Even with COVID19 this is a bad pension deal.

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Bob Lyons (right)

-From Bob Lyons. Bob is a retired teacher and was formerly annuitant member of the board of trustees of the Illinois Teacher Retirement System.

Have we got a deal!

If you had any concerns they should have been taken care of, your check was deposited, or in your hand.  Unlike the federal government, the state of Illinois cannot print money, but hey have the funds to pay our checks and for many years to come,

I thought I would share with you information from TRS about two programs that the General Assembly started last year to accelerate pension payments to those annuitants that would be willing to give up money in the long term to gain more money upfront.  The state’s Tier I Accelerated Annual Increase (AAI) Program is only available the first year you retire and is not open to anyone who retired before June of 2019.  The important thing to understand is that the motivation of the state in offering the program is to save money.  For that reason alone I am uncertain why anyone would take the deal. I try to think why someone would prefer to receive a smaller amount in the long run for gaining a larger portion upfront. While I could understand someone with a terminal Illinois, knowing that they will not enjoy the life expectancy the actuary expects them to achieve, taking the deal.  I would think that even in the time of the pandemic that is still a rare event.  Possibly the annuitant, or their spouse, is convinced they can invest the money and multiply their gains, or possibly the most rational is that they have a specific use for the money that motivates their desire for the cash now.

Looking at the numbers, as of early December some 604 members out of 3,775 who retired during 2019 agreed to accelerated payments in return for reductions in the automatic annual increase to their remaining pensions.  The average lump-sum payment was $135,000. The AAI program calls for Tier I members accepting the accelerated payments to give up their current annual 3 percent compounded and accept a new 1.5 percent, not compounded and receive a lump-sum that equals 70 percent of the difference between the estimated lifetime value of the old and new annual increases. In 2019 the AAI program paid out $80 million with the money coming not from TRS but directly from the state. I retired in 1994 so my pension has more than doubled during the close to twenty-six years that I have been retired, the AAI program would not personally have been a good choice.

The second program created by the state, the Accelerated Pension Benefit (APB) Program begin in September, 2019 was for inactive TRS members with at least five years of service.  They were offered 60 percent of their anticipated pensions benefits and in return would give up totally their future rights to a reoccurring TRS benefits when they were older and eligible.  Studies have shown many of this generation have no expectation that social security will even exist when they eventually reach retirement age. I was by no means surprised that 422 out of 14,598 had taken the deal with an average buyout payment of $115,000. Actually I would have expected even more to have taken the deal.  Some $50.1 million was spent on this program with again the money coming directly from the state and not TRS. Today with many people hurting for cash this deal looks even better, but I do not think the money is currently there.

This information is directly from TRS.

One thought on “Even with COVID19 this is a bad pension deal.

  1. What would you take per month in a Federal bailout that eliminated risk of Illinois finances? You’d get same COLA as PBGC but you’d give up any pension(s) from Illinois? For health care you’d get whatever Obamacare or Medicare-for-All provides to the rest of us taxpayers. There’d of course be a cap (as with PBGC) but superintendents would probably take the risk for their $180K + COLA pensions. However if career teachers don’t recognize the financial risk (particularly after the fund value declines in the first quarter) they’re not as astute as they are reputed to be.

    What do you think your teaching peers would take (Fred K excepted)?

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