Tuesday, January 8, 2013

Illinois Representative Nekritz's House Bill 6258

from Nekritz's letter to an annuitant

TIER I Members (state employees in the current state pension system)

COLA (Cost of Living Adjustments)
Cost of living adjustments would apply only to the first $25,000 of someone’s pension if the retiree does not receive Social Security, and $20,000 if the state pension is coordinated with Social Security.  The COLA adjustments wouldn’t take effect until a pensioner reaches age 67 or five years after retirement, whichever comes first.  This would apply to current retirees.

Retirement Age
-Retirement age increases would not apply to employees age 45 and older.
-One year is added to the current retirement age for employees between 40-44 years old.
-Three years for employees (between 35-39);
-Five years for employees 34 and younger.

Employee Contributions Increase

Tier 1 employees (in the current state pension systems)
- 1% for first fiscal year the legislation is in effect (Fiscal Year 2014 at the earliest)
-2% each year thereafter

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.

Tier 2 Members (employees hired since 2011)
All new employees in the Teachers Retirement System and State University Retirement System are placed in a cash balance plan:

Employees are guaranteed a minimum defined benefit but employers have predictable costs and are protected from investment risk- this combines the best features of defined contribution (or 401k) plans and defined benefit plans.

Local school districts can negotiate the generosity and cost of the benefit with employees.
 
TRS and SURS employees hired before the effective date can choose to remain in Tier 2 or join the cash plan.

Employer Contributions
-Schools and colleges/universities will assume employer costs for benefits in the TRS and SURs systems now paid for by the state, with that responsibility shifting to them at a rate of 0.5 percent of payroll each year.  According to TRS, the total amount to be shifted is less than 1% of payroll.

-TRS and SURS employers will pay the specific pension cost of any employee’s salary they increase, to prevent a school from increasing a superintendent’s salary and then having other schools share in the cost of paying that increase once they have the responsibility of paying the pension costs for their employees.

-Employer contributions will be on a 30-year level funding plan to achieve 100 percent funding.

-Employer contributions will be enforced through court action or intercept of other state funds if payments are not made as required under the new funding plan.

-Revenue now being used to pay pension obligation debt will annually go to pay the broader pension deficit down once the pension obligation bonds are paid off.  This would mean $693.5 million per year going to pay off pension debt starting in FY 2016, and $900 million per year starting FY 2020.

State Contributions
-Contributions set on a 30-year funding plan with 100% funding goal by 2043.

-Unions are allowed to take court action to force state, school districts and universities to pay their required pension contributions.

-Once Illinois pension bonds mature, revenue that had been used for debt service payment would be used to pay off unfunded pension liabilities.

-COLAs for General Assembly Retirement System members will match those of  Tier 2 members in the other pension systems.

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