opportunities for you — but you have to act now….
- JB13 - Friday, May 3, 19 @ 11:14 am:
Maybe so many are willing to take the buyout because they earnestly believe they are “only getting back what they paid in.” That is the truth, isn’t it?
- Interes ting - Friday, May 3, 19 @ 11:15 am:
What is the interest rate does SERS pension get these days? I found some old info from 2011 from The Illinois Retirement Security Initiative that said 8 to 8.5% but it might be lower now.
- Shark Sandwich - Friday, May 3, 19 @ 11:24 am:
“What is the interest rate does SERS pension get these days?”
If only there were a website with allnsorts of reports and data on it curated by SERS…
- foster brooks - Friday, May 3, 19 @ 11:34 am:
must be a lot of people in poor health retiring in sers
- Cook County Commoner - Friday, May 3, 19 @ 11:46 am:
If I’m doing this right, the Rule of 72 states that a $50,000.00 pension will double to $100,000 in 24 years at an annualized rate of 3%. 90 day on-line FDIC insured CDs are at 2.3% or so. Hmmm. Like to see the precise buyout terms.
- Nonbeleiver - Friday, May 3, 19 @ 11:48 am:
Is this available to SURS since they are also state employees?
- Just A Dude - Friday, May 3, 19 @ 11:56 am:
Attended the SERS pre-retirement seminar last week and the host stated the surprise number of takers so far. The guest investment advisor from a local investment firm said he would only advise a person to take it if: They were single and sick to the point they did not expect to live very long after retirement.
- Grandson of Man - Friday, May 3, 19 @ 12:03 pm:
“There are infinite reasons why someone might take significant quick cash now and give up better returns long-term.”
And one big reason: mortality. Some sadly pass away shortly after retirement. We can’t take it with us.
But with voluntary reforms and Tier 2, let’s scrap any ideas of constitutional pension reform, hard as it is for some to let go.
- Cubs in '16 - Friday, May 3, 19 @ 12:21 pm:
Considering the large amount of anti-pension propaganda out there, retirees may be afraid that if they don’t take it now they’ll never see it.
- wondering - Friday, May 3, 19 @ 12:26 pm:
I wonder why, and not talking about the commentators here, it is that the very same people who are aghast at the progressive income tax warmly embrace pension *reform”. For altruistic reasons, I am sure.
- older one - Friday, May 3, 19 @ 12:43 pm:
So, maybe RNUG or another expert here knows; if you’re a few years out from retirement, can you still “buy” time in your tier one pension with a cash payment into the system, so you can retire a couple years early at full benefits? This used to be a thing, knew a guy that used an inheritance to do that, is it still a thing, and if so, how much does it cost?
- wondering - Friday, May 3, 19 @ 12:51 pm:
Wonder why people continue to call it a COLA…it is not. It is a fixed automatic annual adjustment. It is limited, a COLA is not. VA disability and Social Security saw a 2.8% hike, $60 short of this on a $30,000 pension. Those aren’t capped. $60 a year breaks the bank?
- Enviro - Friday, May 3, 19 @ 12:56 pm:
===can you still “buy” time in your tier one pension with a cash payment into the system, so you can retire a couple years early at full benefits?===
At this time, no teacher can retire early, pay lump sum contributions and have a full pension. They’ll either have to work those remaining two years, or leave and decide when to collect their pension and what benefit they need.
- Davos - Friday, May 3, 19 @ 12:58 pm:
=So, maybe RNUG or another expert here knows; if you’re a few years out from retirement, can you still “buy” time in your tier one pension with a cash payment into the system, so you can retire a couple years early at full benefits? This used to be a thing, knew a guy that used an inheritance to do that, is it still a thing, and if so, how much does it cost?=
No, you’re thinking of the Early Retirement Initiative program. There have been a few of these programs over the years, but the last one expired several years ago.
- Mr. Smith - Friday, May 3, 19 @ 12:59 pm:
Older One @ 12:43: I did this a couple of years ago with some experience I had earned in another system set up similarly to Illinois. It was NOT cheap.
My advice would be to look carefully at the amount of difference that experience would make to your monthly retirement income, and then the math is pretty simple - if you think there is a good likelihood that you will live long enough to make it pay off in the end, go for it. But if it’s gonna cost you $25K to buy a year or two, and you are only getting $100 more (and those are just pretend numbers), then you will have to live a long time to make it up.
- Davos - Friday, May 3, 19 @ 1:05 pm:
=Wonder why people continue to call it a COLA=
If you want to split hairs on the terminology, the actual statutory term is automatic annual increase (AAI). I’m guessing folks use the phrase COLA rather than AAI because of the name recognition and for brevity.
- work in progress - Friday, May 3, 19 @ 1:06 pm:
older one
short answer is only time you worked.
for instance first six months before retirement was deducted from your check. ( corrections )
or any time you took a leave or took a refund of contributions while off work.
- Simple Simon - Friday, May 3, 19 @ 1:19 pm:
You can buy time in SURS if you meet some eligibility requirements, such as previous state service where you did not contribute to retirement, military service, etc. It costs a lot, but the amount depends on how much you would have contributed at the time (based on salary) and how much interest would have accrued (you pay it all).
- Person 8 - Friday, May 3, 19 @ 2:27 pm:
+++===can you still “buy” time in your tier one pension with a cash payment into the system, so you can retire a couple years early at full benefits?===
At this time, no teacher can retire early, pay lump sum contributions and have a full pension. +++
While teachers in tier 1 cannot buy years, they can convert 2 years worth of sick days to retire earlier. So a teacher with 33 years of service and 2 years of banked sick time, can retire 2 years earlier.
- Davos - Friday, May 3, 19 @ 3:08 pm:
=While teachers in tier 1 cannot buy years, they can convert 2 years worth of sick days to retire earlier. So a teacher with 33 years of service and 2 years of banked sick time, can retire 2 years earlier.=
If unused sick time conversion to pension credit was not permitted, most teachers would use it all up during their active service, costing taxpayer money to pay the substitute teachers. IMO, school districts need to significantly reduce or limit the amount of sick days granted. That would be the most effective measure to mitigate taxpayer expenses and would avoid any pension benefit diminishment/impairment issues.
- RNUG - Friday, May 3, 19 @ 3:52 pm:
== So, maybe RNUG or another expert here knows; if you’re a few years out from retirement, can you still “buy” time in your tier one pension with a cash payment into the system, so you can retire a couple years early at full benefits? This used to be a thing, knew a guy that used an inheritance to do that, is it still a thing, and if so, how much does it cost? ==
The short answer is mostly no.
I suspect you are thinking of the 2002 ERI where you could buy up to 5 years of service just by paying what would have been the employee contributions for the tears. That was a one-time deal.
However …
Under certain conditions, you can count / buy up to 2 years of military service time but it is quite expensive if your service time is not recent.
You can also, under some circumstances, claim or buy service from the reciprocal systems.
What you can always do is apply unused vacation time to lengthen your service time.
And, for SERS employees, if you have any sick days that are payable at 1/2 rate(they were for a period of time), they can also be used to extend service time.
So you can’t just buy 5 years of service like under the 2002 ERI, but you can add up to, maybe, 5 or 6 months under ideal circumstances.
- G'Kar - Friday, May 3, 19 @ 4:07 pm:
+While teachers in tier 1 cannot buy years, they can convert 2 years worth of sick days to retire earlier.+
That is true in TRS, but it is no longer true for SURS–you can only convert one year of sick leave to service credit.
- G'Kar - Friday, May 3, 19 @ 4:11 pm:
+IMO, school districts need to significantly reduce or limit the amount of sick days granted. That would be the most effective measure to mitigate taxpayer expenses+
Right, so you want sick teachers to show up in the classroom? Just think of all the learning that will take place when the teacher has a 100 degree fever. Think of all the kids that will be exposed to the teacher’s illness. I bet those parents will really be pleased if they have to take off work to stay home with Johnnie once he catches his teacher’s illness.
- Power House Prowler - Friday, May 3, 19 @ 4:23 pm:
I am sure some of the people who took the cash upfront were demoralized from four years of total disregard for responsible management of the state business. Sad