Principles that Should Govern Illinois Teacher Retirement Benefits
Fairness
Portability
Education
Sustainability
Scroll to read more. We share our views on each of the governing principles as well as suggestions for how to meet these principles. We recognize that many policy ideas related to educator compensation and retirement benefits come with trade-offs, both to members and budgets. But there are costs to ignoring the status quo too. The following ideas have unanimous support from the teacher members of our working group:
Below our explanation, we show how the Illinois Teacher Retirement System fails to meet these basic principles.
Fairness
The retirement system should treat all teachers fairly, providing a pathway to a secure retirement for teachers regardless of tier or teacher demographics.
Fair Recognition: Teachers are professionals. It delegitimizes the profession and the importance of educators if all teachers are not valued and appropriately compensated for their efforts.
Fair Benefits: While it may be necessary to have different tiers of benefits for educators under different circumstances, all tiers must provide an adequate retirement benefit.
Fair Costs: Teachers should not be required to pay for unfunded liability costs (i.e., the cost of paying down shortfalls in a pension fund).
Fair Access to Information: The retirement system must be transparent in its design and function so that teachers can ensure that they are being treated fairly.
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Idea 1: Improve Tier 2 by effectively eliminating it and changing the benefits to match Tier 1.
Idea 2: If matching Tier 1 values is not feasible, then retool Tier 2 to have benefits that will more adequately provide retirement income, such as a higher cap on pensionable compensation when calculating the final average salary, a lower vesting period (5 years or less), a COLA that at a minimum keeps up with the cost of actual inflation, and/or interest on any refunded member contributions.
Idea 3: If Tier 3 is implemented, ensure that the benefits offered under the plan would be adequate to support retirement income security. This could be accomplished by increasing the pension multiplier, increasing the contributions into the “DC” portion of the benefit, and/or offering a COLA that at a minimum keeps up with the cost of actual inflation.
As our working group discussed various recommendations, we recognized that there were certain ideas worth considering but that weren’t supported by every member. The following ideas were suggested by at least a majority of the members in our group, though without unanimous support:
Idea 4: There should be a uniform practice regarding employee contributions. The current situation wherein some districts pay some or all of teachers’ contributions and others do not creates significant inequities.
Portability
Teachers should have the ability to keep the retirement income they’ve earned throughout their careers, no matter where they teach or for how long.
Portability of retirement income reflects the reality of today’s increasingly mobile workforce and helps the profession appeal to career changers and others whose family or other circumstances necessitate crossing state lines.
Teachers should have ownership of the retirement income they have earned as part of their compensation. This means rights to both the contributions they have made to their retirement plan and the employer contributions made on their behalf.
Teachers should not be penalized with reduced retirement income security if they move from one state to another, or decide to change careers.
Vesting periods should not be of excessive lengths (such as the current length of 10 years for Tier 2), unheard of in other professions, that further undermine the portability of retirement income that has been earned.
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Idea 1: Create a new version of Tier 2 that has “portability” elements, including interest on refunded contributions, a 50% match of employer normal cost contributions if a member leaves with 10 years or less, a 75% match of employer normal cost contributions if a member leaves with more than 10 years of service.
Idea 2: Implement a choice of retirement benefits for new educators. This could be a choice of pension plans (such as the State University Retirement System option between a “traditional pension” or “portable pension”), a choice between a pension plan and hybrid retirement plan (such as the proposed “Tier 3” hybrid), or other options. Any option offer needs to provide an adequate retirement benefit.
Idea 3: Work with the federal government to give Illinois teachers access to Social Security. Alternatively, work with the federal government to reduce the effects of the “Windfall Elimination Provision” and “Government Pension Offset” that can reduce Social Security benefits teachers earn during working years in private sector jobs.
Education
Teachers should have easy access to the information they need to understand their retirement system and to be able to make informed decisions about their financial future.
Teachers need information from objective, unbiased, and reliable sources about how their retirement system functions and how their personal benefit accumulation relates to their personal finances.
Information must be consistent for teachers throughout the state and responsive to the needs of teachers in different contexts.
This information is needed to make informed decisions on financial options that exist both within and external to the retirement system.
Training should be provided for teachers at the beginning of their career and regularly thereafter. The kind of information teachers need about their retirement benefits will vary at different points in their careers and given different life circumstances.
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Idea 1: All teachers should have access to objective and consistent materials and training provided by trusted and deeply knowledgeable sources. This could be provided by third-party organizations that contract with the state and get measured based on the quality of their work, teacher satisfaction, and effectiveness of the training materials they deploy.
Idea 2: ISBE shall mandate training, provided by an independent institution, about retirement system benefits and functions as a condition of initial licensure for new teachers and certification renewal.
Idea 3: Any financial advisors that are allowed to work with teachers, either providing education services or selling supplemental retirement products, should have a fiduciary responsibility to those individuals, or at a minimum the advisor needs to disclose that they have no fiduciary responsibility.
Sustainability
Teachers and all other stakeholders including taxpayers should have confidence that the retirement system is financially sustainable and that promises that have been made for retirement benefits will be kept.
The retirement system must be financially healthy in order to ensure that teachers receive their benefits and achieve the secure retirement they have earned.
Sustainability requires a sound design for long-term implementation, prudent management, and a realistic rate of return, as well as all stakeholders meeting their obligations to the system by making all required contributions.
There is independent oversight and accountability of the system so that all stakeholders can feel confident that sustainability is prioritized and being achieved.
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Idea 1: The state and all other stakeholders must make all required contributions each year. These contributions should be based on a target of TRSIL and CTPF reaching 100% funding.
Idea 2: Overly optimistic rates of return should be reduced by the trustees of TRSIL and CTPF.
Idea 3: Teachers’ contributions should only fund the cost of their future benefits, not the systems’ accrued unfunded liabilities.