2018 PENSION LAW
What the changes mean
To ensure that TRA is sustainable for future generations of retired educators, changes to the plan are sometimes necessary. The 2018 legislation has a significant positive financial impact, immediately reducing TRA liabilities by $2.0 billion, increasing the funded ratio to 75 percent (from 70 percent), and putting the plan on track to be 92 percent funded in 30 years.
Changes affecting retirees
ANNUAL Cost of living adjustment (COLA)
1/1/2019 – 1/1/2023 = 1.0 percent
1/1/2024 = 1.1 percent
1/1/2025 = 1.2 percent
1/1/2026 = 1.3 percent
1/1/2027 = 1.4 percent
1/1/28 and thereafter = 1.5 percent
Beginning 7/1/2024, eligibility for receipt of first COLA changes to normal retirement age (age 65-66, depending on date of birth). Exempt: members who retire under Rule of 90, and members who retire at least age 62 with at least 30 years of service credit.
A trigger that would have increased the COLA if TRA were at least 90 percent funded for two consecutive years was eliminated.
Changes affecting active teachers
Beginning 7/1/2018: 7.5 percent employee, 7.71 percent employer
Beginning 7/1/2019: 7.5 percent employee, 7.92 percent employer
Beginning 7/1/2020: 7.5 percent employee, 8.13 percent employer
Beginning 7/1/2021: 7.5 percent employee, 8.34 percent employer
Beginning 7/1/2022: 7.5 percent employee, 8.55 percent employer
Beginning 7/1/2023 and after: 7.75 percent employee, 8.75 percent employer
The law provides state funding for the higher employer contribution through a pension adjustment in the school aid formula.
Early retirement benefits
Augmentation in the early retirement reduction factors will be phased out over a five-year period beginning 7/1/2019, completed by 6/30/2024. (This reduces early retirement benefits.) Exempt: members who retire at least age 62 with at least 30 years of service.
Augmentation on deferred benefits will be reduced to zero percent beginning 7/1/2019.
Interest payable on refunds to members was reduced from 4 percent to 3 percent effective 7/1/2018.
Interest due on payments and purchases from members, employers was reduced from 8.5 percent to 7.5 percent effective 7/1/2018.
Changes affecting TRA finances
Investment return assumption
This key assumption was lowered from 8.5 percent to 7.5 percent. (No effect on benefits.)
The amortization date for the unfunded liability was re-set to 6/30/2048. (No effect on benefits.)
A mechanism that provided some authority for the TRA board to set contribution rates was eliminated.