The mission of the Legislative Committee is to advocate for the interests of HCAA members to our area legislators and keep HCAA members informed about pertinent legislative activities.
Reports and Readings:
HCAA Legislative Committee Report, February 2019
Committee: Linda Kolbusz-Kosan, Michael Nejman, Steve Catlin, Linda Frank
Goals for 2019:
- Stay informed of news related to pension and health care for retirees.
- Observe Governor Pritzker’s approach to state issues.
- Meet with local officials, especially those who are newly elected, to share information about the HCAA organization.
- Meet with new Harper administration – Jeff Julian, Executive Director of Communication; Kim Pohl, Media Relations and Legislative Affairs Manager; and new President.
News at State Level:
- Governor Pritzker was sworn in as 43rd Governor on Jan. 14, 2019. Governor Pritzker will deliver his budget address to the General Assembly on Feb. 20th.
- Lead issue in Senate is raising the minimum wage to $15 per hour. Current minimum wage is $8.25.
- The pension debt issue will most likely be pushed forward during this session.
- State Representative Fred Crespo, D-Hoffman Estates, was appointed assistant majority leader in State House.
- State Senator Andy Manar, D-Bunker Hill, proposed Senate Bill 179 that would set aside $50 million for SIU to construct a campus in downtown Springfield.
- State Senator Laura Murphy was named Chair of the Senate Committee on Commerce of Economic Development, a committee that evaluates the benefits of bills regarding businesses and economic issues.
- David Harris, former State Representative who decided not to run, has been appointed by Governor Pritzker, first as a member of his transition team, and then as the Director-designate for the Illinois Department of Revenue.
News at Local Level:
- State Senator Ann Gillespie and State Representative Mark Walker are hosting an Open House on Saturday, February 9, from noon to 4pm at their new district constituent service office at 120 W. Eastman St., Suite 207, Arlington Heights.
News from SUAA:
- State Bill 0060 and House Bill 0350 – 3% salary limitation
- 6% rule changed to 3% (except for certain contracts and collective bargaining agreements)
- Ends the 6% rule and 3% rule for Tier II Hybrid Plan members and Tier II Defined Benefit members who first participate in SURS after the implementation of the optional Hybrid Plan
- Summary: These bills are an attempt to ‘reset’ the salary limitation back to 6%. The current salary limitation began in January 2018.
HCAA Legislative Committee Report, September 2018
Sue Overland, Linda Kolbusz and Michael Nejman attended a meeting with Senator Tom Rooney. Senator Rooney is the current Minority Spokesperson on the Senate Higher Education Committee and Pension Committee. He did express his support for protecting the pension of current retirees, not taxing pension income in Illinois and summarized his ideas for reducing the overall pension debt in Illinois. Please check his website at Senatortomrooney.com to see a summary of his proposals and bill sponsorships.
As the November Election approaches, many House and Senate Bills regarding pensions are at a stall. You can check the link to SUAA and see a summary of the current status of Bills under the legislation tab.
Vote on November 6th.
Dates to remember regarding November Elections:
9/27: First day for early voting for the General election
10/09: Last day to register to vote
10/10: First day for grace period registration and voting
10/21: Last day to register to vote online
11/05: Last day for early voting for the General election
11/06 Last day for grace period registration and voting
If you still need to register, you can obtain information at Illinois Voter Registration.
You can also now complete your voter’s registration online, or make changes such as address, etc. through this link.
This website is very helpful in providing information about upcoming Illinois elections.
HCAA Legislative Update, November 2017
Pension Changes in the FY2018 Budget: Short-Term Savings and Long-Term Costs
Center for Tax and Budget Accountability (CTBA) October 10, 2017
The changes made to Illinois public pension systems in Public Act (PA) 100-0023 (introduced as Senate Bill 42), the Budget Implementation Act, or BIMP, passed on July 6, 2017, and include two primary elements. First, the BIMP creates a new Tier 3 level of benefits for public sector workers. Second, the BIMP permits the state to smooth out the fiscal impact of the actuarial reduction in the assumed rate of return generated by the state’s five pension systems.
While proponents of the changes suggest they will give the state immediate and long-term fiscal relief from growing pension costs, this analysis of the changes indicates that the hoped for fiscal relief may not materialize.
Tier 3 is a new hybrid defined benefit-defined contribution plan that all Tier 2 and new employees will be able to opt into. The FY2018 budget is predicated on Tier 3 saving $500 million for the state; however, analysis by the State University Retirement System suggests that this number will be lower, and will continue to be slight for the foreseeable future. Moreover, much of the savings result from cost-shifting to local units of government.
The five-year assumption smoothing will result in savings in FY2018 for the state. However, it essentially amounts to additional borrowing against pension liabilities, and therefore will increase long-term costs. The Teachers Retirement System estimates that for each dollar of up-front savings, there will be three dollars of long-term costs.
Legislation to Watch
We are watching the tax bill on the federal level. There is a provision in at least one version that would place a new federal tax on pensions. This is not good news, especially in IL where the funding of pensions is already an issue.
GOP Tax Overhaul Could Hit State and Local Pension Plans with Federal Tax
(News Article from Route 50)
By Bill Lucia, Senior Reporter
November 21, 2017
WASHINGTON — State and local government pension plans would be confronted with new costs and complications under the Republican tax bill the U.S. House approved last week. Some, but not all, public pension investments would become subject to what’s known as the Unrelated Business Income Tax, or UBIT, if the current version of the House bill were to be enacted. The proposed change to how the tax is applied would make it so state and local government pension plans are treated in a way that is similar to private sector pensions, or nonprofit organizations.
How the Tax Bills Would Hit Higher Ed
(News article from Inside Higher Ed)
On eve of vote on Senate tax reform plan, we compare it to the House version, which would hurt students and families more. Both would hit colleges and universities hard by imposing new taxes and constraining state budgets.
November 30, 2017
As Republican leaders in the Senate lobbied to secure the votes needed for a drastic overhaul of the U.S. tax system, higher education leaders and student groups have continued to keep the spotlight on provisions in both houses of Congress that would significantly affect — and, they believe, badly hurt — institutions and college-goers alike. Both tax reform plans would for the first time tax the income of college endowments by targeting the largest endowments at private institutions — a “disastrous precedent for universities and indeed, for all charitable organizations,” said Mary Sue Coleman, president of the Association of American Universities, in a statement this week. But the effects of the two bills on students and colleges are wide-ranging.
General Assembly Updates
Veto session wrapped up with several issues to be worked on through next year. Sexual harassment, not surprisingly, was the biggest issue as veto session ended.
First Reading is published by the Illinois General Assembly Legislative Research Unit. “It summarizes bills as they passed both houses of the General Assembly,” plus other interesting facts. Click here to view recent bills summaries: http://www.ilga.gov/commission/lru/Oct2017FirstRdg.pdf
- November 27 – December 4, 2017 Filing period for established party candidates
- December 5 – December 11, 2017 Filing period for objections to nomination petitions
- The House stands adjourned until January 23, 2018 or until the Call of the Speaker.
- The Senate stands adjourned until January 30, 2018 or until the Call of the President.
- January 31, 2018 Governor’s State of the State
- February 14, 2018 Governor’s Budget Address
- March 20, 2018 Primary Election Day
August 2017 Legislative Report – CTBA (Center for Budget and Tax Accountability)
Provisions in Governor’s Amendatory Veto of SB1 Would Have Serious Negative Consequences for Illinois School Districts
While the Illinois Senate voted on Sunday to override the Governor’s amendatory veto (AV) of SB1, the Evidence-Based Model for education funding reform, a new CTBA analysis has identified at least six aspects of the AV that would each threaten the ability of Illinois school districts to reach adequate funding to serve their students. These deficiencies underscore the importance of passing SB1.
CTBA finds that Governor Rauner’s AV would frustrate SB1’s core purpose of creating an adequate and equitable education funding formula in a number of ways, including by weakening:
- SB1’s “hold harmless” provision;
- SB1’s protections against artificially inflated pressure on local resources through accounting of PTELL and TIF effects;
- SB1’s accounting for inflation and regional cost differences; and
- SB1’s accounting for pension cost shifts under Tier III.
The bottom line is that the provisions in the AV are fatally flawed. SB1 is the only path to an education funding formula that is based on the evidence of what works, identifies the needed funds, and equitably distributes those resources over time to school districts across Illinois.
You can download CTBA’s Fact Sheet here.
For more information, contact CTBA’s Executive Director, Ralph Martire, at firstname.lastname@example.org, Budget Director, Bobby Otter, at (312) 332-2151 or by email at email@example.com, or Senior Policy Analyst Daniel Hertz, at (312) 332-1481 or by email at firstname.lastname@example.org.
May 2017 Legislative Report – Mary Shaw
Well, we hit the 700 days without a state budget. Here is where we stand.
Illinois- the longest of any state in modern history – is running a deficit of roughly $6 billion and sittng on a $14.5 billion pile of overdue bills.
Senate Democrats have passed all of the components the governor stated he required to sign a budget for the state, something we haven’t had since summer 2015.
They passed four bills that make up this budget package:
SB 9 – Tax increase and revenue
SB 6 – The Budget
SB 42 – A reworked version of the Budget Implementation Act that no longer cuts the TRIP continuing appropriation and fully funds TRIP and TRS.
SB 521 – Authorizes the sale of general obligation bonds
In addition, they passed all of the components of the Grand Bargain and then some:
- education funding reform (SB 1),
- minimum wage increase (SB 81),
- local government consolidation (SB 3),
- bond restructuring (SB 4)
- pension reform (SB 16),
- a gaming bill to raise revenues (SB 7),
- Workers Compensation reform (HB 2525)
- a 2 year property tax freeze (SB 482, SB 484)
- procurement reform (SB 8)
- Legislation to allow the sale of the Thompson Center (SB 886),So, although these things passed the Senate most are still sitting in the House without a vote.Also, there seems to be some movement on a stop gap measure in the House that would at least ensure that K-12 schools open in August, but after midnight on May 31, 2017 anything passed by the legislature needs a 3/5 majority (71 in the House and 35 in the Senate).Keep in mind that Gov. Rauner has repeatedly said he will veto a stopgap unless he gets a permanent property tax freeze. And, they technically have until July 1, 2017 to pass this stopgap so we may be in for a long summer.Just a Bill:
- Senate Bill 1933 has passed both chambers and will create automatic voter registration (AVR). This will reform current registration laws so that whenever an eligible Illinois resident applies for, updates or renews a driver’s license or state ID, he or she will be automatically registered to vote or have their registration updated, unless they opt out. It also creates a similar program for other state agencies, such as the Department of Human Services and Department of Natural Resources.
- A bill likely to land on the governor’s desk within the next few days would prohibit the establishment of right-to-work zones, a blow for those who believe such zones could help recoup thousands of jobs lost to neighboring states in recent years. A veto also is likely, as right-to-work, or “empowerment” zones, are a concept that Gov. Bruce Rauner has championed since taking office in 2015.
Northeastern Illinois University to cut 180 positions. Northeastern Illinois University will begin the implementation of layoffs as a result of a two-year state budget impasse that has deprived it of both a FY16 and FY17 appropriation.
The University has a $10.8 million projected cash flow shortfall through September 30. To address this and the lack of a state appropriation, Northeastern will be eliminating at least 50 Administrative and Professional (A&P) positions and approximately 130 Civil Service positions, which account for about 25 percent of each of these employee groups. In total, that is about 180 positions. Layoff notification and the Civil Service bumping process begin immediately and will take place during the next several weeks.
Also, please be advised the House will be back in session next Wednesday, and every Wednesday, throughout June.
Illinois Retired Teachers Association Government Affairs Director 217.523.8488
March 2017 Legislative Report
IEA Legislative UPDATE (3/17/17) can be viewed from the IEA website here.
February 2017 Legislative Report
Betsy DeVos was confirmed as President Trump’s education secretary, 51 – 50. Vice President Pence cast the unprecedented tie-breaking vote. What can be expected now for higher education? Here are some thoughts from an NPR report (February 7, 2017):
The Higher Education Act is up for reauthorization. Three issues that may come up early in a DeVos Education Department: the role of for-profits, college costs and enforcement of Title IX (which governs sex discrimination, including sexual assault cases).
- On Title IX:DeVos said in her hearing that it would be “premature” to say she would uphold department guidance that asks colleges to take an active role against sexual assault.
- On college costs:“Free tuition” proposals drew a lot of Democratic fans during the presidential campaign. DeVos was dismissive of the idea in her hearing: “There’s nothing in life that’s truly free.”
Democrat John Cullerton and Republican Leader Christine Radogno have worked together to present 12 “grand bargain” bills. However, on February 9, the Illinois Senate failed to pass the controversial pension reform bill (SB11) – with Radogno calling the vote a “breach of agreement.” Yet of the 12 bills, three of the least controversial ones passed: SB3 – local government consolidation; SB8 – state government procurement reform; and SB10 – lower interest rates for borrowing in home-rule municipalities. (Chicago Sun-Times and rebootillinois.com)
The defeated pension reform bill (SB11) would create savings by allowing public sector employees to choose whether their benefits are related to raises they may get or to annual cost of living adjustments to their pensions during retirement. It covers university employees, public school teachers, General Assembly members and Chicago teachers. Retirees and judges are not covered. And other state employees are currently not part of the plan because of ongoing legal action with their contract. It should be noted that the bill had just 18 senator voting yes, and 29 voting no. Ten voted present. And there was no Republican support. Republicans voted either “no” or “present.” Voting might indicate that it’s all about the next election. (Chicago Sun-Times)
It’ll be interesting to see if the rank’n’file can move the “grand bargain” forward in its entirety. A true compromise will mean no side “wins.”
November 2016 Legislative Report
The election results have made a slight shift in the balance of power for Illinois. In the Illinois House, there were 47 Republicans and 71 Democrats, now there are 51 Republicans and 67 Democrats. In the Illinois Senate, there were 20 Republicans and 39 Democrats, now there are 21 Republicans and 38 Democrats. There is still a Democratic majority, however it’s not a “super majority.” (Daily Herald, November 10, 2016).
Governor Rauner and Speaker Madigan are striving to meet soon, however lawmakers are scheduled to return to Springfield this week for their annual veto session. Rauner wants to reach a budget deal with Democrats in the coming weeks. State government has operated without a complete budget for nearly 18 months. A temporary stopgap spending measure expires at the end of November. (Chicago Tribune, November 14, 2016).
The Safe Roads Amendment passed, indicating that: a change in the Illinois Constitution is possible (which could lead to additional amendment changes); and that the road-related funds are no longer “flexible” and available for shortfalls in the budget. Trade unions supported this amendment, as it will result in road construction jobs.
View the election results for Cook County to use as an overview here.
September 2016 Legislative Update
Matt Murphy has resigned and will be replaced by Tom Rooney, as selected by township Republican chairs. Rooney is the current mayor of Rolling Meadows, however his term ends soon. He’s a former West Leyden H.S. social studies teacher (20 years). Rooney will be sworn in as Republican state Senator in just a few weeks.
Fall ballot. The Illinois Independent Map Amendment was stricken from the ballot by the IL Supreme Court. In a 4-3 decision on August 25, the Court ruled that it would be unconstitutional to grant legislative mapmaking powers to an independent commission. So, there is only ONE statewide ballot measure: The Illinois Transportation Taxes and Fees Lockbox Amendment is on the November 8, 2016 ballot as a legislatively referred constitutional amendment. It was designed to prevent lawmakers from using transportation funds for anything other than their stated purpose. NOTE: Term Limits was not addressed as well.
Election: November 8. You can vote early beginning September 27 through November 7 at established polling places (see your County Board of Elections or Board of Election Commissioners for polling places). Be sure you are registered to vote and you know your local polling place.
Fall 2016 Legislative Report
November elections are just around the corner. Please be sure that you, your family, and friends are all registered to vote. Here is David Orr’s website for Cook County voter registration information: http://www.cookcountyclerk.com/Pages/Default.aspx
If you live outside of Cook County, please check the appropriate website for your County Clerk (example: http://kanecountyclerk.org/.
The following Website is very informative and provides information about the upcoming Illinois elections: http://www.uselections.com/il/il.htm
Peruse this site to become familiar with your local elections at both the state and federal levels.
As you’ve no doubt heard in the media, the Illinois legislature adjourned without a formal budget and they are not scheduled to return until after the election in November, 2016. So unfortunately, we do not have any additional information for you at this time. The HCAA Legislative Committee will continue to monitor, and will report to HCAA members anything of significance in the coming months.
As of August 2016, view a spreadsheet for the political races in Harper’s district here.
Is This the Year Illinois Skips Higher Education?
Monday, January 4, 2016 12:00 am by Jim Nolan
This may be the year, unprecedented, that Illinois simply skips funding for its colleges and universities as well as for students on state scholarships. As a broken-down professor, I hope I am wrong, as the consequences will be severe.
Yet there is little outcry. Higher education is, I fear, out of favor. We must create a broad-based blue ribbon commission to look ahead and advise our colleges and universities as to what is in store for them in terms of state support.
Don’t snicker. In the 1950s, a blue ribbon task force called the Illinois Commission on Higher Education provided a blueprint for the state that ultimately gave us a tiered system of public higher education that has been admired across the country.
In this present budget year (July 1, 2015-June 30, 2016), most of the state’s functions are being funded by court orders, even though the legislature and governor have never agreed upon a budget.
Higher education is the one major function of state government that has not been covered by the courts. Thus, there is no money from the state for operating the colleges and universities, nor for paying the tuition scholarships for 130,000 students (out of about 900,000 total students in all Illinois colleges and universities).
Relative to the rest of state government, funding for higher education has been slipping for decades. Three decades ago, higher education received one dollar for every two dollars going to our public schools; today it is one dollar for every four.
Three decades ago, higher education represented 8.5 percent of total state funding; today it is 3.3 percent (these figures exclude pension funding, then and now).
Even in the context of the relative decline, higher education has fared pretty well until this past decade, and some of the institutions got fat and sassy.
For example, the public has been shocked, understandably, by proposed out-the-door settlements of half a million dollars or more for the ousted president at the College of DuPage, a large community college in the suburbs, and for the deposed head of the Urbana campus of the University of Illinois.
In addition, faculty salaries reaching hundreds of thousands of dollars for “star” professors, who can win big research grants, seem out of line to the common Joe, as do salaries for presidents that are becoming almost as high as those for their football coaches!
The U. of I. at Urbana-Champaign is home to one of the largest and absolutely best engineering and computer science colleges in the world. Campus leaders feel compelled to compete with the wealthiest universities for top faculty, who keep the research labs humming and maintain the campus’s top world rankings.
Maybe this is all wrong. Maybe the state should tell our public university research faculties to get out of the labs and back to teaching five or more courses a semester, as instructors do at our community colleges.
I think this would be disastrous for our major universities, but if that is what the lawmakers and public want, then tell the university leaders so they can figure out how to adjust, and so the research faculty can look elsewhere.
I have always thought of higher education as a “public good” rather than just a “private good.” To me, higher education is a key component of the economic well-being and quality of life of a state, rather than solely a benefit to the students.
Maybe the private universities can alone fulfill these roles for our state.
Again, if so, we need to think this through and project our financial commitment to higher education, or lack of it, out five to 10 years.
Unfortunately, instead of looking ahead, something our state never seems to do, Illinois is budgeting backwards, a concept I have never before encountered. That is, we are asking our colleges and universities to spend money for programs we have approved. Then, sometime later, the state will tell the higher ed units what if anything of that spending the state will reimburse.
I don’t think our governor and lawmakers are in a frame of mind right now to gaze out the window and look ahead.
That is why a top-tier blue ribbon commission comprising present and future leaders of the state from varied walks of life needs to lay out a plan that takes into account both the resources likely to be available in the coming years and the objectives we feel our higher education sector must accomplish for us.
Jim Nowlan is a former Illinois legislator and state agency director. He is a retired senior fellow at the University of Illinois Institute of Government and Public Affairs.
In Illinois, pension and retirement income is exempt from the state’s income tax. And many state lawmakers want to keep it that way. This week, state Rep. Andy Skoog, D-La Salle, joined other Republicans and Democrats to support a resolution that urges the governor and General Assembly to oppose taxation of retirement income.
“There is no denying that Illinois is in the midst of an unprecedented fiscal crisis, but attempting to fix decades of financial mismanagement on the backs of seniors on a fixed income is shameful,” Skoog said in a news release.
In an interview, Skoog said seniors “are not living high on the hog.”
“A tax increase will wreak havoc on their financial security. It will hurt them greatly. They are living month to month,” he said.
He said he would be working with Meals on Wheels in the coming days and expected to hear from more seniors struggling to make ends meet.
The tax exemption has been in place since 1972. Illinois is one of only three states that completely passes up this revenue source, according to the Taxpayers Federation of Illinois, a watchdog group.
If Illinois had treated retirement income like the IRS and most other states, it would have seen $2.3 billion more in revenue in 2012, the federation said.
One in four tax returns in Illinois contains a retirement income subtraction, an amount that has been growing faster than Illinois’ overall taxable income, according to the federation.
Much of the tax benefit is going to those younger than 65, the group said. The largest benefit goes to filers with the highest income, with 45 percent of the retirement income tax savings flowing to taxpayers with adjusted gross income more than $100,000, according to the federation.
The two Republican candidates running for Skoog’s position back the exemption.
In a telephone interview, Jerry Long, a small businessman and truck driver from Streator, said it is inappropriate to eliminate the exemption because many senior citizens live on fixed incomes.
Jacob Bramel, an Air Force veteran from Marseilles, cited statistics showing the number of seniors in Illinois is expected to grow from 1.7 million in 2010 to 2.7 million by 2030.
“Illinois lawmakers see this growth in the senior citizen bracket as a potential way to seek additional revenue for the state by eliminating these tax exemptions on retirement incomes,” Bramel said in a statement. “This is a time where our state lawmakers need to practice restraint and discipline and support this resolution.”
In the Chicago Tribune in August, Natalie Davila, the former research director for the state Revenue Department, argued that taxpayers with higher incomes benefit more from the retirement income exemption.
“Poor seniors who have to work pay income tax on their wages. Retirees who do not have to work because they have significant retirement income do not pay income tax,” Davis said.
The candidates were specifically asked whether this is fair, but they did not say whether it was or not, only saying most seniors are on fixed incomes.
State Rep. Barbara Wheeler, R-Crystal Lake, told the Northwest Herald recently she would support legislation to tax some public pensions — for instance, those making more than $100,000 in retirement income — as a way to shore up the state’s pension systems.
It’s not uncommon for government workers in Illinois to retire with pensions north of $100,000. For instance, The Times recently reported on a La Salle County official who receives a $104,000 state pension, in addition to his $64,000 salary. His $104,000 pension is not subject to the state income tax.
Legislation and Related Links:
- What the average pension is for a state employee?
- What’s a funding ratio, and what are the funding ratios for the different pension funds?
- How much did benefit increases cost the pension systems?
- How much did investment losses contribute to pension underfunding?
- What’s the biggest factor for underfunded public pensions in Illinois?
We’ve got answers to those questions and many more in this convenient document. It’s a great reference tool for following the conversations that dominate budget discussions in Springfield. Access the document here.
Not sure who is serving you in the U.S. Congress and/or the Illinois State Legislature? Find out simply by entering your mailing address at the District/Official Search website.
Pension Reform Proposed Legislation and Information:
To learn more about What We Know and Don’t Know about the State’s New Hybrid Tier III Pension Plan discussed at the SUAA Fall State Meeting in Normal – click here.
Tier III Pension Reform Questions and Answers (July, 2017): This new plan (see below) is only for Tier III employees not yet hired, and Tier II employees who wish to change to Tier III; current retirees are not affected.
1. Were there pension changes in the new FY 18 State budget?
Yes, there were changes made to pensions in SB 42, one of the three budget bills that make up the FY18 State budget.
2. How does SB 42 impact pensions?
Within Senate Bill 42, the budget implementation bill, the General Assembly created a third tier for new hires under most pension systems, including State Universities Retirement System (SURS), Teachers’ Retirement System (TRS) and State Employees’ Retirement System (SERS). The Illinois Municipal Retirement Fund (IMRF) is not included. This third tier attempts to fix some of Tier II’s problems. There are several other significant components of the proposal that improved upon the current pension system and several counterproductive ideas that were omitted, for example, a consideration option for Tier I members.
3. Does the new pension proposal create a third tier?
Yes. SURS and TRS members who first become participants of the pension systems on or after a to-be-determined implementation date (likely no earlier than July 1, 2018) will have the option to:
1) Be in a new hybrid benefit, known as Tier III, or
2) Elect to be part of the current Tier II.
Also, existing Tier II members will have the option of joining Tier III. The retirement systems shall establish procedures for making these elections which, once made, will be irrevocable. The Tier III plan is a combined defined benefit (DB), often referred to as a pension plan, and defined contribution (DC) plan. Under the DB part, the member’s contribution will be no more than 6.2 percent of salary, but may be less depending upon a system’s determination of the annual normal cost of benefits. The member’s contribution drops from the 9 percent of salary required under Tiers I and II. Beginning with the 2020-21 year, all employer costs (normal and any unfunded liability) for a Tier III member will be picked up by the member’s employer and not the state (prior to that date, the state will contribute 2 percent of each Tier III member’s salary to each system with the Tier III member’s employer picking up the rest, if any exists). Under the DC part, the member must minimally contribute 4 percent of salary, while his/her employer must contribute at least 2 percent and could contribute up to 6 percent of salary.
4. What are the benefits of Tier II or Tier III?
- In both Tier II and Tier III, the cost of living adjustments (also known as COLA), retirement age and years of service are essentially the same.
- The pensionable salary of a member that chooses Tier III is higher than the salary of a Tier II member. It is equal to the Social Security Wage Base — $127,200 in 2017 vs. Tier II being $112,408.42 in 2017.
- Under Tier III, members’ DB contribution decreases to no more than 6.2 percent (so they are receiving equivalent benefit value for their contribution as opposed to Tier II), although each service year is worth 1.25 percent as opposed to 2.2 percent under Tier II.
- In addition to the DB contributions, Tier III members will have the benefit of minimally 6 percent of salary/year going into a DC plan.
- For some employees, depending on anticipated length of service and other factors, Tier II may be preferable to Tier III. For those who don’t want any stock market risk in their retirement, they can keep a strictly defined-benefit plan under Tier II.
- For those who prefer the portability of a DC plan, or see the combined package as preferable, they can opt in to Tier III.
5. How are Tier 1 participants and retirees impacted by the changes?
The pension legislation has no impact on Tier I members, including retirees. The creation of the Tier III plan does not divert state dollars from TRS or SURS to the defined contribution plan. It requires that the employers fund the defined contribution plan and any liabilities attributable to the DB plan for Tier III members, if any exists.
6. What impact will this legislation have on local school districts?
For SURS and TRS, the bill contains language that local employers, rather than the state, would be responsible for the employer’s normal and any unfunded liability costs of the defined benefit plan for Tier III employees, plus at least 2 percent of salary for the employer DC contribution. See FAQ 3 above.
7. What role do the systems have in the creation of the DC option?
The legislation requires the systems to implement a DC option for Tier III participants. This option will provide future teachers the ability to invest their retirement savings in mutual funds and other investment options similar to their 403(b) savings plans. The Tier III option will not be available until the DC plan is approved by the IRS.
In a unanimous decision on May 8, 2015, the Illinois Supreme Court ruled the landmark pension law unconstitutional!
Read the entire news article from the Chicago Tribune here.
(ICCTA Note: The Illinois Supreme Court’s decision is available online here.)
Keeping up with the frequently changing information regarding pension reform from Springfield can be challenging! Visit the SUAA website for:
- a review of currently proposed legislation
- the newest Minibriefings on current legislative activity and
- the freshest News Watch Articles.
Visit the Illinois Issues blog to review over 130 current and archived posts about pension reform (and many other issues being discussed at the state level). This blog is published by the Center for State Policy and Leadership at the University of Illinois Springfield.