Bruce Rauner, Governor
SB 1673, House Floor Amendment #3
The House Personnel and Pensions Committee passed SB 1673, which requires Tier 1 SERS retirees, active employees and inactive members to make an election to accept a reduced and delayed COLA in return for continued access to retiree health insurance. The bill also provides access to an optional cash balance plan for employees who accept the reduced and delayed COLA.
Frequently Asked Questions
Who is affected by the proposed changes?
All active employees, retirees and inactive members of SERS with a membership date prior to January 1, 2011 (Tier 1 members). Tier 2 members of SERS would not be affected.
What are the proposed changes?
Option 1 : SB 1673 allows current SERS Tier 1 employees, retirees and inactive members to remain under the current Tier 1 benefit provisions, with the exception that salary increases after the effective date would not be included in the calculation of the retirement benefit (current employees or retirees/inactive members who return to work). In addition, the bill eliminates “access” to retiree health insurance for employees, retirees and inactive members who choose to retain Tier 1 benefits.
Option 2: The bill allows SERS Tier 1 employees, retirees and inactive members to choose the following changes to the current Tier 1 benefits:
- Reduce annual COLA to 3% or ½ of the CPI, whichever is less, with no compounding
- Delay COLA to age 67 or 5 years after retirement, whichever is earlier
Members who make the choice to reduce and delay the COLA would continue to have “access” to retiree health insurance and have future salary increases included in the calculation of the retirement benefit. These employees would also have access to an optional cash balance plan. The employee could chose to contribute 2% of salary to the optional cash balance plan and receive credited interest based on the investment returns of the System. At retirement, the member would receive an annuity based on the value of the cash balance account. There are no employer contributions to the optional cash balance plan.
When would the proposed changes take effect?
The bill provides for an election period for active employees, inactive members and retirees from January 1, 2013, through May 31, 2013. The effective date of the changes will be July 1, 2013.
Does the proposal address the financial condition of SERS?
The current statutory funding plan provides for employer contributions to SERS in an annual amount that will provide for a 90% funded ratio by FY 2045 (currently 34.94% funded). If at least 50% of those required to make the election choose to reduce and delay the COLA, the bill provides for increasing the annual employer contributions to SERS so the funded ratio will reach 100% by the end of FY 2043. If less than 50% of those making the election choose to reduce and delay the COLA, the current funding schedule will be retained.