state universities retirement system

Serving Employees of Illinois Community Colleges and Universities

StateUniversities

Retirement System

1

Pension Reform (PA98-599)PensionReform– 03.06.14

• The following information is for informational purposes only

• Uncertainties regarding PA98-599 (pension reform/SB1) still exist

• Further legislation or the outcome of pending lawsuits could result in changes

Serving Employees of Illinois Community Colleges and Universities 2

IMPORTANT

DISCLAIMER


On the advice of counsel, SURS is unable to provide specific advice about the implications of the new law with respect to individual situations. All responses to questions are the opinions of SURS staff and professionals and should not be considered definitive representations of SURS. All SURS responses to any questions, or comments from SURS, are subject to modification by a court interpretation of the applicable provisions of the newly enacted law.

PA98-599 (Pension Reform/SB1)

•Signed by Governor Quinn on December 5, 2013

Changes primarily impact SURS members who are in Tier I

•Tier I members are participants with SURS or another eligible Illinois retirement system who certified prior to 01/01/11.

Serving Employees of Illinois Community Colleges and Universities4

IMPORTANT

• Employee Contributions

• Retirement Age Eligibility

• Maximum Pensionable Earnings Cap

• Effective Rate of Interest

• Money Purchase Actuarial Changes

• Automatic Annual Increase (AAI)

• New Defined Contribution Plan

• Funding Changes

• Closed to new private employers as of June 1, 2014

CHANGES


• Effective date July 1, 2014

• Traditional & Portable Plans - 7%• 6% “normal” retirement• 1% survivor (Traditional) or portability

(Portable)

• Police/Firefighter - 8.5%• 7.5% “normal” retirement• 1% survivor

• Self-Managed Plan - 8%• No change

EMPLOYEECONTRIBUTIONS


Tier I

RETIREMENT AGEELIGIBILITY


Tier I

If a member retires on or after July 1, 2014, the retirement age is delayed based on age as of June 1, 2014

Age 46 and older No delay

Age 45 4 months delay



Ages 42-32 Additional 4 months for each year under age 43 (e.g. Age 42 would be 16 months delay)

Less than age 32 60 months (5 years) delay

• Also applies to Police/Firefighter eligibility

• 30 & Out – no change

MAXIMUM PENSIONABLE EARNINGS


Tier I

• Tied to U.S. 30-yr. Treasury Bond rates plus 0.75% as of July 1, 2014• U.S. 30-yr. Treasury Bond rate as of

January 8, 2014 was 3.9%

• Change will affect:• Actuarial Factors• Money Purchase Formula Calculations• Waivers• Refunds• Lump-Sum Retirements• Service Credit Purchases• Overpayments

EFFECTIVE RATEOF INTEREST (ERI)


TierI & II

• Effective July 1, 2014

• Lower effective rate of interest (ERI) will result in changes to actuarial assumptions

• Based on estimated changes to actuarial factors, approximate 20-30% decrease to Money Purchase calculation

• SURS continues to calculate other formulas

• SURS will pay the highest benefit

MONEY PURCHASE ACTUARIAL CHANGES


Tier I


CURRENTFACTORS

Money Purchase Formula* Calculation:Assumes member is age 60 years 0 months

Normal Retirement Contributions & Interest $153,950

State Employer Match ($153,950 x 1.4) + $215,531

Total Normal Contributions & Interest at Retirement = $369,481

Current Actuarial Factor (eff. July 2,2012) ÷ 129.943

Monthly Retirement Benefit = $ 2,843

*Money Purchase Formula not applicable if certification date is on or after July 1, 2005

11

Tier I


FUTUREESTIMATED FACTORS

Money Purchase Formula* Calculation:Assumes member is age 60 years 0 months

Normal Retirement Contributions & Interest $153,950

State Employer Match ($153,950 x 1.4) + $215,531

Total Normal Contributions & Interest at Retirement = $369,481

Estimated Actuarial Factor (eff. July 1, 2014) ÷ 173.725

Monthly Retirement Benefit = $ 2,126

*Money Purchase Formula not applicable if certification date is on or after July 1, 2005

12

Tier I

• Money purchase annuity will never be lower than the money purchase annuity the retiree would have received had he/she retired during the fiscal year preceding June 1, 2014

• Member must meet all eligibility requirements on or before June 30, 2013

• Unpaid sick leave and vacation not used in this calculation

• Applies to the monthly annuity only• Does not apply to excess waivers due to maximum benefit

MINIMUMMONEY PURCHASE


Tier I

• SURS will also calculate all other applicable formulas:• General Formula

• House Bill Minimum

• Police/Firefighter

• SURS will pay highest benefit to member

OTHER FORMULAS


GENERAL FORMULA(2.2% Calculation)


• Age at retirement = 60 years• 28 years service credit

• Final Average Earnings= $48,350

Calculation of Benefit:

28 yrs x 2.2% = 61.6%

Annual Benefit: 61.6% x $48,350 = $29,783

Monthly Benefit: $29,783 ÷ 12 = $2,481

15

FORMULA COMPARISON


Tier I

Based on current factors $2,843

Based on future estimated factors $2,126

Minimum Money Purchase Annuity (06/30/13) $2,500

General Formula $2,481

• Applies to all Tier I members (current and future retirees)

• First new increase effective January 1, 2015

• First increase is prorated based on the number of months retired

• AAI skipping applies if retired on or after July 1, 2014

• Survivor and disability recipients AAI is unchanged

AUTOMATIC ANNUAL INCREASE (AAI)


Tier I

New AAI is 3% of the lesser of the following:

• Total annual annuity (including any previous AAI), or

• Total years of service x $1,000*

*Each year, starting January 1, 2016, $1,000 multiplier will be adjusted by the Consumer Price Index for Urban Consumers (CPI-U)

AAI CALCULATION


Tier I

Annual retirement annuity on January 1, 2015, is $42,000Years of service – 22.00

AAI calculation is lesser of the following:

AAI EXAMPLE


1. 22 years of service x $1,000 = $22,000$22,000 x 3% = $660 annual increase

OR

2. $42,000 total annual annuity $42,000 x 3% = $1,260 annual increase

Tier I

Member’s annual increase would be $660.00

AAI SKIPPINGBASED ON AGE


Tier I

Based on member’s age on June 1, 2014

Age 50 or more: Skip 2nd AAI

Age 47-49: Skip 2nd, 4th, and 6th AAI

Age 44-46: Skip 2nd, 4th, 6th, and 8th AAI

Less than Age 44: Skip 2nd, 4th, 6th, 8th, and 10th AAI

AAI skipping applies to all Tier I members who retire on or after July 1, 2014

NEW DEFINEDCONTRIBUTION PLAN


Tier I

• Tier I member elects to “freeze” current defined benefit plan benefit accruals

• Employee contributions credited to the new defined contribution account will be reduced to cover the “cost” of the plan

• Cost of the plan will be shared among the participating members

• Employer match will range from 3% to the normal cost of the defined benefit plans• State of Illinois will adjust the rate annually

NEW DEFINEDCONTRIBUTION PLAN


Tier I

New employees hired on or after June 1, 2014

• No vacation pay included in calculations

• No unused/unpaid sick leave included as service credit

VACATION & SICK LEAVE


PA98-599 incorporates funding changes that will allow the state to payoff 100% of the Unfunded Accrued Actuarial Liability (UAAL) by 2044

Changes include, but not limited to:• State must make annual payments on time or SURS

Board can sue

• Retirement systems to receive two forms of supplemental payments until SURS is 100% funded

For more information regarding funding changes visit:www.surs.org

FUNDING CHANGES


http://www.surs.org/

• 30-year state contributions savings estimated to be $29.279 billion* (SURS only)

*This figure is based on a 12/20/2013 SURS actuarial study on the fiscal impact of PA98-599

FISCAL IMPACT


SEVERABILITY• The following are an inseverable block:

• New AAI and AAI skipping

• Employee contributions and employer funding

• 10% Pension savings and pension stabilization fund

• New defined contribution plan

• New defined contribution plan-related provisions in the Retirement Systems Reciprocal Act

• All other provisions are severable from the rest:• Retirement age delays

• Maximum pensionable earnings cap

• Effective rate of interest

• Unused vacation/sick leave

• Private employers26

Official effective date of PA98-599 is June 1, 2014• Effective June 1, 2014

• Pensionable earnings cap• No unused vacation or sick leave for new hires• No private employers

• Effective July 1, 2014• Effective rate of interest (ERI)• Employee contribution rate• Retirement age• Funding changes

• Effective January 1, 2015• New AAI starts but skipping applies to retirements on or after

July 1, 2014

• Effective no earlier than July 1, 2015• New defined contribution plan opens

EFFECTIVE DATESRECAP


EMPLOYMENTAFTER RETIREMENT


• No changes with PA98-599

• No limitations for non SURS-covered employment

• SURS-covered employment• 60-day waiting period

• Earnings limitation• Before age 60, monthly limitation

• Age 60+, annual limitation

• Does not apply to Self-Managed Plan

• Further employer restrictions may apply• Contact your employer for more information

• Eligibility• Must be eligible to retire before 07/01/14• Limit one request per 12-month period

• Type of Estimates• Written• Appointment

• Due to unprecedented demand SURS is offering Group Counseling Sessions beginning March 21

• Individual counseling sessions are very limited at this time

• Process• Complete retirement estimate form online, or• Contact SURS to initiate request• Submit completed form to SURS• Call SURS to schedule

RETIREMENT ESTIMATES


BENEFIT SUMMARY STATEMENT: PAGE 1


BENEFIT SUMMARY STATEMENT: PAGE 2


BENEFIT SUMMARY STATEMENT:

PROJECTED RETIREMENT ANNUITY


HOW TO CONTACT US

SURS1901 Fox DriveChampaign, IL 61820


(800) 275-7877(217) 378-8800

www.surs.org

http://www.surs.org/

SURS WEBSITE


DISCLAIMER

On the advice of counsel, SURS is unable to provide specific advice about the implications of the new law with respect to individual situations. All responses to questions are the opinions of SURS staff and professionals and should not be considered definitive representations of SURS. All SURS responses to any questions, or comments from SURS, are subject to modification by a court interpretation of the applicable provisions of the newly enacted law.


state universities retirement system

Documents

surs responses

months delayages

months delayless

impact surs members

opinions of surs staff

tier itier

tier iif

pension reform pa98