Cairo Association of Teachers - Newsletter

CAT Tracks for June 6, 2005 ERO Q & A

From the IEA web site...

Continue to visit the IEA Website for updates as more information about the new law becomes known.

ERO:

1: What are the differences between the new and old ERO?

* Under the new ERO (Adjustable ERO or "AERO"), in order to avoid a reduced annuity, the member contribution for each year under 60 years of age or for each year of service less than 35 is 11.5%, while under the old ERO the member contribution is 7%.
* Under the AERO, the employer contribution is 23.5%, while under the old ERO, the employer contribution is 20%.
* The AERO does not continue the old ERO law’s waiver of contributions if the member has at least 34 years of creditable service, i.e., no free 35th year.
* Finally, the AERO lowers the minimum cap an employer can set for teachers who can retire under ERO from 30% of those eligible to 10%.

2: Are there any other differences between the AERO and old ERO?

* The only other difference is that beginning July 1, 2005, every active member of TRS will begin making a contribution of 0.40% of salary toward the cost of AERO.
* If, however, a member ends up not using AERO or the old ERO when he/she retires or AERO is terminated at some point in the future and the member has not already used AERO or the old ERO, the member will get all his/her 0.40% contributions refunded.

3: When does the AERO take effect?

Although SB 27 became effective June 1, 2005, AERO takes effect on July 1, 2005.

4: After July 1, 2005, are there any teachers who will still be able to use the old ERO?

* Yes. Any teacher who retires on or before June 30, 2005, even if s/he does not turn 55 until 6 months after his/her last day of teaching, can still use the old ERO.
* In addition, any teacher who has notified his/her employer of the intent to retire on or before June 1, 2005, and who will retire after June 30, 2005, but on or before July 1, 2007, can still use the old ERO.

5: Are there any other requirements a teacher retiring under the old ERO in 2006 or 2007 must meet?

Yes. At the time of retirement, the teacher’s employer must provide TRS with the following:

* a copy of the teacher’s notice to the employer or some other record of that notification, so that TRS can verify that the teacher notified the employer of the intent to retire before July 1, 2007, on or before June 1, 2005;
* an affidavit signed by the teacher and his/her employer verifying that the notification was given on or before June 1, 2005; and
* any additional documentation that TRS might require.

6: Must the notice of intent to retire in 2006 or 2007 be irrevocable?

The law does not specify that the intent must be irrevocable.

7: Must the notice of intent to retire be in writing?

* The new law does not specify that the intent must be in writing.
* However, the law does say that the employer must provide a copy of the notification or a record of the notification, so there must be some written record of it.

8: Will the AERO sunset after a certain number of years, like the old ERO, unless the General Assembly votes to extend it?

* No. AERO has no specific ending date.
* However, at the end of the 2011-2012 fiscal year, TRS is required to do an actuarial investigation to see if the member and employer contributions under AERO and the general active member contribution to support AERO are sufficient.
* TRS will report the results of its investigation to the Commission on Government Forecasting and Accountability, which will then recommend to the General Assembly, by no later than February 1, 2013, any contribution rate changes it believes are necessary.
* If the General Assembly fails to change rates in response to these recommendations, AERO will be terminated at the end of the 2012-2013 fiscal year.
* If AERO continues, this cycle of investigation, recommendation and action will occur every 5 years.

Salary Bumps:

1: How does the new law affect salary increases a teacher receives in the years before retirement?

If a teacher’s salary for any school year used to determine final average salary exceeds his/her salary with the same employer for the previous year by more than 6%, the employer is required to pay a penalty to TRS.

2: Is there any way to avoid TRS using the full amount of a teacher’s last year’s salary to calculate his/her final average salary?

* One way is to pay any increase in excess of 6% after the teacher’s final regular paycheck.
* The amount would then not be used in calculating the teacher’s final average salary and the employer would not have to the pay the penalty.
* However, the teacher would not get the advantage of the salary above 6% in calculating his/her final average salary and the teacher’s annuity would be less.

3: What is "final average salary?"

* "Final average salary" is the amount used, along with years of creditable service, to determine a teacher’s TRS annuity.
* It is based on the average salary for the highest 4 consecutive years within a teacher’s last 10 years of creditable service.

4: Does the new law mean that a teacher can no longer have a salary increase of up to 20% over the previous year counted in determining final average salary?

* No, a teacher can still have such a salary increase counted.
* However, the teacher’s employer will have to pay a penalty to TRS on that portion of the increase above 6%.

5: Will the teacher also have to pay a penalty to TRS?

No.

6: What penalty will an employer have to pay to TRS?

* The employer will have to pay a penalty equal to the present value of the increase in benefits to the teacher resulting from the portion of the increase in salary that exceeds 6%.
* For example, if the salary increase above 6% results in the teacher receiving an annual annuity of $3000 more than if the teacher had only had a 6% increase, TRS will actuarially determine how much more the teacher will receive over the rest of his/her life due to the increase over 6% and charge the employer the present value of that amount.

7: When will the employer have to pay the penalty?

* The employer will have to pay the full penalty within 30 days after receiving the bill from TRS.
* The bill will not be sent to the employer until the teacher begins receiving retirement benefits.

8: What if a teacher receives a salary increase of more than 6% due to moving from one district to another?

* No employer penalty will be charged.
* Only a salary increase of more than 6% with the same employer results in any penalty.

9: Are salary increases above 6% that result from normal movement on a salary schedule, extra-duty stipends or any other payments that are available to all teachers no matter whether or not they are close to retirement exempt from the penalty?

No. Although we strenuously argued for this, we were not successful.

10: Does this new 6% law apply to salary increases that are provided under current collective bargaining agreements?

* No. Salary increases paid to teachers under contracts or collective bargaining agreements entered into, amended or renewed before June 1, 2005, are not subject to the new law; they are "grandfathered."
* Once these agreements expire, however, the new 6% law will apply.

11: What about under collective bargaining agreements that have been entered into, amended or renewed before June 1, 2005, but are not effective until a later date, i.e., the beginning of the 2005-2006 school year?

* Based on the language in the new law, we believe that the 6% law does not apply until those contracts expire, as the new law does not state that the CBAs have to be in effect before June 1, 2005, only that they have to have been entered into, amended or renewed before that date.
* A contract ratified by the local and approved by the school board before June 1, 2005, provides the best case.
* A contract that has been tentatively agreed to, but not ratified/approved provides a fair/good case.
* This may be tested in the future.

12: Does the new 6% law apply to salary increases in excess of 6% provided under "grandfathered" collective bargaining agreements which are paid to the teacher after the CBAs expire?

* We believe that the new law does not apply to salary increases paid after the expiration of a collective bargaining agreement entered into, amended or renewed before June 1, 2005, provided the employer’s obligation to pay such increases was triggered during the term of the expired CBA, i.e., the teacher’s right to the increase "vested" under the "grandfathered" CBA.
* For example, a 3-year CBA with a June 30, 2007, expiration date contains a provision that obligates the employer to pay a retiring teacher a 20% raise in his/her final year of employment, provided the teacher gives notice by March 1 of the school year preceding his/her final year. If the teacher submits notice by March 1, 2007, then the employer must pay the 20% increase during the 2007-2008 school year and the increase is not subject to the new 6% law and employer penalty.

13: Does the new 6% law also apply to SURS?

Yes. The same 6% salary rule applies to SURS, with the same exceptions applying as well.

Sick Leave:

1: How does the new law affect use of accumulated sick leave for service credit?

The new law provides that if a teacher wants to use sick days granted by an employer in excess of the normal annual allotment for service credit, the employer that granted those excess days will be required to pay a penalty to TRS.

2: What is the "normal annual allotment?"

* Although not specifically defined in the new law, normal annual allotment would seem to mean the amount of sick leave that the member’s employer annually grants its teachers.
* Section 24-6 of the School Code sets the minimum annual allotment at 10 days, but an employer can provide a greater allotment than that.

3: Will the teacher also have to pay a penalty to TRS?

No.

4: What penalty will an employer have to pay to TRS?

* The employer who granted the excess days will have to pay TRS the normal cost of benefits based upon such serve credit.
* While "normal cost" is currently @17-18% of salary, how TRS will apply this to sick leave service credit based upon excess sick days is unknown at this time.

5: Can a member still receive up to 2 years of service credit for unused and uncompensated accumulated sick leave?

Yes.

6: Will the sick leave days have to have been "actually available for use" in order to be eligible for service credit?

Yes, as in the past.

7: Does this new excess sick leave law apply to additional sick days that are provided under current collective bargaining agreements?

* No. Sick days in excess of a member’s normal annual allotment paid to teachers under contracts or collective bargaining agreements entered into, amended, or renewed before June 1, 2005, are not subject to the new law; they are "grandfathered."
* Once these agreements expire, however, the new excess sick leave law will apply.

8: What about under collective bargaining agreements that have been entered into, amended or renewed before June 1, 2005, but are not effective until a later date, i.e., the beginning of the 2005-2006 school year?

* Based on the language in the new law, we believe that the excess sick leave law does not apply until those contracts expire, as the new law does not state that the CBAs have to be in effect before June 1, 2005, only that they have to have been entered into, amended or renewed before that date.
* A contract ratified by the local and approved by the school board before the date the Governor signs the bill provides the best case.
* A contract that has been tentatively agreed to, but not ratified/approved provides a fair/good case.
* This may be tested in the future.

9: Does the new excess sick leave law apply to sick days in excess of the normal annual allotment provided under "grandfathered" collective bargaining agreements which are granted to the teacher after the CBAs expire?

* We believe that the new law does not apply to excess sick days granted after the expiration of a collective bargaining agreement entered into, amended or renewed before June 1, 2005, provided the employer’s obligation to grant such days was triggered during the term of the expired CBA, i.e., the teacher’s right to the increase "vested" under the "grandfathered" CBA.
* For example, a 3-year CBA with a June 30, 2007, expiration date contains a provision that obligates the employer to grant a retiring teacher 100 days in his/her final year of employment, provided the teacher gives notice by March 1 of the school year preceding his/her final year. If the teacher submits notice by March 1, 2007, then the employer must grant the days during the 2007-2008 school year and the days are not subject to the new excess sick days law and employer penalty.

ERO Reform Act Q & A/2005-7 (6/6/2005 9:15 AM)