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Wednesday, July 12, 2017
Tier II & Tier III Optional Benefit Structures for TRS of Illinois (A Short Synopsis of Senate Bill 42, Public Act 100-0023 "Budget Implementation Act" Pages 270-83) by John Dillon
· New members or old (Tier 2) have 30 days within which to make this selection.
· To opt into the defined contribution or to opt to stay within Tier II is an irrevocable decision?
· Determination of a final average salary will be increased to the average of the last ten years of earnings.
· Such earnings cannot exceed the federal Social Security wage base in effect at that time. Currently $127,200.
· No retirement annuity unless the participant has attained 67 years of age and meets the other necessary criteria.
· Multiplier is now at 1.25% for each year of service time’s final average salary. No longer 2.2.
· Increases in annuity payouts are provided annually as measured by the BLS measurement of the consumer price index, but such payments will be 1/2 of the unadjusted measure of the consumer price increase.
· Survivors will be provided 66 and 2/3% of the dying spouse's retirement annuity at time of death.
· Employees not contributing to a defined contribution shall part with 6.2% of their salary to the retirement system. And this cost will not be more than the 6.2% unless such employees have decided to make contributions to the defined contribution plans available under this act.
· In addition, the 6.2% can be lowered by agreement of the State Actuary and CGFBA to a lesser amount if the "normal costs" are reduced. If the normal costs increase, the rate shall be capped for employee at 6.2%. Neither of these variations are involved in those who choose a defined contribution.
· Tier 2 and new Tier 3 hires can choose to join a defined contribution plan that "aggregates" employer and employee contributions. The term aggregate means to add together; i.e., participants pay in and are given a match or sweetener to do so by the employer. This is likely a cost shift to districts.
· Tier 2 or 3 members who join the defined contribution plan will pay 4% of salary to the plan. The employer shall pay an additional amount, not beyond 6% of the employees’ salary and no lower than 2%. I see no basis for the differences. Is this a negotiated item?
· The State Board of Investments and private sector companies will help plan investments. Hello, Ken Griffin and Gov. Rauner’s friends!
· Earlier collected earnings in TRS may be rolled over into the plan based upon authorized federal law and the retirement system as long as they are qualified plans. The concept of “qualified plans” leaves much to be desired. I remember that Bernie Madoff met ERSA requirements for “qualified plan” before later changes.
· Each retirement system will reduce the employee's contributions to the contribution plan by the costs of administrative fees and costs of offerings (think advertising, etc.)...
For John Dillon's entire response, click here.
For previous post, click here.