Advocate. How pension reform affects you. SURS is offering many helpful resources. Tier I participants most affected by new law

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1 IRE ME N SY IVERSITIES ET T R LI NO E UN S T E M OF IL SURS The Advocate Pension Reform & Tier I April 2014 I S S TA T On May 14, 2014, the Illinois Circuit Court granted a temporary restraining order and a preliminary injunction stopping implementation of Public Act , the pension reform law passed Dec. 5, In accordance with the order, SURS will continue administering contributions and benefits as the law existed prior to amendment by P.A until otherwise ordered by the court. How pension reform affects you SURS is offering many helpful resources All SURS members have questions about how P.A , the recently passed pension reform law, affects them personally. The legislation is over 300 pages long and can be quite daunting to read and comprehend. To help, SURS has put together several informational pieces to explain the impact of the law. The SURS website offers an entire section on pension reform. There is a video webinar presentation, a list of Frequently Asked Questions (FAQs), a brief synopsis of the law, information on pending litigation, and links to the bill and General Assembly votes. SURS is also offering webinars and on-campus group presentations to answer your questions. Please check with your school s human resources department for presentation dates. To register for a webinar go to In addition, members may log on to the SURS Member Website to use the Interim Benefit Estimator. This estimator will help SURS members age 46 and older estimate retirement benefits for any future date. P.A calls for a change in the effective rate of interest and actuarial factors used in SURS Money Purchase calculation (see Page 3 for more information). As a result, members retiring on or after July 1, 2014, may experience a decrease in their benefit provided under SURS Money Purchase calculation. The interim benefit estimator will calculate estimates for future dates through July 1, This will allow members to compare their estimated monthly benefit before and after the Money Purchase changes go into effect on July 1, Tier I participants most affected by new law SURS members in the Defined Benefit Plan (DB) who certified prior to Jan. 1, 2011, (Tier I Members) are most affected by P.A The components of the new pension reform law explained on the following pages will most likely affect your retirement.

2 Automatic Annual Increase (AAI) If you are a Tier I participant, the way your AAI is calculated after retirement will change, and depending on your age, you may forfeit (or skip) several annual increases. Currently, the Automatic Annual Increase is 3%, compounded annually. Under the new law, beginning January 1, 2015, the AAI will be 3% of the lesser of the following: The total annual annuity payable at the time of the increase, or The total years of creditable service x $1,000* *The $1,000 multiplier will be adjusted each year for inflation by the Consumer Price Index for Urban Consumers (CPU-U). The service credit years for the AAI will be based on the service credit years used in the calculation of your retirement annuity. If the maximum benefit is reached and a waiver of excess contributions/service is payable or if your calculation included an adjustment for part-time service, these years are not included in the benefit calculation and are therefore not a part of the AAI calculation. Tier I members retiring on or after July 1, 2014, will not receive their AAI in up to 5 of the first 10 years of their retirement. The number of increases forfeited depends on the member s age as of June 1, Age 50 or older Age Age Less than 44 Skip only the 2nd AAI Skip the 2nd, 4th, and 6th AAI Skip the 2nd, 4th, 6th, and 8th AAI Skip the 2nd, 4th, 6th, 8th, and 10th AAI Earnings Limits/Salary Caps Beginning July 1, 2014, a pensionable earnings cap will be applied to SURS-covered earnings on a fiscal year basis. This means members will make retirement contributions on earnings up to the amount of their pre-determined cap. When members reach that cap, they will no longer be receiving earnings credit toward their retirement benefit. Individual caps will be determined using the highest of three calculation methods. Those methods are: 1. The adjusted Tier II earnings limitation ($110, for fiscal year 2015). 2. The member s annualized salary as of June 1, SURS is using actual fiscal year 2014 earnings to determine the annualized salary (July 1, 2013 June 30, 2014) Earnings may be assumed for periods of leave that occur during the July 1, 2013 June 30, 2014 period Includes overtime, overloads, and summer, but only if the member actually worked and was paid 3. The annualized salary immediately before the expiration, renewal, or amendment of an employment contract or collective bargaining agreement in effect on June 1, The earnings cap will apply to all participating Traditional and Portable (DB) Plan Tier I members. It will not affect earnings received before July 1,

3 Money Purchase Formula Changes/ERI Beginning July 1, 2014, the annuity factors used to calculate money purchase benefits will change due to a new effective rate of interest (ERI). P.A calls for the new ERI to be equal to the 30-year U.S. Treasury bond rate on July 1 of the given year, plus 0.75%. The new rate will not only apply to money purchase formula calculations, but also to refunds, waivers, lump-sum retirements, service purchases, actuarial factors, and over payments. Changes to the money purchase annuity conversion factors will be applied prospectively, but members who retire on or after July 1, 2014, are eligible to receive the money purchase benefit they were eligible to receive had they retired June 30, 2014, or the money purchase benefit they are eligible to receive under the new formula, whichever is greater. The member must have been retirement eligible June 30, 2014, for this provision to apply. Currently, the ERI is 6.75 percent for the money purchase formula. Comparatively, the 30-year U.S. Treasury bond rate, which changes daily, is just under 4 percent. (It is important to note that when retiring, the member s last day of employment must be prior to their retirement date if retiring June 30, the last day of employment must be June 29 or earlier.) For more detailed information on the money purchase calculation method, see the Money Purchase Factor Fact Sheet on the SURS Pension Reform website page. Retirement Age Delays Tier I members who retire on or after July 1, 2014, and are 45 years of age or younger as of June 1, 2014, will see their retirement eligibility age increase as follows: Age 46 and older no delay Age 45 4 month delay Age 44 8 month delay Age month delay Age additional 4 months for each year under age 43 Age 31 and under 60 month delay This change applies to all Tier I Traditional and Portable plan members, including police and firefighters. It does not currently apply to Tier I 30 & Out candidates. New Defined Contribution Plan Under the new law, up to 5% of participants in SURS Tier I plan will be eligible to switch to a new defined-contribution (DC) option, on a first-come, first-served basis. Members will not be allowed to switch to the current SURS DC/Self-Managed Plan. The state will set up a separate plan with different contribution levels, terms and conditions. Tier I members who choose to move to the new DC plan will essentially freeze their current defined benefit plan benefit accrual and begin paying 7% (8.5% for police and firefighters) of their annual salary toward the new DC plan. The state will contribute a minimum of 3% of the member s pay and no more than the employer s normal cost for Tier I members in the DB plan. The state will adjust the employer contribution rate annually. Participants will assume the administrative costs of the plan. Enrollment for the new DC plan will begin no earlier than July 1,

4 Employee Contributions Effective July 1, 2014, Tier I employee contributions will be reduced by 1% from 8% to 7% of pensionable earnings. University police and firefighters employee contributions will be reduced from 9.5% to 8.5%. The 1% reduction is comprised by reducing the normal cost by 0.5% and eliminating the 0.5% for AAI. Funding Guarantee Beginning July 1, 2014, the state is obligated to contribute an amount not less than the normal cost plus the portion of the unfunded liability assigned to that year by law. If the state fails to make a required payment, the SURS Board of Trustees can take legal action in the Illinois Supreme Court to secure the required payment. Legal Challenges The following lawsuits have been filed claiming P.A is unconstitutional. Heaton, et al. v. Quinn, et al., filed 12/27/2013 (Cook County) Plaintiff class = TRS members who are not IFT or IEA members Seeks to find P.A unconstitutional under Pension Protection Clause On March 3, 2014, the Illinois Supreme Court ordered for the transfer of this case to the Circuit Court of Sangamon County and consolidation with the three cases, below. RSEA, et al. v. Quinn, et al., filed 1/2/2014 (Sangamon County) Plaintiff class = SERS annuitants and eligible inactives Seeks to find New AAI unconstitutional under Pension Protection Clause, Equal Protection Clause, and Contract Impairment Clause ISEAR, et al. v. Bd. of Trs. of the SERS of Illinois, et al., filed 1/2/2014 (Sangamon County) Plaintiff class = SERS, GARS, TRS, SURS retirees w/20 years service not subject to a CBA Seeks to find P.A unconstitutional under Pension Protection Clause, Contract Impairment Clause, Equal Protection Clause Harrison, et al. v. Quinn, et al., filed 1/28/2014 (Sangamon County) Plaintiff class = SERS, SURS, and TRS members who first contributed prior to January 1, 2011, and We Are One Illinois Coalition Claims: P.A violates the Pension Protection Clause of the Illinois Constitution P.A violates the Contracts Clause of the Illinois Constitution P.A violates the Takings Clause of the Illinois Constitution by diminishment P.A violates the Takings Clause of the Illinois Constitution for failure to fund Seeks preliminary and permanent injunctive relief, retroactive relief, and attorneys fees under all counts 4

5 On March 3, 2014, the Illinois Supreme Court ordered the Circuit Court of Sangamon County to proceed after consolidating the four cases listed on Page 4. SUAA, et al. v. SURS, et al., filed 3/6/2014 (Champaign County) Plaintiff class = SURS active and retired members Claims: P.A s COLA calculation violates the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution P.A s elimination of COLA compounding violates the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution P.A s COLA skipping violates the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution P.A s salary cap violates the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution P.A s effective rate of interest violates the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution P.A s increased retirement age violates the Pension Protection Clause, the Contracts Clause, and the Takings Clause of the Illinois Constitution Champaign Home Office Administrative, Investment, & Service Center Naperville Outreach Office Northern Illinois University Naperville Outreach Center Please note that the State Universities Retirement System does not endorse any provider of financial advice. Members seeking financial advice or planning assistance are encouraged to carefully select credentialed professionals. SURS BOARD OF TRUSTEES Chairperson Lindsay Anderson, Vice Chairman Antonio Vasquez, Treasurer Dorinda Miller, Jacqueline Berger, John Engstrom, Richard Figueroa, Paul R.T. Johnson Jr., Andrew Matthews, Craig McCrohon and Mitchell Vogel. William Mabe, Executive Director Communications Manager: Beth Spencer State Universities Retirement System 1901 Fox Drive Champaign, Illinois Designer/Editor: Joel Fellers Toll Free Direct