When estimating future financial impact of the proposed rules, what are key considerations?
How are earnings defined under Section 40 ILCS 5/15-111?
If a liability is calculated, does it apply only to employer contributions?
Is overtime considered in the 6% earnings increase calculation?
How will terminal vacation and sick leave payments be treated in regard to the calculation?
How do changes in FTE, workload, or job responsibilities impact the 6% earnings increase calculation?
Is there a sunset date for earnings exclusions?
Does the 6% rule apply to all employees?
What is the impact of the 20% rule on the 6% calculation?
For highly paid staff, do all earnings count toward the benefit increase calculation?
How does returning from leave impact the 6% calculation? Paid leave vs. unpaid leave?
What time period is used in calculating the final rate of earnings for an employee?
What are considerations when negotiating termination or retirement agreements with individuals?
How can I best estimate potential future liabilities?
What is the key determinant of whether compensation is subject to SURS withholding?
When estimating future financial impact of the proposed rules, what are key considerations?
Key considerations include the following:
- The rule will only be applied where the monthly benefit is calculated from the participant's final rate of earnings (FRE). Thus, it will only apply to participants who retire under general formula under the SURS Traditional or Portable Benefit plans. The calculation will not be performed for participants retiring under the "money purchase" option. Nor will it be performed for participants in the Retirement Savings Plan (formerly known as Self-Managed Plan).
- The "base amount" used for calculating benefit increases is "earnings" as defined under
Specifically, the Pension Code provides a global definition of "earnings" as "an amount paid for personal services equal to the sum of the basic compensation plus extra compensation for summer teaching, overtime or other extra service." (40 ILCS 5/15-111) In the new provisions of Public Acts 094-0004 and 094-1057, the operative section refers to comparisons of the "final rate of earnings". Exclusions from the final rate of earnings calculation are delineated as below:
"The following are not considered as earnings in determining the final rate of earnings: (1) severance or separation pay, (2) retirement pay, (3) payment for unused sick leave, and (4) payments from an employer for the period used in determining final rate of earnings for any purpose other than (i) services rendered, (ii) leave of absence or vacation granted during that period, and (iii) vacation of up to 56 work days allowed upon termination of employment; except that, if the benefit has been collectively bargained between the employer and the recognized collective bargaining agent pursuant to the Illinois Educational Labor Relations Act, payment received during a period of up to 2 academic years for unused sick leave may be considered as earnings in accordance with the applicable collective bargaining agreement, subject to the 20% increase limitation of this Section" (40 ILCS 5/15 112)
Notes: Although terminal vacation pay of up to 56 days is included in the final rate of earnings, it is excluded from the definition of earnings under 40 ILCS 5/15-111. Therefore, under JCAR rules, it will not be included in the 6% calculation. Exclusions provided for in Public Acts 094-0004 and 094-1057 will also be excluded.
If a liability is calculated, does it apply only to employer contributions?
Yes, the law requires an assessment on the employer for increased benefit costs. There will be no assessment to employees.
Is overtime considered in the 6% earnings increase calculation?
Under provisions of Public Acts 094-0004 and 094-1057, overtime will be excluded from the calculation when the employer has certified to SURS that the overtime was necessary to support the educational mission of the University and SURS has approved the certification.
How will terminal vacation and sick leave payments be treated in regard to the calculation?
- Payment for compensable sick leave days will be excluded from the calculation.
- Payment for terminal vacation pay will be excluded from the calculation.
How do changes in FTE, workload, or job responsibilities impact the 6% earnings increase calculation?
Public Acts 094-0004 and 094-1057 exclude earnings increases resulting from the following personnel actions:
- Overload work, including contracts for summer teaching when the employer has certified to the System and the System has approved the certification that the overload work is (1) for the sole purpose of academic instruction in excess of the standard number of instruction hours for a full-time employee occurring during the academic year that the overload is paid, and (2) the earnings increases are equal to or less than the rate of pay for academic instruction computed using the participant's current salary rate and work schedule.
- Promotions for which the employee moves from a lower to higher one classification under the State Universities Civil Service System. These earnings increases shall be excluded only if the promotion is to a position that has existed and been filled by a member for no less than one complete academic year and the earnings increase as a result of the promotion is an increase that results in an amount no greater than the average salary paid for other similar positions.
- Promotions in academic rank for a tenured or tenure-track faculty position. These earnings increases shall be excluded only if the promotion is to a position that has existed and been filled by a member for no less than one complete academic year and the earnings increase as a result of the promotion is an increase that results in an amount no greater than the average salary paid for other similar positions.
Note: Promotions into academic professional positions are not excluded from the 6% calculation.
Is there a sunset date for earnings exclusions?
Public Acts 094-0004 and 094-1057 contain a 7/1/2011 sunset provision. There is an exception to the sunset provisions for the following:
d) Exclusions for earnings increases described in 40 ILCS 5/15-155(h) paid on or after July 1, 2011, but before July 1, 2014, under a contract or collective bargaining agreement entered into, amended, or renewed on or after June 1, 2005, but before July 1, 2011, under 40 ILCS 5/15-155(i). For the purpose of 40 ILCS 5/15-155(i), a contract or collective bargaining agreement is "entered into, amended or renewed" on the earliest of the following:
- the date the governing body of the employer voted to accept the contract or collective bargaining agreement;
- the date the contract or collective bargaining agreement was executed in final form by the parties; or
- the date the parties to the contract or collective bargaining agreement reached a tentative agreement regarding the terms of the contract or collective bargaining agreement, provided that the tentative agreement is subsequently approved by the governing body of the employer on or after July 1, 2011, without any changes to the terms that have the effect of extending the expiration date.
Does the 6% rule apply to all employees?
Public Acts 094-0004 and 094-1057 exclude earnings increases paid to a participant at a time when the participant is 10 or more years from retirement eligibility as defined under Section 40 ILCS 5/15-135.
Sec. 15-135 Definition of Eligibility:
- Age 55 with 8 or more years of service
- Age 62 with 5 or more years of service
- Any age with 30 or more years of service
- 25 years of service in this system as a police officer or firefighter on or after the attainment of age 50
What is the impact of the 20% rule on the 6% calculation?
Current state statute (40 ILCS 5/15-112) provides:
".... In the determination of the final rate of earnings for an employee, that part of an employee's earnings for any academic year beginning after June 30, 1997, which exceeds the employee's earnings with that employer for the preceding year by more than 20 percent shall be excluded; in the event that an employee has more than one employer this limitation shall be calculated separately for the earnings with each employer. In making such calculation, only the basic compensation of employees shall be considered, without regard to vacation or overtime or to contracts for summer employment."
Subject to confirmation by SURS, the 20% statute represents a maximum liability or assessment which the University would be subject to in a given year. For example, if an employee is given a 30% increase, SURS would expect the employer to pay liabilities associated with the amount above 6% but less than 20% (as earnings above 20% are not included in the final rate of earnings).
For highly paid staff, do all earnings count toward the benefit increase calculation?
For highly paid staff, federal contribution limits will impact liability amounts. Specifically, participants in SURS hired after 7/1/96 are subject to the 401a(17) earnings limit which is set at $210,000 for fiscal year 7/1/2005 to 6/30/2006. For employees subject to the limit, contributions to SURS are limited to earnings up to the 401a(17) limit. Therefore, for calendar year 2005, the maximum liability would be calculated on earnings up to $210,000. For fiscal year 2007, the limit is set at $220,000.
How does returning from leave impact the 6% calculation? Paid leave vs. unpaid leave?
It is unclear at this time how SURS will view earnings for employees on leave. Under SURS regulations, an employee can receive full earnings credit while on full or partial LWOP providing the employee makes the 8% employee contribution while on leave and providing that "return to work" provisions are met. For earnings credits to be maintained when the employee returns to work, the employee must return to work at a percentage of time equal to or greater than that immediately preceding the leave for at least 8 consecutive months or a period of time equal to the leave, whichever is less. While it is clear that earnings credits will be retained under these conditions, it is less clear how the 6% rule would be applied if the employee does not choose to make contributions while on leave.
What time period is used in calculating the final rate of earnings for an employee?
The time period used in determining final rate of earnings is defined in statute (40 ILCS 5/15-112):
- For an employee who is paid on an hourly basis or who receives an annual salary in installments during 12 months of each academic year, it is the average annual earnings during the 48 consecutive calendar month period ending with the last day of final termination of employment or the 4 consecutive academic years of service in which the employee's earnings were the highest, whichever is greater.
- For any other employee, it is the average annual earnings during the 4 consecutive academic years of service in which his or her earnings were the highest. The academic year is the 12-month period starting on the first day of the employer"s fall term.
What are considerations when negotiating termination or retirement agreements with individuals?
When negotiating termination or retirement agreements with individuals, either to induce an individual to leave the University, or to encourage him/her to stay, the following should be considered:
- Purchase of service credit is not considered earnings and will not impact the 6% calculation.
- Severance or separation payments are not considered earnings and will not impact the 6% calculation.
- Retirement incentive payments are not considered earnings and will not impact the 6% calculation.
- Base salary increases count toward the 6% rule.
Generally, payments that are directed toward increasing an employee's retirement annuity post-retirement are subject to the 6% rule. Lump sum incentive/separation payments are not.
How can I best estimate potential future liabilities?
For many employees, it is difficult to estimate with accuracy future potential liabilities created via the legislation. However, as a general rule, potential liabilities can be incurred for any employee participating in the SURS Traditional and Portable plans who meets retirement eligibility criteria (now or the next 10 year period). Care should therefore be taken when considering salary increases above the 6% limit. Units should manage appropriately to prevent larger than 6% increases in any given year.
What is the key determinant of whether compensation is subject to SURS withholding?
SURS has provided additional guidance for determining whether compensation is subject to withholding (see SURS Memo effective April 20, 2005).