State
Universities
Retirement System
Pension Reform (PA98-599)
PensionReform– 03.06.14
Serving Employees of Illinois Community Colleges and Universities
1
IMPORTANT
• The following information is for
informational purposes only
• Uncertainties regarding PA98-599
(pension reform/SB1) still exist
• Further legislation or the outcome of
pending lawsuits could result in changes
Serving Employees of Illinois Community Colleges and Universities
2
DISCLAIMER
On the advice of counsel, SURS is unable to
provide specific advice about the implications of
the new law with respect to individual situations.
All responses to questions are the opinions of
SURS staff and professionals and should not be
considered definitive representations of SURS.
All SURS responses to any questions, or
comments from SURS, are subject to
modification by a court interpretation of the
applicable provisions of the newly enacted law.
Serving Employees of Illinois Community Colleges and Universities
3
IMPORTANT
PA98-599 (Pension Reform/SB1)
•
Signed by Governor Quinn on December 5, 2013
Changes primarily impact SURS
members who are in Tier I
•
Tier I members are participants with SURS or
another eligible Illinois retirement system who
certified prior to 01/01/11.
Serving Employees of Illinois Community Colleges and Universities
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CHANGES
•
•
•
•
•
•
•
•
•
Employee Contributions
Retirement Age Eligibility
Maximum Pensionable Earnings Cap
Effective Rate of Interest
Money Purchase Actuarial Changes
Automatic Annual Increase (AAI)
New Defined Contribution Plan
Funding Changes
Closed to new private employers as of June 1, 2014
Serving Employees of Illinois Community Colleges and Universities
5
EMPLOYEE
CONTRIBUTIONS
Tier I
• Effective date July 1, 2014
• Traditional & Portable Plans - 7%
•
•
6% “normal” retirement
1% survivor (Traditional) or portability
(Portable)
• Police/Firefighter - 8.5%
•
•
7.5% “normal” retirement
1% survivor
•
No change
• Self-Managed Plan - 8%
Serving Employees of Illinois Community Colleges and Universities
6
RETIREMENT AGE
ELIGIBILITY
Tier I
If a member retires on or after July 1, 2014, the retirement
age is delayed based on age as of June 1, 2014
Age 46 and older No delay
Age 45 4 months delay
Age 44 8 months delay
Age 43 12 months delay
Ages 42-32 Additional 4 months for each year under age 43
(e.g. Age 42 would be 16 months delay)
Less than age 32 60 months (5 years) delay
•
•
Also applies to Police/Firefighter eligibility
30 & Out – no change
Serving Employees of Illinois Community Colleges and Universities
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Tier I
MAXIMUM
PENSIONABLE EARNINGS
• Effective June 1, 2014
• Greater of:
•
•
•
Adjusted Tier II earnings limitation
• $110,631.26 for FY2015
Annualized salary as of June 1, 2014
• SURS is using actual FY2014 earnings
(07/01/13-06/30/14)
• Includes overtime, overloads, and summer
Annualized salary immediately before the
expiration, renewal, or amendment of a collective
bargaining agreement in effect on June 1, 2014
Serving Employees of Illinois Community Colleges and Universities
8
EFFECTIVE RATE
OF INTEREST (ERI)
•
Tier
I & II
Tied to U.S. 30-yr. Treasury Bond rates plus
0.75% as of July 1, 2014
• U.S. 30-yr. Treasury Bond rate as of
•
January 8, 2014 was 3.9%
Change will affect:
• Actuarial Factors
• Money Purchase Formula Calculations
• Waivers
• Refunds
• Lump-Sum Retirements
• Service Credit Purchases
• Overpayments
Serving Employees of Illinois Community Colleges and Universities
9
MONEY PURCHASE Tier I
ACTUARIAL CHANGES
•
•
•
•
•
Effective July 1, 2014
Lower effective rate of interest (ERI) will
result in changes to actuarial assumptions
Based on estimated changes to actuarial
factors, approximate 20-30% decrease to
Money Purchase calculation
SURS continues to calculate other formulas
SURS will pay the highest benefit
Serving Employees of Illinois Community Colleges and Universities
10
CURRENT
FACTORS
Tier I
Money Purchase Formula* Calculation:
Assumes member is age 60 years 0 months
$153,950
($153,950 x 1.4) + $215,531
Normal Retirement Contributions & Interest
State Employer Match
= $369,481
÷ 129.943
Current Actuarial Factor (eff. July 2,2012)
Monthly Retirement Benefit = $ 2,843
Total Normal Contributions & Interest at Retirement
*Money Purchase Formula not applicable if certification date is on or after July 1, 2005
Serving Employees of Illinois Community Colleges and Universities
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Tier I
FUTURE
ESTIMATED FACTORS
Money Purchase Formula* Calculation:
Assumes member is age 60 years 0 months
$153,950
($153,950 x 1.4) + $215,531
Normal Retirement Contributions & Interest
State Employer Match
= $369,481
÷ 173.725
Estimated Actuarial Factor (eff. July 1, 2014)
Monthly Retirement Benefit = $ 2,126
Total Normal Contributions & Interest at Retirement
*Money Purchase Formula not applicable if certification date is on or after July 1, 2005
Serving Employees of Illinois Community Colleges and Universities
12
Tier I
MINIMUM
MONEY PURCHASE
•
•
•
•
Money purchase annuity will never be lower than the money
purchase annuity the retiree would have received had he/she
retired during the fiscal year preceding June 1, 2014
Member must meet all eligibility requirements on or before
June 30, 2013
Unpaid sick leave and vacation not used in this calculation
Applies to the monthly annuity only
• Does not apply to excess waivers due to maximum benefit
Serving Employees of Illinois Community Colleges and Universities
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OTHER FORMULAS
• SURS will also calculate all other applicable
formulas:
•
•
•
General Formula
House Bill Minimum
Police/Firefighter
• SURS will pay highest benefit to member
Serving Employees of Illinois Community Colleges and Universities
14
GENERAL FORMULA
(2.2% Calculation)
• Age at retirement = 60 years
• 28 years service credit
• Final Average Earnings= $48,350
Calculation of Benefit:
28 yrs x 2.2% = 61.6%
Annual Benefit: 61.6% x $48,350 = $29,783
Monthly Benefit: $29,783 ÷ 12 = $2,481
Serving Employees of Illinois Community Colleges and Universities
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FORMULA
COMPARISON
Tier I
Based on current factors
$2,843
Based on future estimated factors
$2,126
Minimum Money Purchase Annuity (06/30/13)
$2,500
General Formula
$2,481
Serving Employees of Illinois Community Colleges and Universities
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Tier I
AUTOMATIC
ANNUAL INCREASE (AAI)
•
•
•
•
•
Applies to all Tier I members (current and future
retirees)
First new increase effective January 1, 2015
First increase is prorated based on the number of
months retired
AAI skipping applies if retired on or after
July 1, 2014
Survivor and disability recipients AAI is unchanged
Serving Employees of Illinois Community Colleges and Universities
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AAI CALCULATION
Tier I
New AAI is 3% of the lesser of the following:
•
•
Total annual annuity (including any previous
AAI), or
Total years of service x $1,000*
*Each year, starting January 1, 2016, $1,000
multiplier will be adjusted by the Consumer Price
Index for Urban Consumers (CPI-U)
Serving Employees of Illinois Community Colleges and Universities
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AAI EXAMPLE
Tier I
Annual retirement annuity on January 1, 2015, is $42,000
Years of service – 22.00
AAI calculation is lesser of the following:
1. 22 years of service x $1,000 = $22,000
$22,000 x 3% = $660 annual increase
OR
2. $42,000 total annual annuity
$42,000 x 3% = $1,260 annual increase
Member’s annual increase would be $660.00
Serving Employees of Illinois Community Colleges and Universities
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AAI SKIPPING
BASED ON AGE
Tier I
AAI skipping applies to all Tier I members who
retire on or after July 1, 2014
Based on member’s age on June 1, 2014
Age 50 or more: Skip 2nd AAI
Age 47-49: Skip 2nd, 4th, and 6th AAI
Age 44-46: Skip 2nd, 4th, 6th, and 8th AAI
Less than Age 44: Skip 2nd, 4th, 6th, 8th, and 10th AAI
Serving Employees of Illinois Community Colleges and Universities
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Tier I
NEW DEFINED
CONTRIBUTION PLAN
•
•
•
Many unknowns at this time; more details to be
determined
Subject to IRS approval
Available for 5% of Tier I members who were active on
June 1, 2014
•
•
First-come-first-serve basis
New plan available no sooner than July 1, 2015
Serving Employees of Illinois Community Colleges and Universities
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Tier I
NEW DEFINED
CONTRIBUTION PLAN
•
•
•
•
Tier I member elects to “freeze” current defined benefit
plan benefit accruals
Employee contributions credited to the new defined
contribution account will be reduced to cover the “cost”
of the plan
Cost of the plan will be shared among the participating
members
Employer match will range from 3% to the normal cost
of the defined benefit plans
•
State of Illinois will adjust the rate annually
Serving Employees of Illinois Community Colleges and Universities
22
VACATION &
SICK LEAVE
New employees hired on or after June 1, 2014
• No vacation pay included in calculations
• No unused/unpaid sick leave included as
service credit
Serving Employees of Illinois Community Colleges and Universities
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FUNDING CHANGES
PA98-599 incorporates funding changes that will
allow the state to payoff 100% of the Unfunded
Accrued Actuarial Liability (UAAL) by 2044
Changes include, but not limited to:
• State must make annual payments on time or SURS
Board can sue
• Retirement systems to receive two forms of
supplemental payments until SURS is 100% funded
For more information regarding funding changes visit:
www.surs.org
Serving Employees of Illinois Community Colleges and Universities
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FISCAL IMPACT
•
30-year state contributions savings estimated
to be $29.279 billion* (SURS only)
*This figure is based on a 12/20/2013 SURS
actuarial study on the fiscal impact of PA98-599
Serving Employees of Illinois Community Colleges and Universities
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SEVERABILITY
•
The following are an inseverable block:
• New AAI and AAI skipping
• Employee contributions and employer funding
• 10% Pension savings and pension stabilization fund
• New defined contribution plan
• New defined contribution plan-related provisions in the
Retirement Systems Reciprocal Act
•
All other provisions are severable from the rest:
• Retirement age delays
• Maximum pensionable earnings cap
• Effective rate of interest
• Unused vacation/sick leave
• Private employers
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EFFECTIVE DATES
RECAP
Official effective date of PA98-599 is June 1, 2014
•
•
•
•
Effective June 1, 2014
•
•
•
Pensionable earnings cap
No unused vacation or sick leave for new hires
No private employers
Effective July 1, 2014
•
•
•
•
Effective rate of interest (ERI)
Employee contribution rate
Retirement age
Funding changes
Effective January 1, 2015
•
New AAI starts but skipping applies to retirements on or after
July 1, 2014
Effective no earlier than July 1, 2015
•
New defined contribution plan opens
Serving Employees of Illinois Community Colleges and Universities
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EMPLOYMENT
AFTER RETIREMENT
• No changes with PA98-599
• No limitations for non SURS-covered employment
• SURS-covered employment
• 60-day waiting period
• Earnings limitation
• Before age 60, monthly limitation
• Age 60+, annual limitation
• Does not apply to Self-Managed Plan
• Further employer restrictions may apply
• Contact your employer for more information
Serving Employees of Illinois Community Colleges and Universities
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RETIREMENT ESTIMATES
• Eligibility
•
•
Must be eligible to retire before 07/01/14
Limit one request per 12-month period
• Type of Estimates
•
•
Written
Appointment
• Due to unprecedented demand SURS is offering
Group Counseling Sessions beginning March 21
• Individual counseling sessions are very limited at
this time
• Process
•
•
•
•
Complete retirement estimate form online, or
Contact SURS to initiate request
Submit completed form to SURS
Call SURS to schedule
Serving Employees of Illinois Community Colleges and Universities
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BENEFIT SUMMARY
STATEMENT: PAGE 1
Serving Employees of Illinois Community Colleges and Universities
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BENEFIT SUMMARY
STATEMENT: PAGE 2
Serving Employees of Illinois Community Colleges and Universities
31
BENEFIT SUMMARY
STATEMENT:
PROJECTED RETIREMENT ANNUITY
Serving Employees of Illinois Community Colleges and Universities
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HOW TO CONTACT US
SURS
1901 Fox Drive
Champaign, IL 61820
(800) 275-7877
(217) 378-8800
www.surs.org
Serving Employees of Illinois Community Colleges and Universities
33
SURS WEBSITE
Serving Employees of Illinois Community Colleges and Universities
34
DISCLAIMER
On the advice of counsel, SURS is unable to
provide specific advice about the implications of
the new law with respect to individual situations.
All responses to questions are the opinions of
SURS staff and professionals and should not be
considered definitive representations of SURS. All
SURS responses to any questions, or comments
from SURS, are subject to modification by a court
interpretation of the applicable provisions of the
newly enacted law.
Serving Employees of Illinois Community Colleges and Universities
35