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 Mike Crenshaw is a professor at
Daley College and is constantly worried about the State Universities Retirement
System, where his retirement money is tied up.
“We have about $300 billion in pension debt,” Crenshaw said.
Pensions take up 26% of Illinois’ budget, more than double the national average.
Despite spending more on pensions than any other state, Illinois holds the most
pension debt in the nation. But it can take a significant first step in fixing
the pension mess by adding a start date to an existing state law.
Essentially, all pension debt stems from Tier 1 benefits promised to state
employees hired before 2011, like Crenshaw. Tier 2 employees hired after 2011
will likely pay more than their benefits will be worth to subsidize Tier 1
benefits.
Implementing optional Tier 3 plans is one of the solutions to Illinois’ woes set
out in the Illinois Policy Institute’s Illinois Forward 2023. The General
Assembly passed Tier 3 plans during the fiscal year 2018 budget process. A
technical error left an implementation date out of the language, and it hasn’t
been corrected since. Lawmakers could fix this oversight for fiscal year 2023,
which begins July 1, 2022.
“A lot of times we’re not given the intricacies of how a Tier 3 or alternative
pension plan could benefit us,” Crenshaw said.
Tier 3 features
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Employee contributions vary automatically with
the calculated cost of their benefits, so they can fall below
6.2% but cannot rise above that level.
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Employers must contribute at least 2% and up to
6% of salary toward the defined contribution.
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Tier 3 receives the same annual cost-of-living
adjustment as Tier 2, equal to one-half of the increase in the
consumer price index. The full retirement age is 67, just like
Tier 2.
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Costs for Tier 3 pensions are paid directly by
the employer, aligning responsibility for setting benefit levels
with responsibility for paying them.
Tier 3 plans are
optional for employees. They would save the state an estimated $577
million in fiscal year 2023. They also give state employees the
freedom to handle their retirement based on their individual needs.
“I would love to get out of Tier 1. I would love to be part of a
Tier 3 or alternative plan,” Crenshaw said
It would take a constitutional amendment on pensions to change Tier
1 benefits, but Tier 3 plans would prevent Tier 2 and future
employees from falling into the same vicious cycle Crenshaw is in.
Tier 3 hasn’t been implemented yet solely because of a clerical
error on the implementation date. Lawmakers can easily fix this
mistake by adding that date and instantly give state employees more
freedom for their retirement. |
