Updated: July 15, 2020
Issue: In 2019, TRS began offering all eligible inactive members a chance for a one-time, irrevocable “accelerated pension benefit payment.” Members accepting the accelerated payment give up any future claim to a TRS benefit.
The “buyout” amount equals 60 percent of the present value of the member’s anticipated pension benefits. Inactive members in both Tier 1 and Tier 2 are eligible.
The program is funded from the proceeds of State of Illinois bond sales. No TRS funds are used to make the lump-sum payouts.
A law authorizing the buyout program was enacted in 2018 and the General Assembly recognized that it would take time for TRS to implement the act. The buyout program will exist until June 30, 2024.
Discussion: Under the program, TRS must every year contact eligible inactive members and offer them the opportunity to participate in the buyout program. The offer will include a TRS estimate of how much the member would receive through the buyout program. To be eligible, an inactive member must have “accrued sufficient service credit to be eligible to receive a retirement annuity” at some point in the future when other eligibility criteria are met.
Annually, eligible members will have a six-month “window” beginning in September in which they can accept the lump-sum and terminate their TRS benefits. After the window closes each year, TRS will formulate a new list of eligible members, adding those that first meet eligibility requirements in that year.
During the 2019-2020 “window,” TRS contacted 14,598 eligible inactive members to inform them of the program. Of those, 1,547 members elected to participate and collect one-time payments totaling $186.7 million. The current average payment per participating member is $121,000.
To be eligible, an inactive Tier 1 member must have at least five years of TRS service. An inactive Tier 2 member must have at least 10 years of TRS service.
Inactive members cannot add service credit from another public pension system to their TRS service in order to meet the eligibility requirement for a TRS benefit.
Members joining this program will be able to receive their “accelerated pension benefit payment” as cash or as a “rollover” into a private tax-qualified retirement plan. If a member takes the payment as cash, it will be subject to all applicable federal taxes and charges, as well as any involuntary garnishments by the state or federal government; such as unpaid student loans.
If an inactive member accepts the buyout, he/she cannot pay the buyout back to TRS in order to reestablish past service or eligibility for any TRS benefit. If an inactive member accepts the buyout and she/he returns to active service, their TRS service credit starts accumulating on the day they return to active service.