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From the Illinos Teachers' Retirement System...

From: trsmessenger@trs.illinois.gov
Date: 4/21/2012 12:42:48 AM
To: rjnewell@midwest.net
Subject: Public Pension Stabilization Plan

Dear Ronald Newell:

This afternoon Governor Pat Quinn outlined a “public pension stabilization plan” that he estimates will save the state between $65 billion and $85 billion by 2045 and will erase the TRS unfunded liability of $44 billion by 2042.

There is no timetable or deadline for action on this plan, or a date when the changes would take effect if enacted, so TRS cannot really advise any members what they should do about retirement decisions to be made in the foreseeable future. If enacted, these changes would likely face a court challenge lasting several years.

What we do know is that under the plan changes in benefits and contributions only affect active and inactive members. The plan does not change one thing for members who already are retired. TRS has not yet modeled aspects of the governor’s plan so we do not yet know how much this plan will cost active TRS members. We have seen no specific legislative language.

In announcing the plan, the governor said that action is needed this spring on pension reforms in order to avoid changes in the state’s credit rating. A lower rating would cost all taxpayers millions of dollars in extra interest payments when the state borrows money. The governor’s call, however, does not mean the General Assembly will act this spring.

Here are changes in the plan that affect active TRS members:

• A 3 percentage point increase in the member contribution, from 9.4 percent to 12.4 percent

• The retirement age will be gradually increased over several years to age 67.

• Upon retirement, the cost of living adjustment will be changed from 3 percent compounded to a COLA that is capped at 3 percent or one-half of the consumer price index, whichever is less. The new COLA is not compounded.

• Upon retirement, a member’s COLA will not begin until 5 years after retirement, or age 67, whichever comes first.

Here is what the plan does not change for TRS members:

• The basic 2.2 benefit formula that is based on service credit and final average salary

• The alternative “money purchase” formula for members with service prior to 2005, a formula that is based on total contributions

• Post-retirement work rules

• Creditable earnings – there is no cap on earnings applied to a pension

• Survivor benefits

While the governor’s plan alludes to reducing the current state “subsidy” for health insurance premiums that retired state employees receive, this part of the plan is likely not aimed at TRS members. TRS members pay an average health insurance premium of $577 in retirement. State employees that have worked 20 years currently pay no health insurance premium in retirement. The reality is the state wants them to be like TRS members and pay a premium.

Other parts of the pension stabilization plan are:

• A strong guarantee written into state law that requires the state to pay its full annual contribution to TRS and the other pension systems. No detailed language of this guarantee was provided.

• Over the next several years, school districts will gradually begin to pay the total annual cost of TRS pensions. Last year school districts paid $155 million and the state paid $2.1 billion for pensions. Under this shift, those numbers would change. School districts would have paid about $800 million and the state would have paid $1.6 billion.

• Only public employees will be allowed to be members of the state’s public pension systems – no private organization employees will be allowed membership in TRS.

More information about pension reform proposals is available on the TRS Web site – http://trs.illinois.gov.