SPRINGFIELD – Teachers and school districts will have to pay significantly more in the future to participate in an early-retirement option to cover the program’s costs.
That is, if the General Assembly acts this spring to keep the program in place. If it doesn’t, the program will be repealed June 30, and the Teachers’ Retirement System would have to give more than $200 million back to teachers.
“We certainly support the early-retirement option,” said Jim Reed, director of government relations for the Illinois Education Association. “What presents a challenge is how much of an increase it will be to maintain that option. We have some concerns with this new wrinkle.”
The early-retirement option is open to members of TRS who are between the ages of 55 and 60 and have at least 20, but less than 35, years of service. A TRS member who retires at 60 receives full pension benefits. If he retires between the ages of 55 and 60, those benefits are reduced, unless the teacher chooses to participate in the early-retirement option.
If someone elects to participate in the option, both the teacher and the teacher’s employer must make a one-time contribution to cover the cost. In addition, all active TRS members contribute to the cost of the option.
Teachers pay 9.4 percent of their salaries toward their pensions. Of that, 0.4 percent goes toward the early-retirement option. The money is refunded without interest if a member retires without taking early retirement.
Last summer, though, TRS’s consultant determined that those contributions cover only 86 percent of the cost. The consultant recommended about a 25 percent increase in the lump-sum payments made by both the teacher and school district when someone elects to take early retirement. Those higher contributions will cover 100 percent of the program’s costs.
“It becomes problematic for people to make that kind of payment, and so fewer and fewer people are taking it,” said IEA President Cinda Klickna.
In fact, the number of teachers selecting the early-retirement option has steadily declined, according to TRS. In the 2008 budget year, 480 of the 3,260 teacher retirements were from early-retirement participants. In 2012, it was 370 out of 5,266.
Currently, a teacher who wants to participate in the early-retirement option must make a lump-sum payment of 11.5 percent of his salary for each year under 60. A person making $80,000 would have to pay $9,200 to retire one year early. That goes up to $36,800 for retiring four years early.
The Commission on Government Forecasting and Accountability is recommending that the employee payment be increased to 14.4 percent. That would kick the payment up to $11,500 for someone retiring one year early.
School districts would also see the amount they must pay increase by about 25 percent. They now pay 23.5 percent of a person’s salary for each year of early retirement. That would increase to 29.3 percent.
Springfield school spokesman Pete Sherman said the increased costs are a concern.
“It’s just one more squeeze that makes it more difficult for us to function,” Sherman said.
Springfield has 28 employees planning to use the early-retirement option this school year, and 23 have notified the district they plan to use it next year.
Under the law, the General Assembly must approve the new lump-sum contribution rates by June 30 or the program will expire. If the program does expire, TRS must make refunds to participants.
“We’d have to do that within the upcoming fiscal year,” said TRS spokesman Dave Urbanek. “It’s at least $200 million.”
The amount is not that large within the context of a $36 billion pension system, but Reed noted that “when you are talking about what might appear to be a small amount of money when the state is so underfunded with pensions, every little amount is going to draw attention.”
Continuation of the early-retirement option is not part of a comprehensive pension reform proposal filed in the House by Rep. Elaine Nekritz, D-Northbrook.
“It may be part of our discussion as we move ahead,” Nekritz said.