Rich,
Lot’s of what is in this bill has been talked about and kicked around previously. But there are some gotya’s buried in it!
I went through it fast and may have missed things or not gotten everything 100% correct. With that qualifier …
The first few sections affect Tier 2.
Retroactive clarification for Tier 2 back to 1/1/2011 may not fly with the courts given the 6 year delay. Most of the rest of 161 is targeted at Tier 2
(40 ILCS 5/1-161 d) - Looks like Final Average Compensation (highest 3 year average in last 10 years) for Tier 2 is redefined as Final Average Salary (average of last 10 years), which would be a reduction
(40 ILCS 5/1-161 e) - Looks like this caps State wages to the Social Security Wage Base
(40 ILCS 5/1-161 f) - raises normal retirement age to 67 and changes minimum years to 10
(40 ILCS 5/1-161 g) - Changes the multiplier to 1.25% per year
(40 ILCS 5/1-161 h) - changes the AAI to 1/2 of the previous year’s CPI-W (I think they actually mean CPI-U)
(40 ILCS 5/1-161 i) - changes the survivor’s benefit to 2/3’s of the retiree’s benefit
(40 ILCS 5/1-161 j) - changes the employee contribution to 6.2%, or less if the normal benefit cost is calculated to be less than 6.2%. Adjusted on annual basis. Effectively eliminates Tier 2 contributions going to slightly pay off Tier 1 debt.
(40 ILCS 5/1-161 k) - creates new Defined Contributions plan. (1) Each pension fund to develop their own plan. (2) Employee contributes 4%, employer match between 2% and 6%; KEY POINT - the employer contribution rate may be set on an employee by employee basis. Talk about an opportunity to play favorites with employees! (6) Tier 1 / 2 rollover to DC allowed if it passes Fed rules. (7) All administrative costs and fees come out of the EMPLOYEE contribution.
(40 ILCS 5/1-161 l) - effectively negates some IL SC rulings, earned benefits can’t be changed but changes can be made to not yet earned future benefits. Explicitly cites retirement age, AAI rate, and actual pension benefit amount as examples of allowable future changes.
(40 ILCS 5/1-162 b) - 162 applies to people who do not opt-in to 160, except sheriff’s law enforcement
Rest of 162 is basically the same as cited above
(40 ILCS 5/2-101) - closes the GARS pension system effective the date of enactment. No new members. Note: this not only affects the Legislature but also top level State employees like Directors, etc.
Note: from here on, it is mostly Tier 1 changes
(40 ILCS 5/2-105.3 new) - affects Tier 1.
(40 ILCS 5/2-107.10) - sets / freezes (pensionable) base pay as of July 1, 2018 or previous level if returning to Tier 1.
(2-108-3) - makes future raises non-pensionable
(2-110.3 various sections) - Election by Tier 1 employees. Choice between (1) delaying and calculating AAI per section 119, starts at age 67 or 5 years after earlier retirement, and AAI is lesser of 3% or trailing CPI-U or (2) reject and keep current AAI calculation; default is 2. Choice period is 1/1/18 - 3/31/18 … or 6 months after a final court ruling finding it constitutional (LOL!)
The “consideration” for choosing option 1 is the State can’t ever again ask you to choose between salary and AAI and the State will also pay each employee 10% of their employee retirement contributions to date.
If you reject the change, future salary increases don’t count towards pension. Any future salary increases are conditioned on not being pensionable, and your acceptance of the raise means you accept the condition it is non-pensionable.
This, I think, is where the bill may have a diminishment clause / contract law issue, regardless of how they phrase it and dance around it. The language goes to great pains to insist the individual items are severable … which tells me the drafters have some doubts also.
2-124-c - specifies 90% funding level by FY 2045. Nice little twist in subsection (c) that the money paid out to Tier 1 participants who opt for reduced AAI is deducted from the FY2019 payments I to the pension funds. This section also specifies a 5 year mini-ramp for incorporating any investment assumption changes.
(40 ILCS 5/2-126-f) - if you opted to pick the reduced AAI, effective July 1, 2018 the employee contribution rate is 8.5% for the annuity and 1.85% for the survivor’s benefit … 10.35 total. If you opt out of the survivor’s benefit, the rate is 8.55%. So not only did you pick a reduced AAI, you also agreed to pay more for your pension.
(40 ILCS 5/2-165.1) - Defined Contribution plan for Tier 1. Let’s you stop accruing benefits under the DB plan and start in the DC plan. Service years in the DB plan will.count towards the DC plan. Employee contributions will be the same as in the DB plan. Employer contribution will be the normal pension cost but not less than 3% of salary. 5 years to vest. May have disability component, and that cost is deducted from employee contribution. Irrevocable choice. Only 5% of current Tier 1 will be (initially?) into the DC. (I assume this is to limit the cost impact on the State.) If the DC plan is terminated, Tier 1 members revert to the DB plan as if they had never left it.
(Editorial aside: I still don’t see how this will save the State any money in the FY budgets, especially for non-coordinated employees, if the State has to also start paying into Social Security.)
(40 ILCS 5/14-131) - SERS changes, pretty much the same as above with the following changes below.
14-106.5
(1) Covered employees, except as indicated below,
3.15% for retirement annuity, and 0.45% for a widow or
survivors annuity;
(2) Non-covered employees, except as indicated below,
6.3% for retirement annuity and 0.9% for a widow or
survivors annuity;
(3) Non-covered employees serving in a position in which
“eligible creditable service” as defined in Section 14-110
may be earned, 10.35% for retirement annuity and 0.9% for a
widow or survivors annuity;
(4) Covered employees serving in a position in which
“eligible creditable service” as defined in Section 14-110
may be earned, 7.2% for retirement annuity and 0.45% for a
widow or survivors annuity;
(5) Each security employee of the Department of
Corrections or of the Department of Human Services who is a
covered employee, 10.8% for retirement annuity and 0.45%
for a widow or survivors annuity;
(6) Each security employee of the Department of
Corrections or of the Department of Human Services who is
not a covered employee, 10.35% for retirement annuity and
0.9% for a widow or survivors annuity.
Note: these rates are, I believe, slightly lower than the current contribution rates, ie, normal coordinated is reduced from 4% to 3.7%.
There is a new cash out option (accelerated pension benefit) to take 70% of the net present value in place of the DB pension. There are $250M in new pension bonds associated with this option.
(40 ILCS 5/15-111) - TRS
Basically same as SERS. There is a little twist buried in it where the employer (school district) has to pay the net present value of any pension benefits accrued on any salary that increases faster that the CPI-U. This clause excludes raises under current contracts, it will apply to any future contracts.
There is also a provision requiring school districts to pay for pension benefits on any salary amount in excess of $140k.
Contributions changes:
(1) Contributions of 7.50% of salary towards the cost
of the retirement annuity. Such contributions shall be
deemed “normal contributions”.
(2) Contributions of 0.60% towards the cost of survivor
benefits. Such contributions shall not be credited to the
individual account of the member and shall not be subject
to refund except as provided in Section 16-143.2.
(3) Contributions of 0.40% of salary toward the cost of
the early retirement without discount option provided
under Section 16-133.2. This contribution shall cease upon termination of the early retirement without discount option as provided in Section 16-133.2.
SURS reads pretty much the same as the other funds. One difference is some language about offsets and credits for the self-managed plan.
On page 310 - 311 there is some language I haven’t tried to look up about money to the Chicago Teacher’s Pension Fund. Think it’s intended as a “hold harmless” / no reduction language, but I’m not positive. Maybe someone who knows the Chicago system better can comment on it.
Here is another gotya:
Sec. 34-18.53. Future increase in income. The Board of Education must not pay, offer, or agree to pay any future increase in income, as that term is defined in Section 17-113.5
of the Illinois Pension Code, to any person in a manner that
violates Section 17-115.5 of the Illinois Pension Code.
There is a bit more language about limiting salary increases unless the school / university conforms to the extra pension payments beyond the specified limits.
(115 ILCS 5/10.6 new) - No collective bargaining or interest
arbitration regarding certain changes to the Illinois Pension
Code.
This new restriction is on pages 325 - 328 and is worth a read.
And I love this language sprinkled throughout:
However, no actions of the employer taken to implement or
otherwise comply with the provisions of subsection (a) of Section 10.6 shall constitute or give rise to an unfair labor practice under this Act.
And this one on page 332 pushing any additional costs onto the local entities:
(30 ILCS 805/8.41 new)
Sec. 8.41. Exempt mandate. Notwithstanding Sections 6 and 8
of this Act, no reimbursement by the State is required for the
implementation of any mandate created by this amendatory Act of
the 100th General Assembly.
Anyway, that is my fast take on it. My eyes are crossing, so I’ve probably misread one or two items, or missed something, so feel free to add to the collective knowledge about this bill.
