1COOK COUNTYPENSION COMMITTEEMEETINGDecember 4, 2012 Bridget Gainer Chairman, Cook County Subcommittee on Pensions Cook County Commissioner – Tenth District
2Meeting Agenda• Resolution Number 313151 • Update on Springfield legislation Senate Bill 1673 • Richard Ingram, Executive Director – Illinois Teachers Retirement Fund • Cash Balance Plans • What are they? • Current Plan Comparison • Public Speakers Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
3 Senate Bill 1673 (Amendment #5) House Sponsor – Mike Madigan Senate Sponsor – Kwame Raoul• Two major components: • Consideration: • Tier I employees and Tier I retirees elect 1 of 2 options that will impact benefit calculations and eligibility for retiree health insurance. • Creation of the Cash Balance Plan Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
4 SB 1673 Gives State Employees & Retirees Two Options To Consider Option 1 Option 2Who Employees and Retirees Employees and RetireesCOLA 3% Simple; delayed COLA that 3% Compounded; no delay in will begin the January 1st receiving following the earliest of age 67 or the 5th anniversary of the annuity start dateHealth care Eligible to participate in their Not eligible to participate in applicable retiree healthcare applicable retiree healthcare plan. plans.Pay Increases No changes Increases in pay to Tier 1 employees and Tier 1 retirees who return to active service will NOT increase the member’s pensionable earnings.Link to bill: http://www.ilga.gov/legislation/97/SB/09700SB1673ham005.htm Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
5 Cash • Three types of contributions to pension:Balance • Employee contributes % of salary • Pay Credit: Employer contributes % of an individual’s salary into a notional account. PlansIllinois General Assembly via • Employer contribution no longer tied to a multiplier or percent of total payroll.SB1673 included a cash • Interest credit. Employee’s notional accountbalance plan. receives a credit based on market yield. There is• Employees first typically a floor: minimum amount, usually tied to participating on or after July 1, 2013 are automatically enrolled in 30 year T-bonds and a ceiling: the minimum + a the newly created Cash share in the upside if there are higher returns. Balance Plan.• Members, including Tier 1 employees who elect • At Retirement: Option 1, may elect to make additional • Employee can purchase an annuity in the private contributions into an market optional Cash Balance Plan at 2.0% of pay. • Employee can take lump sum or opt to receive a monthly annuity. Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
6 Comparing Types of Pension PlansDefined Benefit vs. Defined Contribution vs. Cash Balance Defined Benefit Defined Contribution Cash Balance• A defined benefit pension • Defined Contribution • A cash balance plan is a plan guarantees an plans or 401k plans. The “hybrid” DB/DC plan. In a employee a monthly employer and employee typical cash balance plan, pension benefit annuity both contribute an a participants account is upon retirement until their established amount into credited three ways, the death. Many defined the employee’s defined EE contribution, a "pay benefit plans allow for the contribution plan. credit" (such as 5 percent pension benefit to be of compensation from his transferred to a surviving • The employee then works or her employer) and a spouse or dependent, but with an investment guaranteed annual interest this varies from plan to manager to invest his plan. funds. When the employee • If investment returns were retires he receives higher than assumed for a• The retirees are paid by a whatever monies have specific period of time a pension fund which accumulated in the plan. formula allows for consists of money from Withdrawals are limited employee’s to receive an the employer and only by tax provisions. increased investment employee. The pension credit. fund is generally invested by an asset manager • Participant can decide to whose main responsibility take annuity or lump sum is investment and growth payout at retirement. of the fund. Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
7 Comparing Types of Pension Plans Defined Benefit vs. Defined Contribution vs. Cash Balance Defined Benefit Defined Cash Balance ContributionEmployee Yes Yes YesContributionsEmployer Yes Yes YesContributionsRetiree Yes (Cook Not usually (out TBDHealthcare County) of pocket)ProvidedWho Carries Employer Employee Employee &Investment Risk? EmployerWho Carries Employer Employee EmployeeLongevity Risk? Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
8 County (via OpenPensions.org) vs. State via SB1673 vs. City Type of Plan Funded Changes Employee COLA Retirement Retiree Status For? Contribution Age Healthcare Goal Cook County Maintains a 80% by Current 1% increase Changes Retirement Retiree via defined benefit 2045 employees from a 3% age healthcare OpenPensions plans and retirees *Based on the compounding increased 5 will be made .org statutorily to 3% simple years to 65 permanent, *Highlights required or ½ CPI over a 10 will continue portability multiplier the year period, to be County would Delay COLA starting in subsidized pay an to earlier of 2013 (or 55 between additional age 67 or 5 with 30 years 45% – 50% $15mm years after of service) retirement City Maintains a Current 5% five year Freezing Increase 5 City has defined benefit employees phase-in COLA for ten years to 67 committed to plan and retirees Increase (1% a years. partner with year) retirees on *Highlights health care portability provisions State Maintains a 100% by Current No Change Changes No Change Employees and SB 1673 defined benefit 2043 employees from a 3% Retirees will Amendment #3 plans and retirees compounding choose to 3% simple between accepting a Creates a cash or ½ CPI reduced COLA balance plan and staying in Delay COLA the healthcare to earlier of plan or keeping age 67 or 5 the same years after system, but not retirement being eligible*Creates over $5.2 billion dollars worth of savings for Cook County within 15 years and $65-$85 billion in savings for the State of Illinois by 2045 for healthcare.