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Pensions 101 the Continuous Fight

Learn about the various pension systems in Illinois, including TRS, IMRF, and SURS. Explore benefits, contributions, multiplier rates, and retirement eligibility. Understand defined benefit and contribution plans.

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Pensions 101 the Continuous Fight

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  1. Pensions 101the Continuous Fight IEA – Pension Defense Team

  2. 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)

  3. 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

  4. Pensions 101: TRS/IMRF/SURS Benefits Benefit Package • Multiplier • Age • Cost of Living Adjustments (COLA) • Compounding COLA (Applicable to TRS/SURS) • Final Average Salary (FAS)

  5. 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)

  6. Pensions 101: Tier 1 TRS/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

  7. 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

  8. 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)

  9. 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

  10. 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

  11. 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

  12. Pensions 101: Defined Contribution What 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)

  13. Pensions 101: Defined Contribution Risks? • 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. Pensions 101: Detailed Funding(Source: COGFA)

  19. Pensions 101: Detailed Funding(Source: IRSI)

  20. Pensions 101: Detailed Funding(Source: IRSI)

  21. Pensions 101: Detailed Funding(Source: IRSI)

  22. Pensions 101: Tier Two • Two tier means a reduced set of pension or retirement benefits for members hired after January 1, 2011.

  23. Pensions 101: Tier Two Benefits Targeted: • Everything • Multiplier • FAS • Maximum Pensionable Salary • Age • COLA

  24. Pensions 101: Tier Two • SB 1946/PA 96-0889 impacted all government pension funds in Illinois, except police and firefighter pensions • This legislation passed in 12 hours

  25. 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

  26. 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

  27. 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

  28. 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

  29. Pensions 101: Why we should be active in this fight? • 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

  30. 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

  31. 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

  32. 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

  33. 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

  34. 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

  35. Pensions 101 • Questions? • Thanks to IRSI for the revenue projections

  36. Pensions 101: Resources • Information www.trs.illinois.gov www.imrf.org www.surs.org www.ieanea.org www.ilretirementsecurityinitiative.org

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