Memo details pension proposal
The pension reform proposal, as outlined in a memo from Steve Brown, a spokesman for House Speaker Michael Madigan:
— Funding schedule and method for certifying contributions: Establishes an actuarially sound funding schedule to achieve 100 percent funding no later than the end of Fiscal Year 2044. Contributions will be certified using the entry age normal actuarial cost method (EAN), which averages costs evenly over the pensioner's employment and results in level contributions.
— Supplemental contributions: The state will contribute (i) $364 million in FY 2019, (ii) $1 billion annually thereafter through 2045 or until the system reaches 100 percent funding, and (iii) 10 percent of the annual savings resulting from pension reform beginning in FY 2016 until the system reaches 100 percent funding. These contributions will be "pure add-on," which means state contributions in any year will not be reduced by these amounts.
— Funding guarantee: If the state fails to make a pension payment or a supplemental contribution, a retirement system may file an action in the Illinois Supreme Court to compel the state to make the required pension payment and/or supplemental contribution set by law each year.
— Employee contribution: Employees will contribute 1 percent less of their salary toward their pension.
— Annual annuity adjustment (COLAs): Future COLAs will be based on a retiree's years of service and the full CPI. The annual increase will be equal to 3 percent of years of service multiplied by $1,000 ($800 for those coordinated with Social Security). The $1,000/$800 will be adjusted each year by the CPI for everyone (retirees and current employees). Those with an annuity that is less than their years of service multiplied by $1,000/$800, or whatever the amount is at the time of retirement, will receive a COLA equal to 3 percent compounded each year until their annuity reaches that amount.
Additionally, current employees will miss annual adjustments depending on age: employees 50 or over miss one adjustment (year 2); 49-47 miss three adjustments (years 2, 4, and 6); 46-44 miss four adjustments (years 2, 4, 6, and 8); 43 and under miss five adjustments (years 2, 4, 6, 8, 10).
— Pensionable salary cap: Applies the Tier II salary cap ($109,971 for 2013), which is annually adjusted by the lesser of 3 percent or one-half of the annual CPI-U (the consumer price index for all urban consumers). Salaries that currently exceed the cap or that will exceed the cap based on raises in a collective-bargaining agreement would be grandfathered in.
— Retirement age: For those 45 years of age or under, the retirement age will be increased on a graduated scale. For each year a member is under 46, the retirement age will be increased by 4 months (up to 5 years).
— Effective rate of interest (ERI): For all purposes, the ERI for State Universities Retirement System and the rate of regular interest for Teachers Retirement System will be the interest rate paid by 30-year U.S. Treasury bonds plus 75 basis points.
— General Assembly Retirement System Tier 2 fix: Brings GARS Tier 2 salary cap and annual adjustment in line with other Tier 2 benefits.
— Pension abuses: Prohibits future members of nongovernmental organizations from participating in Illinois Municipal Retirement Fund, State Universities Retirement Fund and Teachers Retirement System. Prohibits new hires from using sick or vacation time toward pensionable salary or years of service (applies to SERS, SURS, TRS, IMRF, Cook County, and Chicago Teachers).
— Defined contribution plan: Beginning July 1, 2015, up to 5 percent of Tier 1 active members have the option of joining a defined contribution plan. The plan must be revenue neutral and employee contributions will be equal to those for the defined benefit plan. If a member chooses to opt into the defined contribution plan, benefits previously accrued in the defined benefit plan will be frozen.
— Collective bargaining: All pension matters, except pension pickups, are removed from collective bargaining.
— Health care payments: Prohibits the state pension systems from using pension funds to pay health care costs.