WHAT DOES THIS MEAN FOR ME?

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The Six Most

Common

Retirement

Scenarios in

Cook County &

Proposed

Changes

WHAT DOES THIS MEAN FOR ME?

Bridget Gainer

Cook County Commissioner – Tenth District

118 North Clark Street, Room 567

Chicago, IL 60614

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Without any changes the Cook County Pension Fund actuar y estimates

the pension fund will be insolvent by 2038. As changes are being

discussed it is important to remember the impact these changes will

have on an employee.

This presentation shows examples of how changes to the Cook County

pension system would af fect sample employees across the age and

ser vice spectrum.

For the purposes of this evaluation, an illustration of an employee’s

salar y, age and years of ser vice are compared against three options:

 No Changes: The existing pension system

 Option 1: Solvency is reached with changes to Pension Benefits only, no coordination with healthcare

 Option II: Solvency is reached with changes to Pension Benefits coordinated with cost savings in healthcare.

The valuations illustrate annual payout and the lifetime value of

the pension

.

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Current Benefits System

T i e r 1 Ac t i v e E m p l oye e s – Hir e d B e for e Jan. 1 , 2011  Ret ir e me n t A g e

 Full Benefit

 Age 60 with 10 years or Age 50 with 30 years

 Reduced Benefit

 Between Age 50-60 with less than 30 years annuity is reduced by a ½% for every month before age 60 or 30 years

 B e ne fit For mula: ( Ye ar s of S e r v ice ) x 2.4% x ( F inal Ave r ag e S alar y ) = I nit ial Pe nsion Pay me nt

 F inal Ave r ag e S alar y : Hig h e st conse cu t i v e 4 ye ar s in t h e last 10 ye ar s of se r v ice  Employe e C ont r ibu t i o n : 8.5% of annual salar y

T i e r 2 Ac t i v e E m p l oye e s – Hir e d Af te r Jan. 1 , 2011

 Ret ir e me n t A g e : 67 for Full be ne fi t . C an r et ir e af te r ag e 62 for r e duce d be ne fi t , ½% pe r mont h be for e 67.

 B e ne fit For mula: ( Ye ar s of S e r v ice ) x 2.4% x ( F inal Ave r ag e S alar y ) = I nit ial Pe nsion Pay me nt

 F inal Ave r ag e S alar y : Hig h e st conse cu t i v e 8 ye ar s in t h e last 10 ye ar s of se r v ice  Employe e C ont r ibu t i o n : 8.5% of annual salar y

 S alar y for t h e purpose of be ne fi t s and cont r ibu t i o ns is cappe d at $106, 8 0 0 in 2011 . Th e cap incr e ase s at 3% or ½ of C P I wh ic h eve r is lowe r.

Re t i r e e s

 Tie r 1 C O L A: C ompound i n g 3%

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Option I: Changes to Pension Benefits

Only

T ier 1 A c tive E m ployees

 Inc r ease Ret i rement A g e E l igibility by 5 Year s  Full Benefit

 Age 65 with 10 years  Age 55 with 30 years  Reduced Benefit

 Between Age 55-65 with less than 30 years

 With less than 30 years, annuity is reduced by a ½% for every month before age 65

 Reduce benefi t m ultiplier from 2 .4 % to 2 .2 % (A pplied o nl y fo r fut ure ser v i ce. Past ser vice i s kept at 2 .4 % multiple)

 Inc r ease Fi nal Aver age S al ar y fro m hi g hest c o nsecutive 4 year s i n t he l ast 10 year s o f ser v ice to t he hi g hest c o nsecutive 8 year s i n t he l ast 10 year s o f ser v ice

 Inc r ease E m ployee C o nt ributions by 1 %

 Reduce C o st o f Li v i ng Adj ustment to 3 % o r ½ t he C o nsumer Pr i ce Index , si m ple, w hi c hever i s l ower

Ret irees

 Reduce C o st o f Li v i ng Adj ustment to si m ple 3 % o f ½ t he C o nsumer Pr i ce Index , w hi c hever i s l ower

 Fr eez e C OLA benefi ts w hen funded st at us i s bel ow 8 0 % and g r ant a 3 % c o mpounding C OLA ever y fi f th c o nsecutive year w hi le fro z en

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Option II: Changes to Pension Benefit &

Healthcare Spend

Tier I Active Employees

Retirement Age Increased by 5 years over a 10 year period, starting in 2013

1% employee contribution increase

COLA reduced to Simple 3% or half of CPI, whichever is lower

Healthcare paid through the County

Retirees

Reduce Cost of Living Adjustment to simple 3% or ½ the Consumer Price

Index, whichever is lower

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution Current 57 2039 10 years $137,616 $6,045,588 3% Compounding 8.5% of annual salary Option I: Benefits Only 57 2039 5 years $107,428 $3,724,545 Simple 3% or ½ CPI 9.5% of Annual Salary Option II: Benefits and Healthcare 57 2039 10 years $137,616 $4,771,139 Simple 3% or ½ CPI 9.5% of Annual Salary

J O S E P H I N E S M I T H

3 0 Y E A R O L D E M P LOY E E – T I E R 1

3 Y E A R S O F S E R V I C E

S A L A RY: $ 5 5 , 0 0 0

Josephine can retire at the same time under all scenarios because she will reach 30 years of service in 2039.

Option I reduces Josephine’s initial pension payment because the formula used to calculate the

pension benefit has been changed. Only changing the pension benefits scenario results in the lowest lifetime pension payment of all the scenarios.

Option II does not impact the pension benefit formula, but does reduce the Cost Of Living Adjustment. This reduction in COLA reduces the overall pension benefit by $1.3 million over Josephine’s lifetime.

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J O S E P H I N E S M I T H

3 0 Y E A R O L D E M P LOY E E – T I E R 1

3 Y E A R S O F S E R V I C E

S A L A RY: $ 5 5 , 0 0 0

Pension Benefit

Age

Without reform the fund will be insolvent in 2038.

Josephine will be 56 and still working .

Fund goes insolvent one year earlier. $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 $300,000.00 $350,000.00 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 No Change at Age 57 Benefits Only at Age 57 Benefits and Healthcare at Age 57

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution Current 60 2017 10 years $80,783 $2,547,621 3% Compounding 8.5% of annual salary Option I: Benefits Only 60 2017 5 years $71,487 $1,828,643 Simple 3% or ½ CPI 9.5% of annual salary Option II: Benefits and Healthcare 60 2017 10 years $80,783 $2,137,909 Simple 3% or ½ CPI 9.5% of annual salary

DA N I E L H U F F I N GTO N

5 5 Y E A R S O L D – T I E R 1

3 0 Y E A R S O F S E R V I C E

S A L A RY: $ 8 5 , 0 0 0

Daniel can retire now under all the scenarios, but chooses to work another 5 years until age 60. Option I reduces Daniel’s initial pension payment because the formula used to calculate the pension benefit has been changed. Only changing the pension benefits scenario results in the lowest lifetime pension payment of all the scenarios.

Option II does not impact the pension benefit formula, but does reduce the Cost Of Living Adjustment. This reduction in COLA reduces the overall pension benefit by $410,000 over Daniel’s lifetime.

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DA N I E L H U F F I N GTO N

5 5 Y E A R S O L D – T I E R 1

3 0 Y E A R S O F S E R V I C E

S A L A RY: $ 8 5 , 0 0 0

Pension Benefit

Age

Without reform the fund will be insolvent in 2038.

Daniel will be 81.

Fund Insolvency

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution Current 60 2022 10 years $26,200 $826,259 3% Compounding 8.5% of annual salary Option I: Benefits Only 65 2027 5 years $37,798 $757,477 Simple 3% or ½ CPI 9.5% of annual salary Option II: Benefits and Healthcare 65 2027 10 years $47,371 $949,315 Simple 3% or ½ CPI 9.5% of annual salary

R A P H A E L G A R Z A

5 0 Y E A R S O L D – T I E R 1

2 Y E A R S O F S E R V I C E

S A L A RY: $ 6 0 , 0 0 0

Raphael can retire in 2022 under the current system, but the retirement age increase under option I and option II prevent Raphael from retiring until 2027.

Option I reduces Raphael’s initial pension payment because the formula used to calculate the pension benefit has been changed. Only changing the pension benefits scenario results in the lowest lifetime pension payment of all the scenarios.

Raphael’s initial pension payment and lifetime payout are larger under option II than the current system because Raphael has to work an additional five years during which he accrues more service and

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R A P H A E L G A R Z A

5 0 Y E A R S O L D – T I E R 1

2 Y E A R S O F S E R V I C E

S A L A RY: $ 6 0 , 0 0 0

Pension Benefit

Age

Without reform by 2038 the fund will be insolvent

Raphael will be 76. $0.00 $10,000.00 $20,000.00 $30,000.00 $40,000.00 $50,000.00 $60,000.00 $70,000.00 $80,000.00 60 62 64 66 68 70 72 74 76 78 80 82 No Changes at Age 60 No Changes at Age 65 Benefits Only at Age 65

Benefits and Healthcare at Age 65

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution

Current 67 2052 10 years $158,012 $3,364,866 Simple 3% or

½ CPI 8.5% of annual salary Option I and Option II 67 2052 5 years under Option I. 10 Years under Option II. $158,012 $3,364,866 Simple 3% or ½ CPI 9.5% of annual salary

A M Y K I M

27 Y E A R S O L D – T I E R 2

1 Y E A R O F S E R V I C E

S A L A RY: $ 4 5 , 0 0 0

Amy was hired after Jan. 1, 2011 and is currently participating in the Tier 2 defined benefit system. Amy won’t be eligible to retire until age 67 in the year 2052. The Cook County pension fund is estimated to be insolvent and default on retiree payments in 2038 when Amy is 53 and still working.

Option I Benefits Only and Option II Benefits and Healthcare won’t change Amy’s benefit structure because she is already a Tier II participant. Either set of changes will ensure that the County Pension Fund does not become insolvent and will be financially viable when Amy retires.

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A M Y K I M

27 Y E A R S O L D – T I E R 2

1 Y E A R O F S E R V I C E

S A L A RY: $ 4 5 , 0 0 0

Pension Benefit

Age Fund Insolvency Without reform by 2038 the fund will be insolvent.

Amy will be 53 and still

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution Current 60 2022 10 years $109,166 $4,089,279 3% Compounding 8.5% of annual salary Option I: Benefits Only 65 2027 5 years $123,296 $2,940,601 Simple 3% or ½ CPI 9.5% of annual salary Option II: Benefits and Healthcare 65 2027 10 years $174,158 $4,153,674 Simple 3% or ½ CPI 9.5% of annual salary

D R . A N G E L A JAC K S O N

5 0 Y E A R S O L D – T I E R 1

1 0 Y E A R S O F S E R V I C E

$ 1 5 0 , 0 0 0 S A L A RY

Dr. Jackson can retire in 2022 under the current system, but the retirement age increase under option I and option II prevent her from retiring until 2027.

Option I reduces Dr. Jackson’s initial pension payment because the formula used to calculate the pension benefit has been changed. Only changing the pension benefits scenario results in the lowest lifetime pension payment of all the scenarios.

Dr. Jackson’s initial pension payment is larger under option II than the current system because she has to work an additional five years. Option II does not impact the pension benefit formula, but does reduce

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D R . A N G E L A JAC K S O N

5 0 Y E A R S O L D – T I E R 1

1 0 Y E A R S O F S E R V I C E

$ 1 5 0 , 0 0 0 S A L A RY

Pension Benefit

Age

Without reform by 2038 the fund will be insolvent.

Angela will be 76. Fund Insolvency $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 $300,000.00 $350,000.00 60 62 64 66 68 70 72 74 76 78 80 82 84 No Changes at Age 60 No Changes at Age 65 Benefits Only at Age 65

Benefits and Healthcare at Age 65

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution Current 60 2025 10 years $73,381 $2,314,193 3% Compounding 8.5% of annual salary Option I: Benefits Only 64 2029 5 years $69,625 $1,482,655 Simple 3% or ½ CPI 9.5% of annual salary Option II: Benefits and Healthcare 64 2029 10 years $102,917 $2,191,619 Simple 3% or ½ CPI 9.5% of annual salary

S A M C L E M E N S

47 Y E A R S O L D – T I E R 1

1 3 Y E A R S O F S E R V I C E

$ 6 7 , 0 0 0 S A L A RY

Sam can retire in 2025 under the current system, but the retirement age increase under option I and option II prevent him from retiring until 2029 when he will have 30 years or service.

Option I reduces Sam’s initial pension payment because the formula used to calculate the pension benefit has been changed. Only changing the pension benefits scenario results in the lowest lifetime pension payment of all the scenarios.

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S A M C L E M E N S

47 Y E A R S O L D – T I E R 1

1 3 Y E A R S O F S E R V I C E

$ 6 7 , 0 0 0 S A L A RY

Pension Benefit

Age

Without reform by 2038 the fund will be insolvent.

Sam will be 73. Fund Insolvency $0.00 $20,000.00 $40,000.00 $60,000.00 $80,000.00 $100,000.00 $120,000.00 $140,000.00 $160,000.00 $180,000.00 60 62 64 66 68 70 72 74 76 78 80 82 No Changes at Age 60 No Changes at Age 64 Benefits Only at Ae 64

Benefits and Healthcare at Age 64

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Retirement Age Retirement Year Vesting Initial Pension Payment Lifetime Pension Payment COLA Employee Contribution Current 60 2014 10 years $32,888 $1,037,175 3% Compounding 8.5% of annual salary Option I Benefits Only 65 2019 5 years $42,541 $842,955 Simple 3% or half of CPI 9.5% of annual salary Option II Benefits and Healthcare 61 2015 10 years $35,688 $897,549 Simple 3% or ½ CPI 9.5% of annual salary

JA M E S C O N N O R

5 8 Y E A R S O L D – T I E R 1

2 0 Y E A R S O F S E R V I C E

$ 6 0 , 0 0 0 S A L A RY

James can retire in 2014 under the current system. Option I prevents James from retiring until year 2019 and option II prevents him from retiring until 2015.

Under Option I the initial pension payment is the larger than the other scenarios because James has to work the longest accruing more years of service and receiving more salary increases. Even though the Option I initial payment is the largest, the lifetime pension payout is the smallest of all scenarios. James’ pension is frozen until year 2024, receiving a 3% compound increase in 2017, because the pension funded status is below 80%.

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JA M E S C O N N O R

5 8 Y E A R S O L D – T I E R 1

2 0 Y E A R S O F S E R V I C E

$ 6 0 , 0 0 0 S A L A RY

$0.00 $10,000.00 $20,000.00 $30,000.00 $40,000.00 $50,000.00 $60,000.00 $70,000.00 60 62 64 66 68 70 72 74 76 78 80 82 No Changes at age 60 Benefits Only at Age 65

Benefits and Healthcare at age 61

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Calculation Information

Salary: The salary listed at the top of the page is the current

salary of the employee. Salaries increase at the actuarially

assumed rate of 5% compounding annually.

The proposed changes are effective Jan. 1, 2013 for the

purposes of scenario valuations and actuary analysis.

Life expectancy is 82 for males and 85 for females in

accordance with actuarial experience studies.

For calculation information requests and questions please

contact our office at 312-603-4210.

Figure

Updating...

References