-By John Dillon. John blogs at Pension Vocabulary.
A close friend of mine once turned me on to a song by Tom Waits of which I hadn’t been exposed. I’m not totally square, Dude. I mean “Small Change” and “The Piano Has Been Drinking” were always old favorites. So, when my friend said, “You gotta get an earful of ‘Step Right Up,” I had to try it out.
I love it when you feel like someone behind your eyes is forcing open your senses: your pupils suddenly pushed open, your hearing laughing out loud, feeling wrinkles on my chuckling cheeks …
“Step right up, step right up, step right up,
Everyone’s a winner, bargains galore
That’s right, you too can be the proud owner
Of the quality goes in before the name goes on
One-tenth of a dollar, one-tenth of a dollar, we got service after sales”
For the last week, many of us have been asking what was the sweetener that brought the over-a-dozen Republican votes to the budget battle? What did we (unions, etc.) give up to induce them into voting an override?
Then, the answer: Senate Bill 42. Pages 270-283 of the same bill. Not the budget bill.***
Step right up, new hires and Tier 2 teachers and state employees. If you feel like you got suckered into paying down the unfunded liability caused by decades of not reimbursing the normal costs, we (the General Assembly) are going to give you an option to break free! Captain of your own financial ship!
“Three for a dollar
We got a year-end clearance, we got a white sale
And a smoke-damaged furniture, you can drive it away today
Act now, act now, and receive as our gift, our gift to you
They come in all colors, one size fits all
No muss, no fuss, no spills, you’re tired of kitchen drudgery”
Tier 3 now enters stage very far RIGHT! An opportunity to provide the beginning of Governor Rauner’s plan to reduce, if not completely destroy, the state employee unions in Illinois. A chance to give up your defined benefit (a pension) for an IRA.
So, I looked through the legalese on those pages this evening. Now mind you, I am not a lawyer or politician, but I do comprehend “Step Right Up,” so maybe that qualifies.
Here is what I see:
Here’s what I wonder:
- Implementation to occur as soon as possible after passage; thus, January of 2018?
- 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 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, 10b1’s, etc.)
So, it would appear, a smattering of Republicans came forward to help the state of Illinois from falling into the fiscal abyss, but they and the Democrats also voted for a possible end of the unions they for whom have so long sworn allegiance. Can’t win fair share? Then, let’s offer a defined contribution.
Smart and clever move? As a former member of TRS replied, “Let me remind you that any money that TRS would not receive from a active teacher needs to be make-up by the state of Illinois. The money owed to TRS by the State must be paid and they should know that.”
“We need your business, we’re going out of business
We’ll give you the business
Get on the business end of our going-out-of-business sale
Receive our free brochure, free brochure
Read the easy-to-follow assembly instructions, batteries not included
Send before midnight tomorrow, terms available,
Step right up, step right up, step right up
You got it buddy: the large print giveth, and the small print taketh away”
And that, my union friends, is the fine print of our budget deal.