Updated: Dec. 13, 2019
Issue: Beginning in the late summer or fall of 2019, TRS is scheduled to begin 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 will equal 60 percent of the present value of the member’s anticipated pension benefits. Inactive members in both Tier 1 and Tier 2 are eligible.
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 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.
In 2019, TRS contacted 14,598 eligible inactive members to inform them of the program. Currently 222 members have elected to participate and collect one-time payments totaling $6.1 million. The current average payment per participating member is $109,000.
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.
TRS anticipates that the payment of the initial buyouts will begin in 2019. Funding for the program is in place. In late March, the State of Illinois borrowed $300 million to fund the accelerated payments. A second $700 million bond sale to fund the inactive member “buyout” program and the “accelerated annual increase” program is scheduled for later in 2019, if more funding is needed.
Payments will be distributed to applicants by the State Comptroller’s Office on a first-come, first-served basis.
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.