ILLINOIS NEWS NETWORK
One of the pension funds that will be impacted the most by the state’s new Tier III pension plan doesn’t expect the plan to be implemented until fiscal year 2020 because of a variety of factors.
Illinois’ taxpayers are on the hook for an unfunded pension liability of more than $130 billion, and that number is growing. It’s the highest in the country.
Part of the budget that lawmakers imposed on the state this summer included a Tier III for state retirees and public school teachers to address the huge liability moving forward. The plan is a hybrid of defined benefits, or 401(k)-type plans, and defined contributions. It also allows Tier II participants to opt in to the new plan but will not impact the retirement funds for judges or state lawmakers.
The plan was budgeted to provide $500 million in savings for the current fiscal year, but that won’t happen if it’s not implemented.
State Employee Retirement System assistant to the executive secretary Jeff Houch said there are some hurdles to implementing the new plan.
“We cannot enroll any member,” Houch said, “regardless if they’re currently a member of the system or a future [member] of the system until the IRS approves the plan.”
Teachers Retirement System Executive Director Dick Ingram said the IRS has been clear.
“When you have a choice between two options in a pension plan that have differing contribution rates, that’s not allowed,” he said.
Ingram said he expects lawmakers to pass a bill in the upcoming veto session with technical changes necessary to begin implementation. Even then, Ingram doesn’t think the plan will be ready until July 1, 2019, the first day of the state’s fiscal year 2020.
Current Tier II members and future members of TRS will be impacted. TRS said it’s still reconciling final numbers with its auditor for fiscal year 2017 but said right now there are 160,000 active members.
About 97 percent of the approximately 61,000 active SERS members paying into the fund won’t be impacted by the new plan because they will get Social Security benefits. That means only about 400 Tier II members can opt into the plan, pending IRS approval.
“It’s a huge unknown as to how many folks will elect to participate in the plan,” Houch said. “Savings at this point are unknown, and we won’t have a true sense until we start seeing who is going to elect for this.”
Ingram said it’s important to get this right because the math is unforgiving.
“For every dollar that [the state doesn’t] put in today [that it] should, it’s $3 down the road,” Ingram said. “And that’s obviously an easy political answer for today, but essentially you’re putting a burden on taxpayers that aren’t even born yet.”
TRS is 40 percent funded with $71.4 billion in unfunded liability. There are 106,000 retirees getting benefits now.
SERS is 34 percent funded with $30 billion in unfunded liability. There are approximately 57,000 retirees getting benefits now.
The other fund that will be greatly impacted by the new retirement plan is the State University Retirement System, which has over 231,000 members.
SURS’ defined benefit plan has $24.4 billion in unfunded liability for 63,000 benefit recipients. SURS also has an optional defined contribution plan. Over 20,500 members take part in that plan with assets of nearly $2 billion.
Retirement systems for judges and state lawmakers are not affected by the new plan. The Judges’ Retirement System is 32 percent funded with $1.7 billion in unfunded liability for more than 1100 recipients. The General Assembly Retirement System is the worst funded in the state. GARS is 13 percent funded with over $320 million in unfunded liabilities.