pensions 101 the continuous fight iea – pension defense team

PENSIONS 101THE CONTINUOUS FIGHT

IEA – Pension Defense Team

Pensions 101: Systems

K-12 Members Participate in the Teachers’ Retirement System

(TRS)

Higher Education Members Participate in the State Universities Retirement

System (SURS)

ESPs Belong to the Illinois Municipal Retirement Fund

(IMRF)

Pensions 101: Systems

SURS and TRS: Considered state retirement systems and are similar

Funded by the participant AND the state(TRS does receive a small district contribution)

IMRF - not a state system Funded by the participant and local

property taxes

Pensions 101: TRS/IMRF/SURS BenefitsBenefit Package

Multiplier

Age

Cost of Living Adjustments (COLA)

Compounding COLA (Applicable to TRS/SURS)

Final Average Salary (FAS)

Pensions 101: TRS/IMRF/SURS Benefits -MULTIPLIER

What is the Multiplier?

2.2 percent for each year you work (TRS/SURS)

1.66 percent first 15 years, 2 percent each year after that (IMRF)

Pensions 101: Tier 1TRS/IMRF/SURS Benefits - Age

At What Age Can I Retire Without Being Penalized? It varies…

TRS allows retirement with the following: Age 55 with 35 years of service Age 60 with 10 Age 62 with 5

IMRF allows retirement with the following: Age 55 with 35 years of service Age 60 with 8

SURS allows retirement with the following: Any age with 30 years of service Age 60 with 8 Age 62 with 5

Pensions 101: Tier 1TRS/IMRF/SURS Benefits - COLA

What is my COLA?

Post retirement increases to annuities

3 percent each year compounded (TRS/SURS)

3 percent of your original pension annually (IMRF)+ a 13th check every year equal to 51 percent of your monthly payment

Protects you from inflation, which has averaged 3.4 percent since 1914 and 4.0 percent since TRS was created in 1939

Pensions 101: Tier 1TRS/IMRF/SURS Benefits - FAS

What is final average salary?

Four highest consecutive years in your last 10 years of service (TRS/SURS)

48 highest consecutive months in the last 10 years of service (IMRF)

Pensions 101: Tier 1 TRS/IMRF/SURS Benefits

How do you determine your pension?

Multiplier X Years of Service = Percent of Final Average Salary (FAS)

TRS and IMRF members pensions can only be calculated to 75 percent of their FAS

SURS up to 80 percent

Members of TRS and SURS before July 1, 2005, can have their annuity calculated on an actuarial basis

Pensions 101: Defined Benefit TRS/IMRF and SURS are Defined Benefit

(DB) pension plans

You will know what your benefit is for the entire length of your retirement. It will modestly grow over time, due to annual cost of living adjustments

We believe these benefits are protected by Article XIII, Section 5, of the Illinois Constitution

Pensions 101: Defined Contribution Defined Contribution Plan (DC)

SURS has this option

401k

The employer and employee contribute to an investment account

The employee must invest their money in mutual funds

Pensions 101: Defined ContributionWhat are your benefits?

Depends on what the stock market has done over your career and during your retirement

Depends on when you retire (1999 or 2009)

Pensions 101: Defined ContributionRisks?

Run the risk of not having enough in retirement because of downturns in the market

Professionals are not managing your money as they do for a defined benefit plan

Pensions 101:Defined Contribution & Social Security

IEA members in TRS and SURS DO NOT receive Social Security for their years as an educator

Even when we have earned Social Security through other jobs, our benefit is reduced by federal law GPO/WEP (Government Pension Offset/Windfall Elimination Provision)

DC plans could force many retirees into poverty because of downturns in the market. Those in TRS and SURS have no “safety net” with Social Security

Private sector employees in a 401k receive Social Security

Pensions 101: Funding

TRS/IMRF/SURS members

TRS 9.4 percent of your salary funds your benefit (Members paid $976 million in FY 12)

IMRF 4.5 percent SURS 8.0 percent

A breakdown of your contribution: 7.5 percent for your base TRS pension/3.75 percent for

IMRF/6.5 percent for SURS

1.0 percent funds your survivor and disability benefit/TRS/SURS. IMRF requires 0.75 percent

0.5 percent funds your annual Cost of Living Adjustment (COLA) TRS/SURS

0.4 percent funds the Early Retirement Option (ERO) - TRS only


Who Else Pays?

Districts pay 0.58 percent of salary for TRS

The state pays whatever it wants for TRS and SURS

FY 2013 (TRS will receive $2.7 billion from the state) Roughly, $800 million of the $2.7 billion is for benefits

earned this year The remaining $1.9 billion is for past debt incurred by the

state Districts levy property taxes to fund your IMRF


Funding Plan for TRS and SURS:

50-year payment plan established by 1995 law

Currently in the 18th year

Plan called for a “ramp up” of contributions for the first 15 years of the plan

Each year required a much larger amount than the previous year

Pensions 101: Detailed Funding(Source: COGFA)

2013 2015 2020 2025 2030 2035 2040 2045 $-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

$20.0

$5.9

$6.8 $7.2

$8.6

$10.1

$11.8

$14.8

$16.0

$17.3

Pension Contributions ($ in billions)

Pensions 101: Detailed Funding(Source: IRSI)

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Pension Projections & Total RevenueFY 2012-2045 Projections

State Pension Contributions


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Pension Projections & Total RevenueFY 2012-2045 Projections

State Pension Contributions

Total Revenue Based 3% Growth and Changes to Personal and Corporate Income Tax Rates (based on current legislation)


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Pension Contribution as % of Revenue

Pension Contribution as % of Revenue (3% Growth and Changes to Personal and Corporate Income Tax Rates based on cur-rent legislation)

Pension Contribution as % of Revenue (3% Growth and Continuation of Current Personal and Corporate Income Tax Rates)

Pensions 101: Tier Two

Two tier means a reduced set of pension or retirement benefits for members hired after January 1, 2011.


Benefits Targeted:

Everything

o Multipliero FASo Maximum Pensionable Salaryo Ageo COLA

SB 1946/PA 96-0889 impacted all government pension funds in Illinois, except police and firefighter pensions

This legislation passed in 12 hours



Benefits changed for new hires on or after January 1, 2011

Age 67 with 10 years of service (Highest retirement age in the nation)

FAS is now the 96 highest consecutive months in the last 10 years of service

COLA is now 3 percent or ½ of CPI, whichever is less, and is only simple

Pensions 101: Why we should be active in this fight?

What was once unheard of is now the norm. Attacks on constitutionally protected pension benefits continue to persist

Numerous pieces of legislation dealing with all parts of your pension benefits have been introduced


What is the “choice and consideration concept” that we hear about being discussed in Springfield? Some believe that if members of a pension system

are given a choice and given some consideration they can modify their pension constitutionally Example: 1. Members can choose to keep their COLA, but

they will not have their future salary growth counted toward their pension or have access to health care; or 2. members could choose a reduce COLA and have salary growth count toward their pension and access to some form of health care

Underlying all of this would be the consideration of guaranteed funding by the state


The Normal Cost Shift Currently, there are discussions about

shifting the pension costs of active teachers onto local school districts (Normal cost equals $800 m/Slide 19)

IMRF is set up like this However, the issues of property tax caps and

locally available resources make this a problematic concept

Schools are already having issues providing services and if this were to be implemented, resources for the classroom would be even more scarce

Sustainability

This is a common theme about the retirement systems

Legislators and business groups express that they want to cut your benefits to make the system more affordable and sustainable


How to address the sustainability comment: Members have never missed a pension

payment and will not TRS is a long-term investor and has averaged

a 9.3 percent return over 30 years. Do not get confused with the short-term returns when long-term returns are what matters


How to address the sustainability comment: The 2nd Tier of benefits that was implemented in 2011

drives down the cost of the retirement systems to the state

The annual cost to the state for pension benefits earned each year goes to $0 by 2035 for TRS

Benefits have already been cut enough. This is a discussion of funding the benefits already earned and not a discussion of how much lower the benefits can go, because they are already heading to a cost of $0 to the state

*From p. 41of “A Report on the Financial Condition of the Il State Retirement Systems” prepared by the Commission on Government Forecasting and Accountability (COGFA) 3/2012


Pensions 101: Our View

The Illinois Constitution is clear In Article XIII, Section 5, of the Constitution (the “Pension

Protection Clause”), it is stated, “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.”

IEA believes that any changes must meet the following criteria: 1. Must be constitutional 2. Must be fair to our members 3. Must maintain the stability of the state pension funds

Pensions 101: What is Happening There continue to be meetings with all groups

involved in the pension issue Currently, the IEA and other labor organizations in

the We Are One coalition are engaged with the governor and with the other legislative caucuses to find ways to maintain TRS and SURS, while still holding true to our three points

The We Are One Illinois coalition has offered a four point proposal: Guaranteed pension funding Exempt current retirees from any proposal Secure revenue from closing tax loopholes Open to possible increased member contributions

Pensions 101: What You Can Do

Pay attention to legislative proposals and be ready to lobby

Visit the IEA website often and act when a call to action occurs (the IEA website now has a Pensions Tab to click on for pension information)

Understand that the legislature will act if our members do not voice their opinion on proposals

Engage and educate your colleagues/friends and lobby your local legislators now

Ask your local president, building representative or your local IEA office how you can help

Pensions 101

Questions?Thanks to IRSI for the revenue projections

Informationwww.trs.illinois.govwww.imrf.orgwww.surs.orgwww.ieanea.orgwww.ilretirementsecurityinitiative.org

Pensions 101: Resources

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