For members of the State University Retirement System (SURS) who are thinking of retiring soon, there are more changes coming to SURS starting in the summer of 2019. Under the most recent budget signed by Governor Rauner, Illinois law was amended to allow for two new options for retirees under SURS Traditional and Portable (Tier I). Those changes are:
Voluntary Automatic Annual Increase Lump Sum – Under this option, members can elect to forgo their 3% annual pension increase for a reduced 1.5% annual increase option. Under the 3% option, annual pension increases are compounded (increase by 3% original benefit plus increases). Under the 1.5% option, future benefits are increased by simple indexing (increase by 1.5% each year of the original benefit). The first increase will also further be delayed by the later of 1 year or age 67. If elected, members would receive a lump sum equal to 70% of the actuarial value difference of the 3% benefit and 1.5% reduced benefit.
Example: $50,000 annual pension, 3% default benefit vs. option 1.5% SIMPLE increase.
Note, total benefits after 31 years of benefit are:
· $2,500,134 for 3% option
· $1,898,750 for 1.5% option
When will this choice be available? SURS expects retirees to have this option for those retiring June 1, 2019 or later. It is possible the implementation will be delayed until July 1st. This option will be available until the earlier of June 30, 2021 or until appropriated funds are exhausted.
Who does this make sense for? Most members will be better off remaining with the 3% default option. While a large lump sum may be enticing, this option was only designed to replace 70% of the benefit you forgo. This may make sense if you have a lower than average life expectancy (such as a terminal or chronic illness).
Voluntary Pension Buyout for Vested, Inactive Members – This option would allow SURS (as well as SERS and TRS) members who are vested but no longer active to elect to receive 60% of the actuarial value of their future pension benefits as a lump sum. If elected, the recipient will still be entitled to health insurance benefits.
As with the changes to the cost of living, the availability of this option is expected to start in summer of 2019 and run until the earlier June 30, 2021 or when funds are exhausted.
Members should be very thoughtful and intentional before electing to forgo future benefits. Current, and likely large, lump sums of funds may be enticing. However, in many cases, you may give up much more than you get in return. We highly recommend seeking advice and counsel before you make a decision. Contact Us if you wish to learn more about our services and how we may be able to assist.
Finally, we wrote in our blog back in 2017 about SURS rolling out a new Tier III (aka – Hybrid Plan). After SURS analyzed the requirements under the law, it was determined it will not hold up to requirements set forth under Federal Law and therefore will not be moving forward. Without further action from the Illinois legislature, no changes are anticipated in the near future. It is worth noting that there is a possibility the newest Tier II (applicable to those hired on or after January 1, 2011) may also violate those same rules and require further compensation to participants to remain in effect. As a result, there remain many unknowns, and it may take years before a resolution regarding Tier II is finalized.