FACT SHEET

ERO Extension and Pensions

PLEASE NOTE: The “effective date” for SB 27 is the date on which the governor signs the bill. We will post an update after the bill has been signed on the IEA Website.

Analysis:

Early Retirement Option (ERO) – TRS

Preserves options under the current ERO plan and sets into place a new ERO plan (AERO) for future use.

Current ERO – Those in the “pipeline”
* Teachers who have already filed written notice to retire in 2006 and 2007 can retire under current ERO provisions. (“Current” means ERO provisions set to expire on June 30, 2005.)

Future ERO Benefit Renamed the Adjustable Early Retirement Option (AERO)
* Funded at no cost to the State by increasing the following contributions to fund AERO:
o Contribution for Member who Retires under AERO – Increases from 7% to 11.5% (annually) for all who choose to use the ERO option
o School District AERO Contribution – Increases from 20% to 23.5% (annually)
* Employees’ pension contribution to TRS – Increases slightly from the current 9% to 9.40. Contributions would be refunded to the member upon retirement if AERO is not used.
* Free ERO @ 34 years – Eliminated under the new AERO program.
* AERO Cap – Decreased the current 30% of those eligible to a 10% minimum cap an employer can set for teachers who can retire, which can be increased through local bargaining.
* AERO Review – The new AERO program is extended to 2012. Beginning in 2012, the Government Commission on Forecasting and Accountability (a bipartisan legislative committee) will evaluate the AERO program every five-years to determine if sufficient member and employer contributions are still available to fund the program. The Commission will then make recommendations to the Illinois General Assembly for adjustments in the contribution rates. If the Illinois General Assembly fails to adjust the member and employer contributions in response to the Commission’s recommendations, then AERO will be discontinued.

Other Pension Reforms

End of Career Salary Increases – TRS & SURS
After the current contract expires, the employer will be assessed the increase in pension cost for any salary increase above 6% for retiring teachers. Until the contract expires, salary increases up to 20% may still be counted toward pension without any payment by the employer.

Gifts of Sick days -- TRS
Earned sick days can still accumulate for two years of service credit. The change requires that the school district pay for any increase in the pension cost of gift sick days beyond what is normally earned for contracts signed after the effective date of the act.

Money Purchase Plan Interest Rate Preserved for current members -- SURS
Instead of changing the Money Purchase Plan interest rate in SURS to lower benefits, the agreement gives the Comptroller's office (independent of the Governor's office) the responsibility to set the rate based on the current statutory language.

Money Purchase Plan for NEW Hires Only – TRS & SURS
Eliminated.

Bipartisan task force
A task force will be established to make recommendations regarding changes in the COLA provisions, normal retirement age for each system, and other pension related issues.
The task force will consist of one member of each legislative caucus and the Governor’s office, plus one member each from IEA, IFT, AFSCME, SEIU, TRS, SURS, and SERS.

Future Pension Benefits – all state systems
Must contain a funding source and must be 100% funded before they will become law.

Pension Holiday
A proposal by the Democrat leaders to reduce the pension payments to the 5 state-funded retirement systems by $1.2 billion for two years (Fiscal Year 2006 & 2007) to close the budget gap.

Rationale for IEA Support

Earlier in the spring, several pieces of legislation were introduced that would have severely altered our current pension system. Initially, the introduced legislation would have created a two-tier pension system, whereby future teachers would have drastically reduced pensions.

Last month, IEA joined other unions and offered a proposal to allow the state to maintain current benefits and begin paying down the state’s pension debt, without raising the income tax.

The proposal called for earmarking increased gaming revenues, a higher cigarette tax, or the issuance of Pension Obligation Bonds to cover pension costs. By the end of May, it became clear that none of these options were going to be considered and that no significant increase in state revenue was going to occur.

A proposal (SB27) by the Democrat leaders emerged that included a “pension holiday” to fill the budget gap for Fiscal Year 2006. This proposal also greatly scaled back the proposed cuts to our pension systems. The proposal also included the compromise agreement to preserve the rights of those currently in the ERO pipeline by allowing these individuals to continue with their retirement plans and also preserved a version of the ERO plan for the use of future retirees.

Furthermore, the compromise proposal:
· Preserved the use of two years of sick leave to be used toward TRS service credit
· Preserved the single-tier system and did not create a two tier system
· Did not place the SURS money purchase interest rate under the Governor’s authority