Illinois House Committee Approves Pension Bill

House Bill 512 would require teachers, state workers, university employees, and lawmakers who started work before January 1 to pay significantly more to keep their existing pensions.

The bill, which would also need to pass the Senate and be signed by Governor Pat Quinn to become law, faces uncertain prospects. It’s unclear whether the House will vote on it before lawmakers go home for 2011 on Thursday, reports The State Journal Register.

According to the article, judges, sworn Illinois State Police officers and state firefighters would be exempt from the bill. Also, employees of other local governments in Illinois in the well-funded Illinois Municipal Retirement Fund would not be affected. Employees who are already retired would not see any change in their benefits.

Employees who started work before Jan. 1, 2011 – they have so-called Tier 1 benefits – can keep their current benefits but will pay significantly more to do so. If the bill becomes law, the typical state employee in Tier 1 who also receives Social Security benefits will see his pension contribution more than double from 4% to 9.29%. A teacher in Tier 1, nearly all of whom do not participate in Social Security, will see his pension contribution increase from 9.4% to 13.77 %. Lawmakers will see their pension contribution go from 11.5% to 24.89%. 

The current version of the bill allows a review of employee contribution rates in 2015 and allows them to be raised by two percentage points. After that, no further increases would be permitted.

But that would mean employees in Tier 1 would receive a larger contribution from the state than employees in other tiers, noted Rep. Kevin McCarthy, D-Orland Park, the pension committee chairman.

The worker contributions for the Tier 2 level of benefits, which includes any worker that began employment after January 1, are reduced under the bill. Today, they pay the same contribution rates as Tier 1 employees.

A state employee in Tier 2 who also receives Social Security benefits will contribute 4.04%; teachers, university employees, and lawmakers will pay 6%. The final salary for which a pension is based is capped at $106,800 in Tier 2, the retirement age is 67 (employees can retire earlier but will be penalized) cost-of-living increases are the lesser of 3% or the consumer-price index and the interest is not compounded.

All employees can opt to join a 401(k)-style defined contribution plan, in which they make decisions about how the money is invested. Employees affected can migrate to a lower tier, but once they do so, they can never go back to a higher tier. The employee contribution rate in Tier 3 is the same as it is in Tier 2.

The bill would take affect for non-legislators in July 2013. It would apply to legislators in January 2013.