Should state workers retire before pension law kicks in?

  • Teachers' Retirement System Executive Director Dick Ingram answers questions during a 2012 meeting in Schaumburg about proposed pension changes.

      Teachers' Retirement System Executive Director Dick Ingram answers questions during a 2012 meeting in Schaumburg about proposed pension changes. Bob Chwedyk | Staff Photographer

Updated 12/8/2013 12:34 AM

Big changes to Illinois' pension plans often come with talk of teachers and other state workers considering retiring early to try to avoid cuts, potentially leaving schools and agencies short of seasoned help.

As people affected by the benefit cuts approved last week sort out what the complicated new law means to them, it's not clear retiring early would be such a good idea.


For one, it's uncertain when -- or if -- the plan to slow the growth of yearly pension benefits and raise the retirement age would take effect.

The new law is supposed to take hold June 1. But expected lawsuits from union leaders and retirement associations could push that date back or overturn it altogether.

So someone who retires a year or two earlier than planned, thinking it would be helpful under the new law, could instead get caught in a tough spot if the Illinois Supreme Court overturns it.

The early retiree would have missed out on a year or more of salary -- which would be more money than a year of pension benefits -- as well as probable pay raises that would have increased the eventual size of the pension.

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Plus, the new law says teachers and workers have to contribute 1 percentage point less of their salaries toward retirements, giving them a little extra money in every paycheck.

"You're no better off retiring (early) at this point," Illinois Retired Teachers Association Executive Director Jim Bachman said.

Retiring before the law takes effect could have some benefit to a narrow group of teachers and workers, however.

Working teachers and retirees, for example, see their annual benefit changes in retirement cut in the same way. But those still working when the law takes effect also have to skip a few pension raises in retirement.

Generally, teachers ready to retire are older than 50, an age at which they would have to skip only one year of pension cost-of-living increases, said Teachers' Retirement System spokesman Dave Urbanek. Younger people have to skip more.


Retiring before the law takes effect could spare a worker one of those skipped years. An individual teacher would have to weigh his or her salary, pension size and other factors to see if doing that made sense.

In addition, someone who makes a relatively large salary might be able help his or her pension by retiring early because the new law caps the amount of a person's pay that can be used to calculate benefits at about $110,000.

Years where people already worked and made more than that wouldn't be subject to the cap, so retiring now could avoid it.

Still, Urbanek says, people have to weigh the details of the new law carefully. How fast a person's benefits grow in retirement is based on how long he or she works, so retiring early could have its downside in that case, too.

Bachman said his organization often received calls from teachers in previous years when lawmakers talked about changing pension rules because people wanted to know if it'd make sense to retire earlier than they planned.

This time, he said, people just want to know how the complicated new law would work.

"There's a large fear of the unknown," Bachman said. "That's where the calls are coming from."

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