The scheduled June implementation
of a controversial new state law that changes retirement benefits for all
Teachers’ Retirement System members in Tier I was stopped cold in May by a
Sangamon County Circuit Court.
Tier I includes all members who
are retired or who first contributed to TRS or a reciprocal system before Jan.
1, 2011. This means that for the foreseeable future, all current TRS retirement
benefits, automatic annual increases, eligibility standards and other pension
laws will stay in place. The new law remains on the books, but in a legal
limbo.
A court injunction delaying
implementation of the new law will be in effect until a final decision is
reached in a lawsuit challenging the act’s constitutionality. The lawsuit is
currently in a circuit court, and it is expected that a final ruling ultimately
will be made by the Illinois Supreme Court. The case probably will take many
months to resolve.
The new pension law, approved by
the General Assembly and signed by Gov. Pat Quinn in December of 2013, had been
scheduled to take effect on June 1, 2014. TRS had been working diligently to
make sure the transition to the new law was as smooth as possible. All of that
work has been put on hold until further notice...
For TRS members in Tier
I, the injunction stops changes in the pension code that would have:
• Decreased the contribution rate
for active members from 9.4 percent to 8.4 percent
• Established a cap on creditable
earnings for all active members
• Increased the retirement age
for members under age 46
• Reduced the size of future
cost-of-living adjustments (COLA) for all active and retired members
• Required future retired members
to forfeit between one and five COLAs
• Created an optional retirement
plan for a small percentage of active members that is similar to a 401(k)
• Mandated increased annual funding for TRS from state government
• Mandated increased annual funding for TRS from state government
• Provided TRS, for the first
time, with the authority to sue the state if adequate funding is not
appropriated in any year
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The new law is designed to fix a
systemic financial problem faced by TRS and the state’s other pension systems
that jeopardizes the future payment of retirement benefits. Over the next 30
years, the law eliminates a growing long-term deficit at TRS by increasing
state funding and cutting benefits for all Tier I members in order to reduce
future expenditures.
The current TRS unfunded
liability is $55 billion, out of a total long-term liability of $93.9 billion.
This means that TRS has less than 41 cents for every dollar it owes all of its
members over the next 30 years. Without changes to the System’s overall
financial structure to correct this imbalance, the unfunded liability will
continue to grow until TRS has insufficient assets on hand to pay benefits to
its members.
The principal reason that TRS
carries an unfunded liability is that in every year since 1939, legislators
have never allocated 100 percent of the money required to fully fund the
System. Money routinely has been diverted from TRS to other government spending
priorities. The parts of the new law that cut future benefits form the basis of
the constitutional challenge.
The lawsuit contends that any
benefit cut violates the pension protection clause of the 1970 Illinois
Constitution, which states, “Membership in any pension or retirement system of
the State, any unit of local government or school district, or any agency or
instrumentality thereof, shall be an enforceable contractual relationship, the
benefits of which shall not be diminished or impaired.”
As the administrative agency in
charge of implementing state pension laws for teachers, TRS is a defendant in
the lawsuit. The Illinois Attorney General is defending the constitutionality
of the law [?], and, under state statutes, is representing TRS in the case. Over
the course of the next several months, TRS will continue to provide members
with as much information as possible about the status of the lawsuit and what
decisions in the court case may mean.
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