IEA was neutral on pension theft. What else is new?

“There are no neutrals on a runaway train.” Howard Zinn
Illinois President Cinda Klickna showed up long enough to explain the legislature’s recent pension theft and then quickly left town.

Her two terms as president of the organization ended last week.

But not before declaring that the largest teachers union in the state was neutral on creating a defined contribution pension system for Tier II and Tier III teachers.

Because of their neutrality, there was no lobbying call for members to oppose what had been a long-standing union position of opposition to turning our pensions into any privately run annuity.

Here is President Klickna’s final farewell:

1.     Were there pension changes in the new FY 18 State budget?

Yes, there were changes made to pensions in SB 42, one of the three budget bills that make up the FY18 State budget.

2.     How does SB 42 impact pensions?

Within Senate Bill 42, the budget implementation bill, the General Assembly created a third tier for new hires under most pension systems, including State Universities Retirement System (SURS), Teachers’ Retirement System (TRS) and State Employees’ Retirement System (SERS). The Illinois Municipal Retirement Fund (IMRF) is not included. This third tier attempts to fix some of Tier II’s problems. There are several other significant components of the proposal that improved upon the current pension system and several counterproductive ideas that were omitted, for example, a consideration option for Tier I members.

3.     Does the new pension proposal create a third tier?

Yes. SURS and TRS members who first become participants of the pension systems on or after a to-be-determined implementation date (likely no earlier than July 1, 2018) will have the option to:

1) Be in a new hybrid benefit, known as Tier III, or

2) Elect to be part of the current Tier II.

Also, existing Tier II members will have the option of joining Tier III. The retirement systems shall establish procedures for making these elections which, once made, will be irrevocable. The Tier III plan is a combined defined benefit (DB), often referred to as a pension plan, and defined contribution (DC) plan. Under the DB part, the member’s contribution will be no more than 6.2 percent of salary, but may be less depending upon a system’s determination of the annual normal cost of benefits. The member’s contribution drops from the 9 percent of salary required under Tiers I and II. Beginning with the 2020-21 year, all employer costs (normal and any unfunded liability) for a Tier III member will be picked up by the member’s employer and not the state (prior to that date, the state will contribute 2 percent of each Tier III member’s salary to each system with the Tier III member’s employer picking up the rest, if any exists). Under the DC part, the member must minimally contribute 4 percent of salary, while his/her employer must contribute at least 2 percent and could contribute up to 6 percent of salary.

4.     What are the benefits of Tier II or Tier III?

  • In both Tier II and Tier III, the cost of living adjustments (also known as COLA), retirement age and years of service are essentially the same.
  • The pensionable salary of a member that chooses Tier III is higher than the salary of a Tier II member. It is equal to the Social Security Wage Base — $127,200 in 2017 vs. Tier II being $112,408.42 in 2017.
  • Under Tier III, members’ DB contribution decreases to no more than 6.2 percent (so they are receiving equivalent benefit value for their contribution as opposed to Tier II), although each service year is worth 1.25 percent as opposed to 2.2 percent under Tier II.
  • In addition to the DB contributions, Tier III members will have the benefit of minimally 6 percent of salary/year going into a DC plan.
  • For some employees, depending on anticipated length of service and other factors, Tier II may be preferable to Tier III. For those who don’t want any stock market risk in their retirement, they can keep a strictly defined-benefit plan under Tier II.
  • For those who prefer the portability of a DC plan, or see the combined package as preferable, they can opt in to Tier III.

5.     How are Tier 1 participants and retirees impacted by the changes?

The pension legislation has no impact on Tier I members, including retirees. The creation of the Tier III plan does not divert state dollars from TRS or SURS to the defined contribution plan. It requires that the employers fund the defined contribution plan and any liabilities attributable to the DB plan for Tier III members, if any exists.

6.     What impact will this legislation have on local school districts?

For SURS and TRS, the bill contains language that local employers, rather than the state, would be responsible for the employer’s normal and any unfunded liability costs of the defined benefit plan for Tier III employees, plus at least 2 percent of salary for the employer DC contribution. See FAQ 3 above.

7.     Did the IEA support the pension changes?

The IEA and all the unions within the We Are One Illinois labor coalition took a position of neutrality. We knew pension legislation of some kind was going to have to pass for there to be a budget. So, we worked to ensure the unconstitutional consideration model, which had been a part of SB 16 was not included. Additionally, we worked to make sure end of career salary increases which could be used for calculating one’s pension were not reduced from 6 percent to the consumer price index. Such a reduction would minimally have impacted local bargaining.

8.     What role do the systems have in the creation of the DC option?

The legislation requires the systems to implement a DC option for Tier III participants. This option will provide future teachers the ability to invest their retirement savings in mutual funds and other investment options similar to their 403(b) savings plans. The Tier III option will not be available until the DC plan is approved by the IRS.

15 Replies to “IEA was neutral on pension theft. What else is new?”

      1. According to the SURS website, Tier 3 will be an additional variation of options for people covered by SURS. At this point they are studying the law and will implement it at a future date. Although the comparison chart does not yet show anything about Tier 3, the chart vividly shows a side-by-side comparison of Tier 1 and Tier 2, which drastically reduces retirement benefits to people first hired on or after Jan 1, 2011.

  1. How lucky for Cinda that she’s retiring under the Tier 1 system. Wonder if her neutral attitude toward Tiers 2 & 3 would be the same if she was an annuitant of either one of those tiers.

    1. Even luckier that she gets a TRS pension even though she’s a union employee. Even luckier that her TRS pension will be calculated using her very un-teacher like salary of $225,000+. It’s good to be queen.

  2. Fred,

    I’m a retiree like you. Out 4 years. No impact on us?

    If I’m a Tier II, It looks like the better deal goes to Tier III. 6.2% to DB & 4% to 401K (w/2% added by State) should procure more funds if you’re diligent in your investment options. But, w/the school districts covering the funding come 2020, doesn’t that lessen the state contributions to the overall fund? Does that add to the shortage? What do the experts say?

    Rob S

    1. There is no immediate impact on Tier 1. Whether or not Tier III “a better deal” depends on if you believe in luck and the crap table.

      1. Knowing a little something about craps, Fred, maybe our odds are better if we head out to Harrah’s. At least we’ll be boosting the economy in Joliet.

  3. Placing Illinois Teachers in Social Security via 401k’s (from the Teachers Retirement System):

    “Making newly-hired teachers pay into Social Security and allowing them to be eligible for benefits would affect all current and retired teachers. Illinois teachers have never been part of the Social Security system. Most teachers rely almost solely on a TRS pension during retirement. Active teachers contribute 9.[0] percent of their paycheck to help fund TRS and school districts contribute 0.58 percent of every teacher’s salary to the System. Last year, all told, teachers contributed $917 million to TRS and school districts contributed $155 million.

    “For new teachers to become part of Social Security this scenario would mean a mandatory 12.4 percent payroll deduction split evenly between the member and the employer, which in the case of Illinois teachers is school districts and state government. Teachers would still be required to contribute 9.[0] percent of salary to TRS.

    “For school districts, the cost of teacher pensions would immediately rise by a considerable amount. Instead of contributing 0.58 percent per new teacher, every district would have to contribute 6.2 percent per teacher. It is estimated that this increased cost would equal $41 million for Illinois school districts in the first year and more than $2.4 billion over 10 years. Plus, districts would still have to contribute 0.58 percent for each participant in the current system.

    “Finally, a 1999 study by the General Accounting Office found that adding teachers and other public employers from around the country who are not currently in Social Security would create, at best, a temporary surge in revenue for Social Security. Over the long term, adding teachers to Social Security would only increase the System’s total obligations and deepen the long-term funding problem.”

  4. If all that Cinda can brag about is a neutered IEA, we are all in trouble. Neutral? All details to follow – after the fact? No impact on current retirees?
    There is no impact on retirees until fewer and fewer dollars flow into TRS and a governor appoints an “emergency manager” who follows no “antiquated rules” in order to save the state. Read Naomi Klein if this seems too-too unreal.

    1. Your second paragraph immediately came to my mind, Ken. Yep…that’s the plan. &–as to Naomi Klein–her new book, NO is not Enough specifically refutes neutrality as an answer to the political assault on all of us.
      And, BTW, since Cinda is no longer president, where’s a statement from Kathy Griffin?
      It would probably be, “What she said.’

  5. Glen Brown has figured out one of two things.
    1. Glen alone figured out what no one in IEA/NEA, TRS, the Illinois Senate, the Illinois House of Representatives, the Governor’s Office, and every major news source in Illinois could figure out before, during and after these bills were passed.
    2. We have been betrayed and swindled.
    Of course there is the possibility that a combination of the two occurred. Only the people in those dark back rooms can tell us about what those combinations entail and who they enrich.

  6. Correction: I inadvertently included the Illinois Teacher Retirement System (TRS) in groups who could not figure out how negatively so many of us will be impacted by the recent bills passed in Illinois. I sincerely apologize.

    Glen Brown, in his usual methodical manner, put together information from TRS and other sources regarding the actual negative impacts of these bills. Glen connected the dots for us.

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