State Universities Retirement System

Pension Reform (PA98-599) PensionReform– 03.04.14 Serving Employees of Illinois Community Colleges and Universities

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IMPORTANT PA98-599 (Pension Reform/SB1)

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Signed by Governor Quinn on December 5, 2013

Changes primarily impact SURS members who are in Tier I

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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 Universities

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DISCLAIMER

• 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

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CHANGES • • • • • • • • •

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 Serving Employees of Illinois Community Colleges and Universities

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EMPLOYEE CONTRIBUTIONS

Tier I

• 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

Serving Employees of Illinois Community Colleges and Universities

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RETIREMENT AGE ELIGIBILITY

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 Age 44 8 months delay Age 43 12 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 Serving Employees of Illinois Community Colleges and Universities

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Tier I MAXIMUM PENSIONABLE EARNINGS

• Effective June 1, 2014 • Greater of: • • •

Adjusted Tier II earnings limitation • $110,631.26 for FY2015 Annualized salary as of June 1, 2014 • SURS is using actual FY2014 earnings (07/01/13-06/30/14) • Includes overtime, overloads, and summer Annualized salary immediately before the expiration, renewal, or amendment of a collective bargaining agreement in effect on June 1, 2014

Serving Employees of Illinois Community Colleges and Universities

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EFFECTIVE RATE OF INTEREST (ERI) •

Tier I & II

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%

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Change will affect:

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

Serving Employees of Illinois Community Colleges and Universities

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MONEY PURCHASE Tier I ACTUARIAL CHANGES • •

Effective July 1, 2014

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

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SURS continues to calculate other formulas

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

SURS will pay the highest benefit Serving Employees of Illinois Community Colleges and Universities

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CURRENT FACTORS

Tier I

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

$153,950 ($153,950 x 1.4) + $215,531

Normal Retirement Contributions & Interest State Employer Match

= $369,481 ÷ 129.943 Current Actuarial Factor (eff. July 2,2012) Monthly Retirement Benefit = $ 2,843 Total Normal Contributions & Interest at Retirement

*Money Purchase Formula not applicable if certification date is on or after July 1, 2005 Serving Employees of Illinois Community Colleges and Universities

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Tier I FUTURE ESTIMATED FACTORS Money Purchase Formula* Calculation: Assumes member is age 60 years 0 months

$153,950 ($153,950 x 1.4) + $215,531

Normal Retirement Contributions & Interest State Employer Match

= $369,481 ÷ 173.725 Estimated Actuarial Factor (eff. July 1, 2014) Monthly Retirement Benefit = $ 2,126 Total Normal Contributions & Interest at Retirement

*Money Purchase Formula not applicable if certification date is on or after July 1, 2005 Serving Employees of Illinois Community Colleges and Universities

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Tier I MINIMUM MONEY PURCHASE •

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

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

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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

Serving Employees of Illinois Community Colleges and Universities

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OTHER FORMULAS • SURS will also calculate all other applicable formulas:

• • •

General Formula House Bill Minimum Police/Firefighter

• SURS will pay highest benefit to member

Serving Employees of Illinois Community Colleges and Universities

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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 Serving Employees of Illinois Community Colleges and Universities

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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

Serving Employees of Illinois Community Colleges and Universities

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Tier I AUTOMATIC ANNUAL INCREASE (AAI) •

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

• •

First new increase effective January 1, 2015

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

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Survivor and disability recipients AAI is unchanged

First increase is prorated based on the number of months retired

Serving Employees of Illinois Community Colleges and Universities

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AAI CALCULATION

Tier I

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

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Total annual annuity (including any previous AAI), or

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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) Serving Employees of Illinois Community Colleges and Universities

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AAI EXAMPLE

Tier I

Annual retirement annuity on January 1, 2015, is $42,000

Years of service – 22.00 AAI calculation is lesser of the following: 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

Member’s annual increase would be $660.00 Serving Employees of Illinois Community Colleges and Universities

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AAI SKIPPING BASED ON AGE

Tier I

AAI skipping applies to all Tier I members who retire on or after July 1, 2014 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 Serving Employees of Illinois Community Colleges and Universities

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Tier I

NEW DEFINED CONTRIBUTION PLAN •

Many unknowns at this time; more details to be determined

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Subject to IRS approval Available for 5% of Tier I members who were active on June 1, 2014

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First-come-first-serve basis

New plan available no sooner than July 1, 2015

Serving Employees of Illinois Community Colleges and Universities

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Tier I

NEW DEFINED CONTRIBUTION PLAN •

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

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

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Cost of the plan will be shared among the participating members

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Employer match will range from 3% to the normal cost of the defined benefit plans

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State of Illinois will adjust the rate annually

Serving Employees of Illinois Community Colleges and Universities

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VACATION & SICK LEAVE New employees hired on or after June 1, 2014

• No vacation pay included in calculations • No unused/unpaid sick leave included as service credit

Serving Employees of Illinois Community Colleges and Universities

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FUNDING CHANGES 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 Serving Employees of Illinois Community Colleges and Universities

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FISCAL IMPACT •

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

Serving Employees of Illinois Community Colleges and Universities

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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

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All other provisions are severable from the rest:

• Retirement age delays • Maximum pensionable earnings cap • Effective rate of interest • Unused vacation/sick leave • Private employers

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EFFECTIVE DATES RECAP 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

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New AAI starts but skipping applies to retirements on or after July 1, 2014

Effective no earlier than July 1, 2015

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New defined contribution plan opens

Serving Employees of Illinois Community Colleges and Universities

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EMPLOYMENT AFTER 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 Serving Employees of Illinois Community Colleges and Universities

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RETIREMENT ESTIMATES • 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

Serving Employees of Illinois Community Colleges and Universities

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HOW TO CONTACT US SURS 1901 Fox Drive Champaign, IL 61820 (800) 275-7877 (217) 378-8800 www.surs.org Serving Employees of Illinois Community Colleges and Universities

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SURS WEBSITE

Serving Employees of Illinois Community Colleges and Universities

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DISCLAIMER All aspects of administration of the State Universities Retirement System (SURS), including but not limited to benefit calculation and payment, must comply with state and federal law. No employee of SURS has the authority to bind the system to take action contrary to law, even in the event of misstatement of fact or law. Furthermore, while this letter states SURS’s current understanding of the law, this could change as a result of court opinions, statutory changes, or other matters (e.g., Attorney General opinions). Accordingly, SURS is required under law to correct any mistake in benefit amount, even after payments have begun. Use of any information from this letter, form, or any other document provided by SURS is for general information only and does not represent personal tax or legal advice either express or implied. You must seek professional legal or tax advice for personal income tax questions and other legal assistance. Serving Employees of Illinois Community Colleges and Universities

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