Illinois Legislature Repeals 3% TRS Salary Cap, Paving Way for Return of the 6% Cap

On the heels of a movement fueled by the Illinois teachers unions, the Illinois House and Senate passed a bill, Senate Bill 1814, which includes a House Amendment that will repeal the current 3% salary cap for Teachers Retirement System (TRS) reportable earnings. If Governor Pritzker signs the bill into law, educational employers who are subject to TRS will once again only be responsible for additional employer payments if they provide a TRS member more than a 6% increase in creditable earnings during the final years of the employee’s career. The Governor is expected to sign the legislation, which would become effective upon signature.

As we reported at the time, the legislature reduced the cap on end-of-career salary increases from 6% to 3% in 2018. The 6% cap was put in place in 2005 to address rising pension costs. The 3% cap went into effect on July 1, 2018, in Public Act 100-0587. Certain contracts and policies entered into before June 4, 2018, were “grandfathered” under the 6% cap as long as they were not amended and the employer complied with certain reporting requirements, which we summarized in a previous client alert.

Almost immediately after the implementation of the 3% cap, teachers’ unions complained that the real effect of the tightened limits was to penalize teachers who wanted to take on more responsibilities at the end of their careers and pushing other teachers out of the state. Particularly when Illinois is facing a growing teacher shortage, this reform was seen by many as a mistake.

The relevant House Amendment deletes from the current law the language establishing the 3% cap. The law does not provide for any refund from TRS for any excess salary payments for increases that exceeded 3% since July 1, 2018, and it is not yet known whether TRS will entertain such requests. The bill also removes the exception for salary increases exceeding 6% paid before June 1, 2005, which, in rare instances, could result in an excess salary penalty where a teacher’s pension is calculated using such salaries.