New Details Emerge on Illinois' "Tier 3" Pension Plan
September 27, 2017
Illinois' fiscal year 2018 budget introduced major changes to the state's public pension systems in an attempt to grapple with Illinois' roughly $130 billion in unfunded liabilities. One of the most important aspects of these changes was a new package of benefits. This new package, called "Tier 3," introduced a hybrid defined benefit-defined contribution plan in addition to the defined benefit plans of Tier 1 and Tier 2.
This month, the State Universities Retirement System (SURS) released the first long-term actuarial analysis of the effects of Tier 3 and other changes contained in the FY2018 budget.
CTBA has identified three major takeaways from SURS' analysis:
- The "normal cost" of Tier 3's defined benefit plan-that is, the cost of funding the benefits earned by current employees in a given year-will be higher than many observers expected. As a result, public employers-in this case, public universities and colleges-will be required to make larger payments on behalf of their Tier 3 employees.
- The larger normal cost also means that Tier 3 employees will pay the maximum 6.2 percent of their income towards the defined benefit portion of their retirement benefits. When added to the 4 percent of income they will pay towards the defined contribution portion of their retirement benefits, that means Tier 3 employees will pay 10.2 percent of their income in pension contributions-significantly more than the 8 percent current SURS workers pay.
- Contrary to some reports, which concluded that because Tier 3 will not be implemented in FY2018 it will not be able to produce any savings in this fiscal year, SURS still projects $61 million FY2018 savings from Tier 3. Over the long run, however, the pension changes made in the FY2018 budget do not meaningfully reduce the state's projected pension payments.
You can read the full report here or by downloading the PDF below.