Police Pensions: Article 3 Overview for Tier I Members
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The Three-Legs of Retirement
For most workers, wages are replaced in retirement by
the so-called “three legs” of the retirement stool:
Pension, Social Security and personal savings.
For
many public employees, the main element of personal
savings is a deferred compensation plan. So for core
retirement training, our “chapters” are:
Pension
Social Security
Deferred Compensation
Retirement Planning
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A
pension
is a fixed monthly payment that replaces
income that is lost due to:
Age
Disability
Death (particularly pre-mature death)
A pension benefit for retired police officers
(outside
of Chicago and small towns) is established under
Article 3 of the Illinois Pension Code and referred to
as the “Downstate” police pension system.
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Defined Benefit pension systems pay a pension
to a retiree based on his or her salary and length
of service. As to salary for Illinois police
officers….
For Tier 1 retirees
, the final salary is used -
“salary attached to the rank at the time of
retirement.” This excludes overtime.
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Tier I members attaining 20 years of service and
Age 50 receive benefits under the formula
below…
2.5% x years of service x salary (max: 75%).
Example
:
2.5% x
30 years
x $75,000 = $4,688
per month (75% of a monthly salary of $6,250).
Example
:
2.5% x
26 years
x $75,000 = $4,062
per month (65% of a monthly salary of $6,250).
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For Tier I retirees who do not attain 20 years
of
service, the formula and retirement age is as
follows:
Tier 1
– with 8 – 19 years of service, the same
formula is used (2.5% of
final pay
per year of
service), but the benefit is payable at age 60.
For example, at 10 years, the pension is 25% of
salary; at 15 years it is 37.5% of salary.
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If retired before age 55
,
at age 55 the
pensioner receives a 3% increase for each year
the retiree has been in receipt of pension
(includes consideration of partial years); then
3% additionally (compounded) each January 1
st
.
- If retired on or after age 55
,
3% is paid after
one year of retirement and each January 1
st
after that.
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For non-duty related conditions
,
benefits are
50% of salary.
For duty-related conditions
, benefits are 65% of
salary – or – the pension earned by virtue of
years of service (such as 70% of pay for 28
years of service).
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- A spouse surviving a Tier I service or disability
retiree
continues to receive the monthly pension
being paid.
- A spouse surviving an active police officer who
dies in the line-of-duty
is entitled to 100% of pay.
- A spouse surviving an active police officer who
dies
not
in the line-of-duty and has 8 years of
service
or more receives the pension the officer
had earned or 50% of pay, whichever is higher.
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Tier 1 Survivors
.
There is no annual increase
provision for Tier 1 Survivors. However, the
state does set “minimum pensions” from time-to-
time that often effect survivor pensions.
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The members pay 9.91% of pensionable salary to
the fund each payday.
Contributions are often tax-exempt
under a provision
known as “employer pick-up.” It is not really
payment by the employer, but is an allowable tax
saving provision.
Contributions are refundable
or can be rolled-over to
an IRA for employees who separate with less than
20 years of service.
Contributions help fund the system and are an
important part of the total pension financing plan
.
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The Pension Code allows an officer with at least two years of
credited service to transfer or “port” his or her pension credit
from one Article 3 community to another.
The “first” fund makes a payment to the “second” fund
in the
amount of (a) the employee’s payroll contributions, (b) an
equal amount imputed to be the municipality’s contribution
and (c) 6% annual interest on both (a) and (b).
If the dollar amount paid by the first fund is less than the true
cost of the credited service earned at the first fund,
either the
officer must make up the difference or accept a reduced
period of transferred service, prorated based on the amount
of the true cost that the first fund paid to the second fund.
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Jane had 3 years of service (36 months) at Eastown
PD
.
Her payroll contributions were $14,000. She
leaves there for Westown PD.
To effect a portability transfer of service, Eastown
pays Westown
her $14,000, a match of $14,000 and
$3,000 in interest, totaling $31,000.
Westown’s police fund actuary says the true cost of
transferring 3 years of service is $38,750
. Jane
must make up the $7,750 difference – or – accept
transfer of 29 months of credited service instead of
36 months.
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Governance
:
state law and local board – two
actives, a retiree and two citizens.
The Illinois Department of Insurance
– acts as the
regulator, including audits. Visit their website for
information on your and other public pension funds.
Member Data for Participation
: help your pension
plan keep track of marriages, divorces and children.
Administrative Review
–
your access to the court
system if you disagree with a board decision.
Other Players
–
“sponsor,” actuary, lawyer,
accountant and, possibly, an administrator company.
14
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•
The Illinois Department of Insurance has an on-
line calculator to assist Tier 1 police and fire
employees and retirees in estimating their
retirement benefits.
•
The calculator also calculates future annual
increases and the dates they occur.
•
Go to:
https://insurance.illinois.gov/Applications/Pension/
BenefitCalculator.aspx
. Or simply follow Google to
the Illinois Department of Insurance Public
Pension page.
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Dive into the world of police pensions for Tier I members hired before January 1, 2011. Learn about the three pillars of retirement income, the definition of pensions, salary considerations, pension formulas based on years of service, retirement age criteria, and how pension increases are calculated. Explore the intricate details of the Illinois Police Pension Code and the Downstate police pension system.
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Presentation Transcript
PSfit Public Safety Financial Independence Training Article 3 Police Pensions Tier I Members Hired Before January 1 2011 IPPFA - PSfit
The Three-Legs of Retirement For most workers, wages are replaced in retirement by the so-called three legs of the retirement stool: Pension, Social Security and personal savings. For many public employees, the main element of personal savings is a deferred compensation plan. So for core retirement training, our chapters are: Pension Social Security Deferred Compensation Retirement Planning 2
What is a Pension? A pension is a fixed monthly payment that replaces income that is lost due to: Age Disability Death (particularly pre-mature death) A pension benefit for retired police officers (outside of Chicago and small towns) is established under Article 3 of the Illinois Pension Code and referred to as the Downstate police pension system. 3
Article 3 Definition of Salary Defined Benefit pension systems pay a pension to a retiree based on his or her salary and length of service. As to salary for Illinois police officers . For Tier 1 retirees, the final salary is used - salary attached to the rank at the time of retirement. This excludes overtime. 4
Pension Formula and Age: Persons Attaining 20+ Years of Service Tier I members attaining 20 years of service and Age 50 receive benefits under the formula below 2.5% x years of service x salary (max: 75%). Example: 2.5% x 30 years x $75,000 = $4,688 per month (75% of a monthly salary of $6,250). Example: 2.5% x 26 years x $75,000 = $4,062 per month (65% of a monthly salary of $6,250). 5
Pension Formula and Age: Less than 20 Years of Service For Tier I retirees who do not attain 20 years of service, the formula and retirement age is as follows: Tier 1 with 8 19 years of service, the same formula is used (2.5% of final pay per year of service), but the benefit is payable at age 60. For example, at 10 years, the pension is 25% of salary; at 15 years it is 37.5% of salary. 6
Increases in Pension - If retired before age 55, at age 55 the pensioner receives a 3% increase for each year the retiree has been in receipt of pension (includes consideration of partial years); then 3% additionally (compounded) each January 1st. - If retired on or after age 55, 3% is paid after one year of retirement and each January 1st after that. 7
Disability Benefits For non-duty related conditions, benefits are 50% of salary. For duty-related conditions, benefits are 65% of salary or the pension earned by virtue of years of service (such as 70% of pay for 28 years of service). 8
Payments to Survivors - A spouse surviving a Tier I service or disability retiree continues to receive the monthly pension being paid. - A spouse surviving an active police officer who dies in the line-of-duty is entitled to 100% of pay. - A spouse surviving an active police officer who dies not in the line-of-duty and has 8 years of service or more receives the pension the officer had earned or 50% of pay, whichever is higher. 9
Increases in Pension - Survivors Tier 1 Survivors. There is no annual increase provision for Tier 1 Survivors. However, the state does set minimum pensions from time-to- time that often effect survivor pensions. 10
Employee Contributions The members pay 9.91% of pensionable salary to the fund each payday. Contributions are often tax-exempt under a provision known as employer pick-up. It is not really payment by the employer, but is an allowable tax saving provision. Contributions are refundable or can be rolled-over to an IRA for employees who separate with less than 20 years of service. Contributions help fund the system and are an important part of the total pension financing plan. 11
Portability of Service Between Article 3 Funds The Pension Code allows an officer with at least two years of credited service to transfer or port his or her pension credit from one Article 3 community to another. The first fund makes a payment to the second fund in the amount of (a) the employee s payroll contributions, (b) an equal amount imputed to be the municipality s contribution and (c) 6% annual interest on both (a) and (b). If the dollar amount paid by the first fund is less than the true cost of the credited service earned at the first fund, either the officer must make up the difference or accept a reduced period of transferred service, prorated based on the amount of the true cost that the first fund paid to the second fund. 12
Portability: Example Jane had 3 years of service (36 months) at Eastown PD. Her payroll contributions were $14,000. She leaves there for Westown PD. To effect a portability transfer of service, Eastown pays Westown her $14,000, a match of $14,000 and $3,000 in interest, totaling $31,000. Westown s police fund actuary says the true cost of transferring 3 years of service is $38,750. Jane must make up the $7,750 difference or accept transfer of 29 months of credited service instead of 36 months. 13
Article 3 Police Funds Other Issues Governance: state law and local board two actives, a retiree and two citizens. The Illinois Department of Insurance acts as the regulator, including audits. Visit their website for information on your and other public pension funds. Member Data for Participation: help your pension plan keep track of marriages, divorces and children. Administrative Review your access to the court system if you disagree with a board decision. Other Players sponsor, actuary, lawyer, accountant and, possibly, an administrator company. 14
A Great Tool State Benefit Calculator The Illinois Department of Insurance has an on- line calculator to assist Tier 1 police and fire employees and retirees in estimating their retirement benefits. The calculator also calculates future annual increases and the dates they occur. Go to: https://insurance.illinois.gov/Applications/Pension/ BenefitCalculator.aspx. Or simply follow Google to the Illinois Department of Insurance Public Pension page. 15
Questions ? Contact IPPFA! 16
