Thursday, October 20, 2011

SB 512 (a Review of the May 2011 version written by the Civic Committee of the Commercial Club of Chicago/Illinois Is Broke)

The Tier-One Pension Benefit Plan

 The current TRS Tier-One teacher would pay a pension contribution of 13.77 % of his or her annual salary. The current contribution rate is 9.4 %. His or her contributions would also increase every three years.
 The current SURS Tier-One instructor would pay a pension contribution of 15.31 % of his or her annual salary. The current contribution rate is 8.0 %. His or her contributions would also increase every three years. (SURS offered a defined-contribution plan for its membership in 1998-99. Fifteen percent of its members chose a defined-contribution plan. Thus, the SURS defined-benefit plan lost a portion of its membership contributions, and the plan’s sustainability has abated).
 A Tier-One teacher will have a choice every three years as to whether or not he or she will remain in his or her current plan.
 As stated, the teacher’s pension contribution will increase from one election period to the next; thus, the cost for remaining in the Tier-One plan will become increasingly expensive.
 Note a teacher cannot rejoin the Tier-One pension benefit plan once he or she has chosen to leave it.

The Tier-Two Pension Benefit Plan

 Any teacher that fails to elect a pension benefit plan will default into the Tier-Two pension benefit plan.
 Participation in the Tier-Two pension benefit plan that was signed into law in April of 2010 (SB 1946) includes a teacher’s retirement age of 67 for eligibility of full benefits (the highest in the country), a reduction of the Cost of Living Allowance, and a reduced final-average salary. The teacher pays a pension contribution of 6 % of his or her annual salary.
 A current Tier-Two teacher can elect to participate in the Tier-Three pension benefit plan (a defined-contribution plan or 401-K).

The Tier-Three "Retirement Savings Plan"

 Participation in the proposed Tier-Three pension benefit plan or a defined-contribution plan (401-K) shifts all the responsibilities and all of the risk from the State to the teacher; henceforth, the benefit is not guaranteed for life. The individual teacher assumes all funding, investment, inflationary and longevity risks.
 The Tier-Three pension benefit plan does not have the pooled investments, professional asset management and shared administrative costs that a Tier-One defined-benefit plan provides. Moreover, there are no survivor or disability benefits and guarantees with the Tier-Three plan.
 The teacher would pay a pension contribution of 6 % of his or her annual salary (and the State of Illinois would assumedly pay 6 %).

Sources: the 97th General Assembly Legislation (2011-2012), the Teachers Retirement System, the Illinois Education Association, the State University Retirement System, and the National Institute on Retirement Security

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