June 1, 2018
The 2018 budget passed by the Legislature on May 31st includes a new piece of pension liability cost-shift buried some 700 pages within that is sure to have a significant impact on school districts. Once House Bill 3342, which passed both chambers, is signed by Governor Rauner, the 6% soft cap on end-of-career salary increases for teachers will sharply decrease to 3%.
Under the current Pension Code, school districts have been able to give teachers (and administrators) end-of-career creditable earning increases of up to 6% over the prior year’s earnings. Any increases beyond 6% given in the years used to determine the teacher’s pension (typically the final four years) would result in the school district paying a penalty to TRS. That penalty was equal to the actuarial value of the increase beyond 6% upon in the teacher’s annuity. Unless Governor Rauner vetoes House Bill 3342 (which he is not expected to do), that 6% limit drops to 3% for any contracts and collective bargaining agreements authorized after Governor Rauner signs the bill. Any contracts authorized before the Governor’s signing are grandfathered in – and the 6% cap would apply. For those contracts authorized after the Governor signs the budget legislation, school districts will pay contributions to TRS for end-of-career creditable earnings increases exceeding 3% per year.
This new form of pension cost-shift joins last year’s legislation, which shifted some TRS contributions from the State to school districts for employees earning more than the Governor (typically limited to administrators). This latest legislative effort, however, will no doubt have a large impact at the bargaining table, as school districts must be careful to understand the added financial exposure. We stand ready to assist you in through that process.