General Assembly Enacts Steps to Reform Pensions

One of the largest long-term challenges facing the State is the presence of unfunded pension liabilities in State-managed pension funds. The size of these liabilities, which cover pension payments promised to teachers and other public-sector professional workers, cannot be precisely determined at this time because it is based on future interest rates and prudent anticipated future rates of return on the funds already invested. Based on current estimates of future rates of return, the unfunded pension liabilities of the State and its taxpayers are in excess of $130 billion. $71 billion of this underfunding reflects commitments made by the Teachers’ Retirement System of Illinois.

In the spring 2018 session, the State took significant actions to delineate and reduce the unfunded liabilities on the books of the Teachers Retirement System (TRS) and State Universities Retirement System (SURS). Legislation passed on a bipartisan basis by both houses will reduce these liabilities in two ways. Firstly, school districts will no longer be able to pass on to the State the cost of “spiking” end-of-career educator salary hikes, which are the salary levels on which pension payments are based, at a rate that is higher than the current rate of inflation. Under the 2018 pension reform plan, the State-pension-liable portions of the salaries paid to educators by school districts cannot increase at a rate faster than 3%. Pension costs generated from salary increases greater than 3% must be borne by the school or university that granted the salary hike.

Secondly, the State has committed itself to inaugurating a new program to buy out part or all of the future pension benefits to be paid out in future years to active and inactive vested public sector workers. Under this proposal, vested public-sector workers – especially workers who are enrolled in pre-2011 “Tier I” pension plans – will be given the chance to take a buyout of a segment of their pension benefits. Workers who make the decision to accept a buyout will have the chance to enjoy a substantial cash payout that could be reinvested in ways the eligible vested person desires.

No comments :