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COOK COUNTY
PENSION COMMITTEE
MEETING
December 4, 2012




                                                    Bridget Gainer
                   Chairman, Cook County Subcommittee on Pensions
                          Cook County Commissioner – Tenth District
2




Meeting 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 2
Who                      Employees and Retirees                Employees and Retirees

COLA                     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 date
Health 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.
 Plans
Illinois 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 account
balance 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 Plans
Defined 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 participant's 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
                                     Contribution

Employee           Yes               Yes                     Yes
Contributions



Employer           Yes               Yes                     Yes
Contributions

Retiree            Yes (Cook         Not usually (out        TBD
Healthcare         County)           of pocket)
Provided
Who Carries        Employer          Employee                Employee &
Investment Risk?                                             Employer

Who Carries        Employer          Employee                Employee
Longevity 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.

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Cook County Commissioner Bridget Gainer - 10th District: Citizens' Guide to P...Cook County Commissioner Bridget Gainer - 10th District: Citizens' Guide to P...
Cook County Commissioner Bridget Gainer - 10th District: Citizens' Guide to P...
 

County Pension Committee Meeting: December 4, 2012

  • 1. 1 COOK COUNTY PENSION COMMITTEE MEETING December 4, 2012 Bridget Gainer Chairman, Cook County Subcommittee on Pensions Cook County Commissioner – Tenth District
  • 2. 2 Meeting 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. 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. 4 SB 1673 Gives State Employees & Retirees Two Options To Consider Option 1 Option 2 Who Employees and Retirees Employees and Retirees COLA 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 date Health 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. 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. Plans Illinois 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 account balance 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. 6 Comparing Types of Pension Plans Defined 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 participant's 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. 7 Comparing Types of Pension Plans Defined Benefit vs. Defined Contribution vs. Cash Balance Defined Benefit Defined Cash Balance Contribution Employee Yes Yes Yes Contributions Employer Yes Yes Yes Contributions Retiree Yes (Cook Not usually (out TBD Healthcare County) of pocket) Provided Who Carries Employer Employee Employee & Investment Risk? Employer Who Carries Employer Employee Employee Longevity Risk? Bridget Gainer, Chair – Cook County Pension Committee Cook County Commissioner – Tenth District
  • 8. 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.