Updated: August 8, 2019
Issue: In August of 2018, former Gov. Bruce Rauner signed legislation into law that requires TRS to set up and offer, “a defined contribution benefit to active members of the System.”
A defined contribution – “DC” – benefit is normally identified by the section of the federal tax code which authorizes the savings program. This DC plan will be a 457(b) plan and will be called the TRS Supplemental Savings Plan.
This is the first time TRS has been authorized to offer a DC plan to its members. The law requires TRS to offer the plan “as soon as practicable.” The target date for implementing the new DC plan is the summer of 2020.
Discussion: The new TRS DC Plan will be “an optional benefit to any member who chooses to participate” if the member is active in Tier 1 or Tier 2. Retired and inactive TRS members will not be eligible for the DC plan.
The new TRS DC plan will supplement the existing TRS defined benefit – “DB” – pension plan. The DC plan does not replace the DB plan for participating members. TRS members cannot opt out of the DB plan and place their DB contributions into the new DC plan. Members participating in the DC plan will still make payroll contributions to their DB pension.
Participants in the new DC plan will effectively have two TRS sources of income in retirement – a pension that guarantees a specified benefit every month, and a “savings account” that they can draw on as they see fit.
As a brand new offering, TRS is making substantial alterations in its IT capabilities; employer reporting system; member record-keeping; investment administration; communication to and interaction with members; and official reporting to members, state officials, stakeholders and the public.
The first alteration TRS must achieve in order to implement a DC plan is to convert its timetable for employer record reporting from annual to monthly. With both a DC plan and a DB plan, employers must report contributions made to TRS and service time accrued for all members. Since a DC plan is more exclusive to each member, a more frequent reconciliation of earnings, contributions and account balances is needed.
The law requires DC plan participants to make contributions to the DC plan. Contributions from employers are optional. The scale of contributions has not yet been established. No state funds will be contributed to the TRS DC plan.
The law also requires TRS to “offer investment options” to participants. All fees to private companies managing the investments of the DC plan, as well as the cost of administering the plan, will be paid by participant contributions.