Issue: House Bill 2900 was introduced in February, 2013 by State Rep. Elaine Nekritz, D-Northbrook, to extended the state’s Early Retirement Option law beyond its scheduled automatic repeal on July 1, 2013. If legislators do not act to renew the ERO law by June 30, 2013, TRS members will receive refunds of all contributions paid to date to fund the ERO program.

Discussion: House Bill 2900 codifies the February recommendation of the General Assembly’s Commission on Government Forecasting and Accountability to increase the one-time contributions paid by ERO participants and their employers by 25 percent in order to maintain the ERO program and to ensure that the future costs of the ERO are fully funded.

TRS will not take a position on House Bill 2900. It is the legislature’s job to dictate the laws and rules that govern TRS and other public pension systems. The job of TRS is to administer those laws and work to secure the System’s finances so that the promises made to generations of teachers by the General Assembly can be kept.

Right now, the current contribution rates only cover 86 percent of the future costs of pensions set up under ERO. The new contribution levels recommended by COGFA would fund 100 percent of the ERO costs.

Under House Bill 2900, the ERO contribution paid by retiring members participating in ERO would increase from 11.5 percent of their salary to 14.4 percent; a 25 percent increase.

Under House Bill 2900, the ERO contribution paid by school districts would increase from 23.5 percent of the member’s salary to 29.3 percent; a 24.6 percent increase.

Under House Bill 2900, the contribution paid annually by active TRS members would remain at 0.4 percent of their salaries.

Under current state law, TRS and its actuaries, Buck Consultants, completed an “actuarial investigation” of the program in 2012 that included recommendations about whether contributions from active members, as well as one-time contributions from retiring members and their employers are sufficient to fund the program.

• The Buck recommendations were forwarded to COGFA, which made a formal recommendation to the General Assembly on January 10, 2013.
• Lawmakers now have until June 30, 2013 to act on the COGFA recommendation.

Requiring Retired State Employees to Pay Health Insurance Premiums

Issue: Governor Pat Quinn, on June 21, 2012, signed legislation that requires all current and future retired state employees to pay health insurance premiums, just as retired teachers have for decades. The new law is Public Act 97-0695.

Discussion: This law will not have a dramatic effect on the vast majority of TRS members who are in the Teachers Retirement Insurance Program because retired TRIP members already pay insurance premiums. Only about 1,200 TRS members will be affected by the bill, mostly certified teachers who work for state agencies and the Illinois State Board of Education.

The law will set up a “sliding scale” for premiums based on several factors, including retirement income and years of service. The Department of Central Management Services will determine premium levels.

TRIP members already pay an average premium in retirement of $577 a month, depending on where they live and what coverage they select. 62 percent of TRIP funding now comes from active and retired members – 42 percent from retired members and 20 percent from active teachers. The remaining 20 percent of the cost is a state subsidy.

This law makes the other state retiree health insurance plans more like TRIP in the way it’s funded. Under the old law, enacted in 1997, state employees who have 20 years of service do not pay premiums in retirement for health insurance. Retiree health insurance costs the state $880 million a year and 90 percent of retired state employees do not pay any premium.

While there will probably be a court challenge to this bill, most legal experts say that health insurance plans for retirees are not protected by the Illinois Constitution because health insurance benefits are by state officials and organized labor.

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Early Retirement Option Renewal

Issue: The state’s Early Retirement Option law for TRS members is set for a legislative review and renewal in 2013.

Discussion: If legislators do not act to renew the law by June 30, 2013, the ERO statute will be automatically repealed and TRS members will receive refunds of all contributions paid to date to fund the ERO program.

If the law is not renewed, the last day for any member to retire under ERO would be June 30, 2013. The automatic repeal of the ERO law would nullify all provisions that govern eligibility for ERO, including language that allows some TRS members to take advantage of the ERO while they are 54 years of age.

Under the ERO law, a member can reach age 55 after June 30 and be “deemed to be 55” and participate in ERO with a retirement date prior to July 1, 2013 only if his/her 55th birthday falls between July 1 and December 31, 2013 and the member is eligible for a pension of at least 74.6 percent of his/her final average salary.

If the law sunsets, members who reach age 55 after June 30, 2013 and would not receive a pension of at least 74.6 percent of the final average salary would no longer be able to retire under ERO in the six months following June 30.

As part of the process to potentially renew the ERO program, the General Assembly’s Commission on Government Forecasting and Accountability is recommending that:

• The ERO contribution paid by retiring members participating in the program increase from 11.5 percent of their salaries to 14.4 percent; a 25 percent increase.
• The ERO contribution paid by school districts increase from 23.5 percent of the member’s salary to 29.3 percent; a 24.6 percent increase.
• The contributions paid annually by active TRS members for the program remain at 0.4 percent of their salaries.

Right now, the current contribution rates only cover 86 percent of the future cost of pensions set up under ERO. The new contribution levels would fund 100 percent of the ERO costs.

Under state law, TRS and its actuaries, Buck Consultants, completed an “actuarial investigation” of the program in 2012 that included recommendations about whether contributions from active members, as well as one-time contributions from retiring members and their employers are sufficient to fund the program. The Buck recommendations were forwarded to COGFA, which made a formal recommendation to the General Assembly on January 10, 2013. Lawmakers now have until June 30, 2013 to act on the COGFA recommendation.

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Why Illinois Teachers Aren’t in Social Security

Issue: Illinois teachers are not, and never have been, participants in Social Security. And even if TRS members do pay into Social Security and build up credit in the system through other employment, the resulting Social Security benefit in retirement is reduced because the member is receiving a TRS pension.

Many people wonder why Illinois teachers are not in Social Security. There is also a school of thought that says placing Illinois teachers in Social Security would reduce the state’s costs and obligations to TRS members.

Discussion: When Social Security was created in 1935, all state and local government employees across the country, including public school teachers, were prohibited from participating in the program because of constitutional concerns about levying a federal tax on state governments.

Because many government employees around the country did not have stand-alone pension plans like TRS, in 1950 Congress amended the Social Security Act to allow state and local government employees, including teachers, to voluntarily participate in Social Security – but only if they were not covered by another stand-alone retirement system like TRS. Illinois teachers have been TRS members since 1939.

All 50 states signed agreements with the Social Security Administration to permit these uncovered government employees to enter the system, but it was left to the state to decide which government employees would be covered by Social Security. In 1954, the Social Security Act was amended again to allow state and local government employees, except police and firefighters, to participate in the system even if there were covered by a stand-alone retirement plan like TRS.

At that time teachers in Illinois and 14 other states did not push for participation in Social Security for two main reasons:

• Participation in Social Security would have required teachers and their local school district to pay an additional tax to Social Security; increasing costs to taxpayers.
  • Currently, teachers pay 9.4 percent of their salary and school districts pay 0.58 percent of its teachers’ salaries to TRS. The federal Social Security tax is 12.4 percent, split evenly between the employee and the employer. For school districts, placing teachers in Social Security would result in a 968 percent increase in taxes and contributions devoted to retirement. TRS members would see their total retirement contribution rise to 15.6 percent of pay, a 66 percent increase.
• Teachers' Retirement System retirement benefits were significantly better than those offered under Social Security.
• That is still the case. The average TRS benefit in fiscal year 2012 was $48,216. The average Social Security benefit in 2012 was $14,880.

It would not save taxpayers money to place Illinois teachers in Social Security and correspondingly reduce TRS benefits and contributions. Along with the increased cost to local governments for Social Security, adding teachers to the system would not wipe out the $91.5 billion that TRS currently owes all active and retired TRS members for the next 30 years. These are retirement benefits that already have been earned. Of that $91.5 billion, $53.5 billion is not covered by existing assets and still must be funded. The cost to state government of paying down this unfunded liability is currently about $900 million per year.

Until the mid-1980’s, teachers were allowed to receive both TRS benefits and full Social Security benefits earned from other employment. TRS members whose primary employment was as an educator not covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers.

To correct this perceived “windfall,” Congress passed the Windfall Elimination Provision in 1986. The WEP automatically lowers Social Security benefits for most retired TRS members unless the member accumulated 30 years of “substantial earnings” in other employment – essentially holding a second full-time job and teaching.

In addition, Congress passed the Government Pension Offset to remove a similar perceived advantage from TRS members collecting Social Security benefits as a “dependent” of their spouse. The GPO automatically reduces the benefits a TRS member could normally expect to receive from a spouse’s participation in Social Security. Spousal benefits were originally designed to protect stay-at-home parents.

For more information on WEP and GPO, check the Social Security website:
WEP: http://www.socialsecurity.gov/pubs/10045.pdf
GPO: http://www.socialsecurity.gov/pubs/10007.pdf

For more information on Social Security and TRS, check the TRS website:
TRS: http://trs.illinois.gov/subsections/members/pubs/booklets/pub20.pdf

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