In Public Act 100-0023, the Illinois General Assembly made significant changes to the Illinois Pension Code affecting the Teachers’ Retirement System of Illinois (TRS) in two main ways: (1) by creating a voluntary “Tier III” member benefit for existing and future Tier II members; and (2) shifting the cost of the employer contribution to the local school districts for salaries exceeding the Governor’s salary. The Public Act also modifies the method by which the state of Illinois will fund TRS.
In general, the pension changes provide current Tier II members and future Tier II members an option to leave or waive Tier II and join the new Tier III plan instead. The Tier III plan consists of two different sub plans: a mini defined benefit pension plan (DB plan) coupled with a defined contribution plan (DC plan).
The Tier III plan is not yet in effect as it still needs to be written by TRS, approved by the IRS and then implemented. However, the basic design structure includes: (1) member contribution of a maximum of 6.2 % of salary to the DB plan (the current plan is 9.0%); (2) member contribution of at least 4.0% to the DC plan; (3) maximum pensionable salary equal to the Social Security contribution cap; (4) normal retirement age based on Social Security eligibility (currently 67); (5) final average salary based on an average of last 10 years of service; (6) automatic annual increases of one-half of the previous year’s consumer price index, not compounded; (7) initial pension calculation equal to number of service years multiplied by final average salary, multiplied by 1.25 percent; (8) majority of employer contributions for Tier III will be paid by the local school districts, rather than the state.
Finally, if a member’s salary is equal to or greater than the governor’s statutory salary (currently about $180,000), the school district will be responsible for paying the actuarial cost of the portion that exceeds the threshold. While Tier III will take some time to get established, this additional cost to local school districts for salaries exceeding the governor’s salary took effect July 1, 2017.
Contact Barbara Erickson or Heather Brickman for more information.