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Comment: If only we were so lucky in Illinois. Automatic 3% COLAs, regardless of actual inflation, account for maybe 30-40% of our pension problem. But the Illinois Supreme Court has ruled that they are constitutionally protected along with pension benefits, free speech, religion….

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Andrew Szakmary

As I have said in previous posts, I suspect that the 3% AAI’s are structured very differently in Illinois. It is not only the pension protection clause in the Illinois Constitution that prevents the state from cutting the AAI, but also the fact that in each of the state pension systems, the employees pay a specific, dedicated percentage of their salaries as a contribution towards receiving the AAI’s in retirement. Pension protection clause or no, based on simple contract law, you cannot cut something that employees have previously paid for – at least not outside of bankruptcy.

Because of employer pension pickups of the employee pension contribution, some employees don’t pay a specific dedicated percentage of their salaries as a contribution towards receiving the AAI / COLA in retirement. Rather, the employer pays some or all of the specific dedicated percentage of the employees salaries as a contribution towards receiving the AAI / COLA in retirement. For example, school districts pick up some or all of the employees pension contribution in the majority of school districts in Illinois in the TRS & Chicago Teachers pension systems. In TRS, .4 of the 9.4 employee contribution is for AAI / COLA What is the AAI /… Read more »

Mike – In TRS, 0.4 of the 9.4% employee contribution is for the early retirement option, not AAI. But if the worker doesn’t retire using the ERO, they get a refund of all their 0.4% contributions.

And Mark will like this…just a few months ago, the actuaries suggested lowering the price of the ERO by 25% for members and employers. Of course, they based their calculation on 7.5% ROR. Amazing, considering all we know about pensions and their catastrophic funding levels, that the actuaries would actually suggest contributing less for anything pension-related.


Made a mistake above.

Here is the complete breakdown for TRS employee contribution to the pension fund:

7.5 Retirement Benefits
0.5 COLA / AAI (Cost of Living Allowance / Automatic Annual Increase)
1.0 Survivor Benefits
0.4 ERO (Early Retirement Option)
9.4 Total

The TRS ERO employer and employee contributions in the URL are for those retiring at age 59 or with 34 years of service. The costs double for each one year reduction in age or years of service. For example: Age xx or yy years of service: Employer Contribution – Employee Contribution Age 59 or 34 years of service: 22.0% – 10.8% Age 58 or 33 years of service: 44.0% – 21.6% Age 57 or 32 years of service: 66.0% – 32.4% Age 56 or 31 years of service: 88.0% – 43.2% Age 55 or 30 years of service: 110% – 54.0% ERO ends July 1, 2016 unless… Read more »
By the way TRS has another “early retirement option.” In the words of TRS. “If you retire between the ages of 55 and 60 with at least 20 but fewer than 35 years of service, your retirement annuity is reduced by 6 percent for each year (half percent per month) that you are under age 60. You can avoid this reduction if both you and your employer make a one-time contribution to TRS (see “Early Retirement Option” in this chapter). A discounted annuity is based on your average salary, years of service, and age.” So the “early retirement option” discussed in earlier comments is actually an “extra… Read more »

And as I have said in a previous post, there is indeed a portion of an employee’s contribution – a whopping 0.5% – that goes towards automatic annual increases in retirement. However, when this was first enacted and negotiated for decades ago, the AAI was calculated at 1.5% simple interest. Since then, the Legislature upped it to 2% (1972), then 3% (1978), then changed the interest formula from simple to compounded (1989). None of these increases were collectively bargained for, otherwise something would’ve been given up in exchange for the increased benefit. What was given up?

Technically, employees paid for 1.5% simple COLA, not 3% compounded.