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Tier I Offer and Consideration Pension Reform

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HB 3524 offers each Tier I member the option to elect lower automatic annual increases on his or her retirement and survivors annuities, in exchange for having future salary increases count towards the calculation of his or her pension benefits, receiving a consideration payment equal to 10 percent of his or her employee contributions made before the election, and paying 10 percent less in future employee contributions after the election.

Specifically, as it relates to SURS, HB 3524 requires each Tier I employee to make an irrevocable election to either: (1) accept lower automatic annual increases on his or her retirement and survivor annuities; or (2) keep the existing automatic annual increases on his or her retirement and survivor annuities. The lower automatic annual increases on retirement annuities are delayed until the January 1 occurring on the earlier of age 67 or five years after retirement and are calculated for retirement and survivor annuities as the lesser of 3 percent or one-half of the annual unadjusted percentage increase (but not less than zero) in the consumer price index-u, non-compounded. If the annual unadjusted percentage change in the consumer price index-u is zero or there is a decrease, then the retirement or survivor annuity must not be increased. (Tier I members currently receive a 3 percent compounded automatic annual increase on retirement and survivor annuities, commencing the January 1 occurring after the date the retirement annuity begins and the January 1 occurring on or after the date the survivor annuity begins.)

A Tier I employee who makes the election to accept lower automatic annual increases on his or her retirement and survivor annuities will: have future salary increases count towards the calculation of his or her pension benefits under SURS, receive a consideration payment equal to 10 percent of his or employee contributions made to SURS before the election, and pay reduced employee contributions to SURS after the election. The employee contributions are reduced by 10 percent, with non-public safety employees paying 7.7 percent of pensionable earnings (instead of 8.5 percent of pensionable earnings) and public safety employees paying 8.55 percent of pensionable earnings (instead of 9.5 percent of pensionable earnings) to SURS.

The consideration payment does not count towards pensionable earnings under SURS. The consideration payment must be paid by the state comptroller to the Tier I employee out of funds appropriated for that purpose. SURS must calculate the amount of each consideration payment and, by July 1, 2020, certify to the state comptroller the amount of the consideration payment, together with the name, address and any other available payment information of the Tier I employee. SURS must make additional calculations and certifications of consideration payments to the state comptroller as SURS deems necessary. (HB 3524 creates a continuing appropriation from the General Revenue Fund to the state comptroller of all amounts necessary for the payment of consideration payments, in amounts certified to the state comptroller by each respective retirement system or pension fund.)

A Tier I employee who makes the election to keep his or her existing automatic annual increases on retirement and survivors annuities will not have any future salary increases count towards the calculation of his or her pension benefits under SURS. Generally, the pensionable earnings of such a Tier I employee will be limited to the greater of: (1) the Tier I employee’s annualized rate of earnings as of June 30, 2020 or (2) the Tier I employee’s annualized rate of earnings immediately preceding the expiration, renewal or amendment of an employment contract or collective bargaining agreement on the effective date of the legislation.

The election generally must be made by each Tier I employee between January 1, 2020, and March 31, 2020. If a Tier I employee fails to make the election within the required timeframe, then the employee is deemed to have made the election to keep his or her existing automatic annual increases on retirement and survivor annuities. Elections that are made or deemed to be made before July 1, 2020, take effect on July 1, 2020, and elections that are made or deemed to be made on or after July 1, 2020, take effect on the first day of the month following the month in which the election is made or is deemed to be made.

HB 3524 defines a “Tier I employee” as a Tier I member who is a participating employee, unless he or she is a disability benefit recipient. The term “Tier I employee” does not include an individual who has made an irrevocable election on or before June 1, 2019, to retire from service pursuant to the terms of an employment contract or a collective bargaining agreement in effect on June 1, 2019, excluding any extension, amendment, or renewal of that agreement on or after that date, and has notified SURS of that election.

HB 3524 requires the SURS Board of Trustees to recalculate and recertify the fiscal year 2021 state contribution on or before May 1, 2020, taking into account the effect of the elections on its liabilities. Additionally, the SURS Board of Trustees must recalculate and recertify the fiscal year 2021 state contribution again on or before October 1, 2020, reducing it by the amount of the consideration payments made to Tier I employees who elected lower automatic annual increases on retirement and survivor annuities.

HB 3524 makes similar changes under the General Assembly Retirement System, State Employees’ Retirement System, Teachers’ Retirement System, and Chicago Teachers’ Pension Fund.

HB 3524 takes effect immediately upon becoming law.

Sponsor: 
Representative Jim Durkin