How would new teachers’ pensions work?

SPRINGFIELD — Under the newest Illinois retirement plan laid out by state Rep. Elaine Nekritz this week, all newly hired teachers would be put into a system that isn’t quite a the same pension they have now and isn’t quite a 401(k).

State Rep. Daniel Biss, an Evanston Democrat who conceived of the idea, explained to the Daily Herald how it would work — an important thing to know for thousands of would-be suburban teachers if it’s eventually approved.

They’re calling it a cash-balance plan.

Unlike with their pensions, each teacher would have an account in which he or she would accrue money.

Teachers would pay 9.4 percent of their salaries every paycheck. School districts would pay 6.2 percent into the account.

School officials, in contract negotiations with unions, could agree to pay more if they wanted to in order to give teachers a more generous benefit, giving districts at least some of the control they’ve wanted over teacher pension levels.

As the teacher and school paid into the account over the years, the account would grow and investments would be managed by the Teachers’ Retirement System, the same group that invests pension money now.

Each teacher would be guaranteed a 4 percent annual growth in his or her account. Anything below that would be absorbed by the system. Anything above that, the teacher would share the additional growth with the system. That way, the system would keep some money from big gains in order to offset losses later.

Finally, when a teacher retired, he or she would be allowed to take up to 40 percent in cash out of the account to roll over into a private IRA or 401(k). But a teacher wouldn’t have to take any money out.

Because whatever money accumulated in the account would be put through a formula based on life-expectancy and other factors, and the teacher would get a defined, regular payout for the rest of his or her life.

The account wouldn’t be able to run out of money because the payout would be based on a formula. If a retired teacher died earlier than expected, the state’s retirement funds would gain money. If the teacher lived longer than expected, the system would lose money.

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