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Monday, August 14, 2017
"The Parity Between Contributions and Retirement Benefits/Earnings" in the Teachers' Retirement System of Illinois by John Dillon
“…According to a recent research paper looking at all states, that moment of contributions' and benefits' equivalence may be longer away than any teacher thought, and it will be VERY dependent upon the specific state’s retirement program. Two significant findings occur in this brief, Negative Returns: How State Pensions Shortchange Teachers.
“‘First, in the median state, teachers must serve at least 25 years to receive a pension worth more than their own contributions. Teachers with shorter careers get no school-financed retirement benefit despite their many years of service. They may be better off taking back their own contributions when they quit rather than waiting to collect a pension.
“‘Second, the authors estimate that more than three-quarters of new teachers will earn less in pension benefits than they contributed to the plan. Instead of benefiting from their pension plans, most teachers are net contributors.’
“Why? Because new plans in many states – known in Illinois as Tiers – will push the intersection of contributions and expected retirement earnings far into the future. In Massachusetts, for example, recent changes for new hires have made it IMPOSSIBLE for any of them to ever meet the parity between contributions and retirement benefits/earnings.
“According to the authors, Aldeman and Johnson, Tier I teachers in Illinois can expect to achieve a ‘breaking even’ point after 28 years of teaching.
“The plan for Tier II in Illinois, which passed the General Assembly in less than 24 hours, asked new hires after January of 2011 to pay the same contribution as Tier I for less in retirement benefits: a simple rather than compounded annual cost of living increase, a capped retirement annuity at $112, 408, a retirement age of 67 and with severe deductions for an earlier exit.
“This means that, actuarially, Tier II teachers will need to provide classroom instruction for 35 years before the ‘break-even point’ in deserved benefits…
“Tier III offers some tantalizing differences for the burgled Tier II teachers who are now 6 years into their profession. Tier III will raise their retirement earnings ceiling from $112,000 to $127,000. Contributions for Tier III teachers will be reduced to 6.2% of salary, rather than the 9% they are now paying. And they will be provided a defined contribution (think a 403b), for which they will pay 4% of salary and the local school district will match from 2% - 6%...
“Tier III reduces the multiplier for the final average annuity from 2.2 to 1.25. This means the break-even point will be moved nearly 40% further into the future. What took 28 years or 35 years to make parity will take MUCH longer! Example: Under 1.25, a teacher will be eligible for 50% of a final averaged salary in 40 years! The cap of 75% of earnings in retirement will take the Tier III teacher 60 years of teaching! Start at age 25 and work until 85? The annual cost of living adjustment will no longer contain a 3% simple rate. Retired Tier III teachers will receive only ½ of the CPI, but nothing below zero…”
from Will Your Contributions to TRS Ever Match Your Eventual After-Retirement Earnings? Or When Do I Break Even? Or What Will Tier III Do To Me? by John Dillon
Thursday, August 10, 2017
“Tier III: where you can be given less for longer service in exchange for a 403(b) program” by John Dillon
“…The creation of a ‘new’ Tier III (SB42) was cradled within the bills recently enacted in the Illinois General Assembly to override the potential veto of a new budget. The bill’s sponsors – Senator Donne Trotter and Representative Greg Harris – managed a bill of nearly 800 pages, which included the language adopted to create a new Tier III, which provides for a ‘defined contribution’ (403b) in a hybrid arrangement with a lesser-earning defined benefit (pension).
“According to Representative Harris, the task of implementing the bill’s language will fall upon the TRS, SURS, and SERS. Following the outline of language within the bill, they will develop the structure that will assure new hires of a certain date (possibly sometime in 2018) to enter into the new Tier. Or they may decide not to.
“New hires will also be able to choose Tier II, the plan where working 35 years brings parity with a ceiling cap. Or they can choose Tier III. And so can ALL the Tier II current hires. They can move from Tier II to Tier III and participate in a part pension and part 403b program…
“We Are One Illinois provides no information thus far on the new Tier. Illinois Federation of Teachers does not have anything either. Go to TRS, and you will find a cogent description of the new bill by Mr. Ingram’s office. Go to IEA, and you will find a Frequently Asked Questions review of the benefits, which states, ‘The IEA and all the unions within We Are One Illinois labor coalition took a position of neutrality.’
“For [John Dillon], a position of neutrality is unsettling. Here’s why: Tier III offers some tantalizing differences for the burgled Tier II teacher now 6 years into their profession. Tier III will raise her retirement earnings ceiling from $112,000 to $127,000. Contributions for a Tier III teacher will be reduced to 6.2% of salary, rather than the 9% they are now paying. And they will be provided a defined contribution (think a 403b), for which they will pay 4% of salary and the local will match from 2% - 6%.
“Looks good from far, but it’s far from good. Tier III reduces the multiplier for final average annuity from 2.2 to 1.25. This means the break-even point will be moved nearly 40% further into the future. What took 28 years or 35 years to make parity will take MUCH longer! Example: Under 1.25, a teacher will be eligible for 50% of a final averaged salary in 40 years. The cap of 75% of earnings in retirement will take the Tier III teacher 60 years of teaching.
“The annual cost of living adjustment will no longer contain a 3% simple rate. Retired Tier III teachers will receive only will get ½ of the CPI, but nothing below zero.
“According to Representative Harris, any teacher electing to move from Tier II into Tier III will have her multiplier frozen at 2.2 for those previous Tier’s years and altered to a 1.25 multiplier from thence on. Example: Six years at 2.2 will equal more than 13% of final averaged salary. At 1.25%, a bit over 7%.
“For the people who want ‘their own’ portable investment program – a 403b – this may be perfect. Teach a few years before finding another suitable profession. On the other hand, one can see, that point of breaking even is pushing much farther down the field for a player in the Tier III group.
“In the FAQ section of Tier III for the IEA, leadership in IEA states: ‘We knew pension legislation of some kind was going to have to pass for there to be a budget. So, we worked to ensure the unconstitutional model, which had been part of SB16 was not included. Additionally, we worked to make sure end of career salary increases which could be sued for calculating one’s pension were not reduced from 6 percent to the consumer price index.’
“In Rauner’s outline of the budget, his office identifies the move to a defined contribution as a first priority for our state. His interest in a consideration model, as proposed by Senate leader Cullerton is extremely valued, but not until some certitude as to its acceptance by the Illinois Supreme Court can be determined. In other words, to be announced later. It’s coming.
“But, in actuality, don’t we now already have at this point a form of consideration for those people in Tier II and those coming in at Tier III very soon? Choose a Tier II and pay more for less – even to the point that your funded ratio in Tier II is now 155% - or choose Tier III, where you can be given less for longer service in exchange for a 403b program which can be taken when you realize you’re being ripped off.
“The ultimate ramifications of this ‘new’ Tier increase my concern for our beleaguered educational system in Illinois. Neutrality?”
For the entire article by John Dillon, click here.
"No U.S. President, certainly not Trump, should have sole authority to initiate an unprovoked nuclear war," wrote Sen. Ed Markey (D-Mass.)
“…Reacting to Trump's ‘crazy’ comments and to the growing fear that the U.S. is inching closer to nuclear war, activists and lawmakers urged Congress to revive legislation that would strip the executive branch of the power to launch a pre-emptive nuclear strike. ‘No U.S. President, certainly not Trump, should have sole authority to initiate an unprovoked nuclear war,’ wrote Sen. Ed Markey (D-Mass.)…
“In May, as Common Dreams reported, more than 500,000 people signed a petition expressing support for the Restricting First Use of Nuclear Weapons Act of 2017, a bill introduced by Rep. Ted Lieu (D-Calif.) that, if passed, would bar the president from launching a nuclear strike without congressional authorization…
“Speaking at a memorial event on Wednesday, Tomihisa Taue, the mayor of Nagasaki, highlighted the ‘increasingly tense’ international situation and argued that all nations should do away with nuclear weapons. ‘A strong sense of anxiety is spreading across the globe that in the not too distant future these weapons could actually be used again,’ Taue said. ‘The nuclear threat will not end as long as nations continue to claim that nuclear weapons are essential for their national security.’”