Before adjourning its spring session on June 2, the Illinois General Assembly took action on a few proposals important to the Teachers’ Retirement System and its members.
These decisions affect state funding for the System in fiscal year 2020, a change in the salary increase threshold that triggers higher retirement contributions from school districts and a bill that will extend the life of two accelerated pension payment programs for some members.
Here’s a rundown of the legislative action important to TRS:
State funding for TRS in fiscal year 2020
Gov. JB Pritzker and legislators agreed on a $4.8 billion contribution to TRS as part of a $40 billion state budget for fiscal year 2020, which begins on July 1.
The $4.8 billion contribution is an increase over the governor’s original funding level for TRS of $4.2 billion, which he proposed in January. Because of the state’s ongoing financial problems, the governor wanted to redirect roughly $600 million away from TRS to other priorities.
However, state tax receipts for April came in $1.5 billion ahead of estimates, so Gov. Pritzker changed his mind and decided to use that windfall to boost the TRS contribution back up to $4.8 billion.
The $4.8 billion funding level meets the state funding level required by state law for the year, but nonetheless falls $3 billion short of “full funding” for the System as determined by TRS actuaries. Since 1939, state government has never once appropriated a “full funding” amount for TRS. This record of inadequate funding is the main reason TRS carries a $75 billion unfunded liability, one of the largest in the country.
Raises for TRS members close to retirement
Last year, the legislature reduced the threshold on some TRS member raises that automatically triggers larger school district contributions to the System. The old law said districts owed more money if they approved pay raises in excess of 6 percent for teachers who were close to retirement. In 2018, the threshold was lowered to 3 percent.
But even before TRS had a chance to implement the new 3 percent mark for raises granted during the 2018-2019 school year, lawmakers reversed themselves and boosted the threshold back to 6 percent. The bill is now on Gov. Pritzker’s desk awaiting his action.
The underlying law and its 6 percent threshold was enacted in 2005 to curb a practice commonly called “pension spiking.” The law requires school districts to pay the lifetime actuarial cost of the portion of a member’s pension that is created by a raise that exceeds the threshold; but only if the raise would factor into the member’s initial pension calculation.
TRS member “buyout” programs
The time period for the two “buyout” programs available to TRS members – one for retiring Tier 1 members and one for all inactive members – will be extended to the end of the fiscal year 2024. Originally, the programs were set to automatically expire at the end of fiscal year 2021.
Return-to-work limits in “Subject Shortage Areas”
To help alleviate the classroom teacher shortage problem in Illinois, a law that allows retired TRS members to teach for a full school year in districts declared to be “Subject Shortage Areas” has been extended until 2021. The bill awaits Gov. Pritzker’s action. Under the law, which was set to expire this year, retired teachers who go back to these designated districts are not subject to “return-to-work” restrictions imposed on other retirees.