June 1, 2018

Alliance Legislative Report (100-71)

Legislature Adjourned For The Summer
After approving a Fiscal Year 2019 State budget, the Illinois General Assembly worked through the day Thursday and, by early evening, both the Senate and House of Representatives adjourned for the summer. Neither chamber is expected to return to the Capitol until the Veto Session which has been scheduled for November 13-15 and 27-29. This will allow incumbent lawmakers to campaign unimpeded throughout the summer and fall before the November 6th General Election.

Governor Bruce Rauner has stated that he will sign the budget bills into law upon their arrival on his desk - possibly as early as today. The appropriations bill, HB 109, and the Budget Implementation Bill (BIMP), HB 3342, each passed by overwhelming bi-partisan votes.

More on the Pension Changes

As highlighted in the last Alliance Legislative Report, the final budget agreement contained three changes to the Teachers' Retirement System (TRS) designed to save the State dollars. Here are a few more details on these provisions.

3% Cap on Salary

The current 6% cap on end of career salary increases without employers having to contribute to the normal cost was lowered to 3%. The provision applies only to contracts or collective bargaining agreements entered into, amended, or renewed on or after the effective date of the legislation. The bill contains an immediate effective date, so this will become effective upon the Governor's signature.

The penalty would apply if the amount of a TRS member's salary for any school year used to determine the final average salary exceeds the prior year's salary by more than 3%. For salary increases that exceed 3%, the employer must pay a contribution to TRS to cover the normal costs of the value of the increase in benefits resulting from the portion of the salary increase above 3%.  Creditable earnings include more than salaries, such as extracurricular pay, stipends, and contributions to tax-deferred retirement plans. For Tier I employees, pensions are calculated using the four highest, consecutive annual salary rates within the last 10 years of creditable service. For Tier II members, it is calculated using the average of the eight highest, consecutive annual salary rates within the last 10 years of creditable service.

Buyout for Vested Members

The provision requires TRS to offer inactive members - from July 1, 2018 through June 30, 2021 - a chance for a one-time, irrevocable cash payment in return for giving up any claim to later TRS pension benefits. The buyout would equal 60% of the present value of the member's anticipated pension benefits and will only be paid to the member in the form of a "rollover" into a private tax-qualified retirement plan. The inactive member must have accrued sufficient service credit to be eligible to receive a retirement annuity at some point in the future when other eligibility criteria are met. The vesting period is five years.

Buyout of Compounding COLA

This provision, again effective July 1, 2018 through June 30, 2021, requires TRS to offer all retiring Tier 1 members a chance for a one-time, irrevocable change in the Cost of Living Adjustment (COLA) to their TRS pensions. The TRS member could opt to give up the 3% compounding COLA in exchange for an accelerated lump sum pension benefit payment from TRS that equals 70% of the estimated value of the future 3% COLAs. The member then would accept a new 1.5% non-compounding COLA that is calculated from the amount of their original pension.