Wednesday, February 27, 2013

HB 3411

HB 3411 98th General Assembly


Short Description: PENCD-REFORM STATE SYSTEMS


House Sponsors:
Tom Cross - Elaine Nekritz - David Harris - Sara Feigenholtz - Darlene J. Senger; Michael J. Zalewski, Carol A. Sente, Robyn Gabel, William Davis, Greg Harris, Luis Arroyo, Elizabeth Hernandez, Kelly Burke, Deborah Mell, David McSweeney, Timothy L. Schmitz, Ed Sullivan, Jr., Ron Sandack, Sandra M. Pihos, Kay Hatcher, Joe Sosnowski, Thomas Morrison, Barbara Wheeler, JoAnn D. Osmond, Patricia R. Bellock, Jim Durkin, Renée Kosel, Jil Tracy, Pam Roth, David R. Leitch and Dwight Kay

Synopsis as Introduced
Amends the General Provisions, General Assembly, State Employee, State Universities, and Downstate Teacher Articles of the Illinois Pension Code. In the Downstate Teacher and State Universities Articles, creates a Tier 3 composite defined-benefit, defined-contribution retirement plan for employees hired on or after January 1, 2014 and certain others. Makes corresponding changes in other parts of those Articles and in the Retirement Systems Reciprocal Act. Increases the retirement age for certain Tier I members and participants. Changes the conditions of eligibility for, and the amount of, automatic annual increases for Tier I retirees. Increases required employee contributions for Tier I members and participants. Limits pensionable salary for Tier I and Tier 3 participants. Changes the required State contribution to each of the affected retirement systems so that those systems are 100% funded by 2043. Adds State funding guarantees. Makes other changes. Amends the Illinois Public Labor Relations Act to provide that this amendatory Act takes precedence. Amends the State Finance Act. To the list of standardized items of appropriation, adds "State retirement contribution for annual normal cost" and "State retirement contribution for unfunded accrued liability". Defines those terms. Amends the Governor's Office of Management and Budget Act. Adds those terms to a list of classifications to be used in statements and estimates of expenditures submitted to the Office in connection with the preparation of a State budget. Amends the State Mandates Act to require implementation without reimbursement. Includes an inseverability provision. Makes other changes. Effective immediately.


HB 3411

Reforms for Tier 1 Members (public employees hired before 2011)
·         Cost‐of‐living adjustments apply only to the first $25,000 of the employees’ pension
·         That limit is reduced to the first $20,000 for employees eligible for Social Security
·         COLAs are delayed until the employee turns 67 or five years after retirement, whichever comes first

This applies to all employees and retirees who are currently receiving COLAs.

Retirement age is increased by
·         No increase for employees age 45 and older
·         One year for employees age 40 to 44
·         Three years for employees age 35 to 39
·         Five years for employees age 34 and younger

Employees would be required to contribute more toward their pensions by
·         One percent starting July 1, 2013
·         Two percent starting July 1, 2014

Pensionable salary – the amount of salary that counts toward a pension – is limited to the higher of the Social Security wage base or the participant’s salary when the legislation becomes law.

Reforms for Tier 2 Members (public employees hired since 2011)

·        All new employees in the Teachers Retirement System and State University Retirement   System are placed in a stacked hybrid plan (combination defined-benefit and defined-contribution plans)
·         Employees are guaranteed a minimum defined benefit
·         Employers and employees contribute an additional amount in to a 401(k) style benefit
 plan
·         Local school districts can negotiate the generosity and cost of the 401(k) benefit with
 employees
·         TRS and SURS employees hired before the effective date can choose to remain in Tier 2 or join the stacked hybrid plan (Tier 3)

Creates Tier 3 (SURS and TRS employees who start after January 1, 2014) Hybrid Defined-Contribution/Defined-Benefit plan

Defined Benefit component:
·         Employee’s contribution is 4% of pay
·         Final Average Salary = Highest eight out of last 10 years
·         Unreduced retirement at 67 and five years of service
·         Reduced retirement at 62 and 10 years of service
·         1.1% annual accrual rate
·         COLA is lesser of 3% or ½ CPI, simple starting at age 67

Defined Contribution component:
·         Employee’s contribution is 5% of pay
·         Local employer can make optional matching contribution (pursuant to local contracts) between 3 and 10% of pay
·         Ability for the DC plan to be invested in existing investments in the system and managed by the system for employees
·         five years to vest in the employer contributions

Employer Contributions and Funding Guarantees:
Employer contributions will be on a 30‐year level‐funding plan to achieve 100 percent funding
State contributions will be enforced through court action or from other state funds
Revenue currently being used to repay pension obligation bonds will be used to pay down unfunded liability once the pension obligation bonds are paid


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