Presentation highlights differences in tiered pension system

Larry Curtis, employer services manager from the State Universities Retirement System, speaks with audience members after the Feb. 27 brownbag presentation.

By Sonya Booth

More than 100 people — most of them current employees — heard bad news about Tier II pensions, the system for employees hired after Jan. 1, 2011, at a brownbag presentation sponsored by the UIC chapter of the State Universities Annuitants Association.

They also learned that there are no options to improve their Tier II benefits, although SUAA is considering a future legal challenge.

The Tier II system, created by the Illinois legislature to help reduce the state’s pension debt, offers reduced benefits compared to the Tier I system for employees hired before 2011.

At the Feb. 27 brownbag, Larry Curtis, employer services manager, State Universities Retirement System, explained the differences between two pension systems. Sarah Wetmore, vice president and research director of the Civic Federation, then outlined how the state accumulated its massive pension debt.

Curtis said employees covered by Tier II must work for the university for a longer period of time and retire at a later age to receive pension benefits. The earnings their pension is based upon are calculated in a less favorable way and the automatic annual increase they will receive is much less. The Portable and Self-Managed plans don’t include automatic survivor’s benefits.

In an effort to reduce its pension liabilities, the state is also offering two pension buyout plans, Curtis said.

One buyout is offered to Tier 1 employees applying for retirement who meet minimum age and service credit requirements. The plan, which will be available through 2021, pays a portion of the pension up front, with reduced benefits thereafter.

The other buyout, for vested SURS members who left the university to work elsewhere, offers a lump sum payment equal to 60 percent of the present value of their pension benefit if they forgo a SURS annuity.

Curtis suggested employees think carefully before taking a buyout.

“The pension buyouts were created more to reduce state funding than to benefit SURS members,” he said.

SURS is developing an online estimator to provide an individualized look at the long-term effects of taking a buyout, he added.

To help offset the Tier II shortfall, SURS will offer a voluntary optional defined contribution plan to help employees save for retirement. The plan should be available to employees next fiscal year, Curtis said.

Curtis urged employees to contact SURS for more information on their benefits, online at surs.org or by calling 800-275-7877.

Wetmore gave a brief history of the state’s unmet promises to pay into pension funds that led to the accumulation of nearly than $140 billion in unfunded liability.

Legislative attempts to reduce pensions for already-retired employees were ruled unconstitutional, she explained. Instead, lawmakers passed laws to reduce pension benefits for new employees.

Wetmore outlined Gov. J. B. Pritzker’s recent proposals to reduce the state’s pension liability, including a graduated income tax, state bonds, more buyout plans and extending the payment schedule.

Even with these measures, the state won’t be putting enough in to reduce its unfunded liability for many decades, Wetmore said.

The full effects of the reduced Tier II pensions won’t become clear until those employees begin to retire in 2021, said SUAA executive director Linda Brookhart after the meeting. If Tier II benefits don’t meet the pension thresholds set by Social Security, SUAA will investigate legal challenges, she added.

Brookhart urged audience members to join SUAA, the only advocacy organization focused solely on protecting benefits for all SURS members and beneficiaries.

Some issues the organization is currently working on including stabilizing state funding for higher education and eliminating the 3 percent salary threshold for educators.

SUAA will continue to work with legislators in Springfield to prevent further pension reductions — a continuing battle, Brookhart added.

“Many legislators aren’t friendly to pensions,” she said. “They don’t understand that you don’t get Social Security.”

Categories

Topics

, ,