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Pensions 101: Systems
K-12 Members Participate in the Teachers’ Retirement System
(TRS)
Higher Education Members Participate in the State Universities Retirement
System (SURS)
ESPs Belong to the Illinois Municipal Retirement Fund
(IMRF)
Pensions 101: Systems
SURS and TRS: Considered state retirement systems and are similar
Funded by the participant AND the state(TRS does receive a small district contribution)
IMRF - not a state system Funded by the participant and local
property taxes
Pensions 101: TRS/IMRF/SURS BenefitsBenefit Package
Multiplier
Age
Cost of Living Adjustments (COLA)
Compounding COLA (Applicable to TRS/SURS)
Final Average Salary (FAS)
Pensions 101: TRS/IMRF/SURS Benefits -MULTIPLIER
What is the Multiplier?
2.2 percent for each year you work (TRS/SURS)
1.66 percent first 15 years, 2 percent each year after that (IMRF)
Pensions 101: Tier 1TRS/IMRF/SURS Benefits - Age
At What Age Can I Retire Without Being Penalized? It varies…
TRS allows retirement with the following: Age 55 with 35 years of service Age 60 with 10 Age 62 with 5
IMRF allows retirement with the following: Age 55 with 35 years of service Age 60 with 8
SURS allows retirement with the following: Any age with 30 years of service Age 60 with 8 Age 62 with 5
Pensions 101: Tier 1TRS/IMRF/SURS Benefits - COLA
What is my COLA?
Post retirement increases to annuities
3 percent each year compounded (TRS/SURS)
3 percent of your original pension annually (IMRF)+ a 13th check every year equal to 51 percent of your monthly payment
Protects you from inflation, which has averaged 3.4 percent since 1914 and 4.0 percent since TRS was created in 1939
Pensions 101: Tier 1TRS/IMRF/SURS Benefits - FAS
What is final average salary?
Four highest consecutive years in your last 10 years of service (TRS/SURS)
48 highest consecutive months in the last 10 years of service (IMRF)
Pensions 101: Tier 1 TRS/IMRF/SURS Benefits
How do you determine your pension?
Multiplier X Years of Service = Percent of Final Average Salary (FAS)
TRS and IMRF members pensions can only be calculated to 75 percent of their FAS
SURS up to 80 percent
Members of TRS and SURS before July 1, 2005, can have their annuity calculated on an actuarial basis
Pensions 101: Defined Benefit TRS/IMRF and SURS are Defined Benefit
(DB) pension plans
You will know what your benefit is for the entire length of your retirement. It will modestly grow over time, due to annual cost of living adjustments
We believe these benefits are protected by Article XIII, Section 5, of the Illinois Constitution
Pensions 101: Defined Contribution Defined Contribution Plan (DC)
SURS has this option
401k
The employer and employee contribute to an investment account
The employee must invest their money in mutual funds
Pensions 101: Defined ContributionWhat are your benefits?
Depends on what the stock market has done over your career and during your retirement
Depends on when you retire (1999 or 2009)
Pensions 101: Defined ContributionRisks?
Run the risk of not having enough in retirement because of downturns in the market
Professionals are not managing your money as they do for a defined benefit plan
Pensions 101:Defined Contribution & Social Security
IEA members in TRS and SURS DO NOT receive Social Security for their years as an educator
Even when we have earned Social Security through other jobs, our benefit is reduced by federal law GPO/WEP (Government Pension Offset/Windfall Elimination Provision)
DC plans could force many retirees into poverty because of downturns in the market. Those in TRS and SURS have no “safety net” with Social Security
Private sector employees in a 401k receive Social Security
Pensions 101: Funding
TRS/IMRF/SURS members
TRS 9.4 percent of your salary funds your benefit (Members paid $976 million in FY 12)
IMRF 4.5 percent SURS 8.0 percent
A breakdown of your contribution: 7.5 percent for your base TRS pension/3.75 percent for
IMRF/6.5 percent for SURS
1.0 percent funds your survivor and disability benefit/TRS/SURS. IMRF requires 0.75 percent
0.5 percent funds your annual Cost of Living Adjustment (COLA) TRS/SURS
0.4 percent funds the Early Retirement Option (ERO) - TRS only
Pensions 101: Funding
Who Else Pays?
Districts pay 0.58 percent of salary for TRS
The state pays whatever it wants for TRS and SURS
FY 2013 (TRS will receive $2.7 billion from the state) Roughly, $800 million of the $2.7 billion is for benefits
earned this year The remaining $1.9 billion is for past debt incurred by the
state Districts levy property taxes to fund your IMRF
Pensions 101: Funding
Funding Plan for TRS and SURS:
50-year payment plan established by 1995 law
Currently in the 18th year
Plan called for a “ramp up” of contributions for the first 15 years of the plan
Each year required a much larger amount than the previous year
Pensions 101: Detailed Funding(Source: COGFA)
2013 2015 2020 2025 2030 2035 2040 2045 $-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
$5.9
$6.8 $7.2
$8.6
$10.1
$11.8
$14.8
$16.0
$17.3
Pension Contributions ($ in billions)
Pensions 101: Detailed Funding(Source: IRSI)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Pension Projections & Total RevenueFY 2012-2045 Projections
State Pension Contributions
Pensions 101: Detailed Funding(Source: IRSI)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Pension Projections & Total RevenueFY 2012-2045 Projections
State Pension Contributions
Total Revenue Based 3% Growth and Changes to Personal and Corporate Income Tax Rates (based on current legislation)
Pensions 101: Detailed Funding(Source: IRSI)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Pension Contribution as % of Revenue
Pension Contribution as % of Revenue (3% Growth and Changes to Personal and Corporate Income Tax Rates based on cur-rent legislation)
Pension Contribution as % of Revenue (3% Growth and Continuation of Current Personal and Corporate Income Tax Rates)
Pensions 101: Tier Two
Two tier means a reduced set of pension or retirement benefits for members hired after January 1, 2011.
Pensions 101: Tier Two
Benefits Targeted:
Everything
o Multipliero FASo Maximum Pensionable Salaryo Ageo COLA
SB 1946/PA 96-0889 impacted all government pension funds in Illinois, except police and firefighter pensions
This legislation passed in 12 hours
Pensions 101: Tier Two
Pensions 101: Tier Two
Benefits changed for new hires on or after January 1, 2011
Age 67 with 10 years of service (Highest retirement age in the nation)
FAS is now the 96 highest consecutive months in the last 10 years of service
COLA is now 3 percent or ½ of CPI, whichever is less, and is only simple
Pensions 101: Why we should be active in this fight?
What was once unheard of is now the norm. Attacks on constitutionally protected pension benefits continue to persist
Numerous pieces of legislation dealing with all parts of your pension benefits have been introduced
Pensions 101: Why we should be active in this fight?
What is the “choice and consideration concept” that we hear about being discussed in Springfield? Some believe that if members of a pension system
are given a choice and given some consideration they can modify their pension constitutionally Example: 1. Members can choose to keep their COLA, but
they will not have their future salary growth counted toward their pension or have access to health care; or 2. members could choose a reduce COLA and have salary growth count toward their pension and access to some form of health care
Underlying all of this would be the consideration of guaranteed funding by the state
Pensions 101: Why we should be active in this fight?
The Normal Cost Shift Currently, there are discussions about
shifting the pension costs of active teachers onto local school districts (Normal cost equals $800 m/Slide 19)
IMRF is set up like this However, the issues of property tax caps and
locally available resources make this a problematic concept
Schools are already having issues providing services and if this were to be implemented, resources for the classroom would be even more scarce
Sustainability
This is a common theme about the retirement systems
Legislators and business groups express that they want to cut your benefits to make the system more affordable and sustainable
Pensions 101: Why we should be active in this fight?
How to address the sustainability comment: Members have never missed a pension
payment and will not TRS is a long-term investor and has averaged
a 9.3 percent return over 30 years. Do not get confused with the short-term returns when long-term returns are what matters
Pensions 101: Why we should be active in this fight?
How to address the sustainability comment: The 2nd Tier of benefits that was implemented in 2011
drives down the cost of the retirement systems to the state
The annual cost to the state for pension benefits earned each year goes to $0 by 2035 for TRS
Benefits have already been cut enough. This is a discussion of funding the benefits already earned and not a discussion of how much lower the benefits can go, because they are already heading to a cost of $0 to the state
*From p. 41of “A Report on the Financial Condition of the Il State Retirement Systems” prepared by the Commission on Government Forecasting and Accountability (COGFA) 3/2012
Pensions 101: Why we should be active in this fight?
Pensions 101: Our View
The Illinois Constitution is clear In Article XIII, Section 5, of the Constitution (the “Pension
Protection Clause”), it is stated, “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
IEA believes that any changes must meet the following criteria: 1. Must be constitutional 2. Must be fair to our members 3. Must maintain the stability of the state pension funds
Pensions 101: What is Happening There continue to be meetings with all groups
involved in the pension issue Currently, the IEA and other labor organizations in
the We Are One coalition are engaged with the governor and with the other legislative caucuses to find ways to maintain TRS and SURS, while still holding true to our three points
The We Are One Illinois coalition has offered a four point proposal: Guaranteed pension funding Exempt current retirees from any proposal Secure revenue from closing tax loopholes Open to possible increased member contributions
Pensions 101: What You Can Do
Pay attention to legislative proposals and be ready to lobby
Visit the IEA website often and act when a call to action occurs (the IEA website now has a Pensions Tab to click on for pension information)
Understand that the legislature will act if our members do not voice their opinion on proposals
Engage and educate your colleagues/friends and lobby your local legislators now
Ask your local president, building representative or your local IEA office how you can help