Q&A: Pensions for state and state university retirees
What happened to state/university pensions under Senate Bill 1?
In December of 2013, the Illinois General Assembly passed and the governor signed Senate Bill 1, which sought to make harmful cuts to pensions of retirees in SERS and SURS, as well as TRS. This bill passed by a very close vote over vigorous opposition from many legislators, massive grassroots pressure from union members and retirees all across the state, and an intensive Capitol lobbying offensive by AFSCME and our partners in the We Are One Illinois union coalition.
For more than two years AFSCME active and retired members—along with our We Are One partners—have beat back repeated attempts to make even more draconian cuts to pension benefits.
Then the fight shifted to the courts. AFSCME and our partners in the We Are One Illinois coalitionfiled a lawsuit against the State of Illinois challenging the constitutionality of SB1.
The new law was scheduled to go into effect on June 1, 2014. However, AFSCME and its allies in the We Are One Illinois union coalition won a preliminary injunction before the court that will likely block implementation of the law until the courts rule on its constitutionality. This means that you will now receive your earned COLA increase on January 1 every year until the lawsuit is concluded.
In November 2014, Sangamon County Circuit Court Judge John Belz ruled in favor of the We Are One challenge, affirming that the Illinois State Constitution’s Pension Protection Clause is “plain and unambiguous” and that SB 1 “without question diminishes and impairs” retirement benefits.
Retirees should remain on guard however. While the pension case seems to foreclose one avenue (the lawmaking process) of attacking pensions, your retirment security remains at risk,
How would SB1 have affected me?
If the law was upheld, beginning January 1, 2015, your COLA will no longer compound once your annual annuity reaches a certain point.
The exact impact depends on whether you are a state or university retiree and whether you receive Social Security. The We Are One Illinois coalition has created a spreadsheet you can use to see how SB 1 will affect you. Click here to use the calculator if you have a newer version of Excel. If you have an older version of Excel, click here for a compatible calculator.
As an example, say a state worker is 32 years old and averages $65,000 a year over the course of their career. The 1% decrease in contributions included in the law will put $19,500 back in that workers pocket over their entire career. But, assuming that worker’s starting pension is $24,000, once you take into account the skipped COLAs, the reduced COLAs, and the later retirement age, that worker will have lost over $245,000 over 20 years of retirement!
Will my pension be reduced?
The amount of your current pension benefit will not be reduced. In fact, even if the new law had gone into effect, your benefit amount will increase on the date upon which a cost-of-living adjustment (COLA) would normally be implemented.
HOWEVER, in most cases the amount of the COLA that is added to your pension will be LESS than it would have been had this law not been passed.
For instance, under the new law if you retired from the state with 25 years of service, are eligible for Social Security and you now have a pension of $40,000, your COLA would be calculated on $20,000 (25x$800), rather than the full $40,000. So next year you would still receive a COLA, bringing your pension to $40,600. However, if the law had not been enacted, your pension next year would have been $41,200. That’s $600 lost in one year—and that loss increases exponentially, rising to thousands of dollars over the next five years.
Another thing to remember is that the purpose of COLA is inflation protection. While it easy to calculate how much you can expect to receive each year under Senate Bill 1, it is harder to figure out how much you will lose out on when you consider inflation. If your COLA is not keeping pace with inflation, you will see the buying power of your pension go down each year- resulting in a severely diminished financial quality of life over time.
How would this have affected me if I have not yet retired?
Working members, in addition to having their pension COLA capped like retirees, will additionally face other diminishment to their retirement income.
Skipped COLAs:
Working employees who retire on or after July 1, 2014 will have their COLA raise skipped for a number of years, depending on their age. Employees age 50 or over (as of June 1, 2014) will not receive 1 of their annual COLA raises, to take place during their second year of retirement. Employees age 47 to 49 will not receive 3 of their annual COLA raises, to take place during their 2nd, 4th, and 6th years of retirement. Employees age 44-46 will not receive 4 of their annual COLA raises, to take place during their 2nd, 4th, 6th, and 8th years of retirement. Finally, employees age 43 and under will have 5 COLAs skipped, to take place during their 2nd, 4th, 6th, 8th, and 10th years of retirement.
Retirement Age:
For Tier 1 Employees age 45 or younger on June 1, 2014, the retirement age will be increased. For each year a member is under 46, the retirement age will be increased by 4 months, up to a 5 year increase for members under age 32. This age increase applies to all formulas and the Rule of 85.
Sick Time and Vacation Can’t be used for Service Credit:
Employees hired after June 1, 2014 are not allowed to convert accumulated sick and vacation days into service credit at retirement.
Employee Contributions:
Under the law, Tier 1 employee contribution rates will decrease by 1% – a decrease that does not come close to replacing the pension lost due to SB 1.