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UPDATE: End-of-Career Salary Cap Signed by Governor

Education Publications

This morning, Governor Rauner signed the FY2019 Budget Implementation Act into law. Effective immediately, for school years beginning on or after July 1, 2018, a penalty will be imposed on school districts entering into contracts and collective bargaining agreements that provide TRS members with end-of-career increases in excess of 3% per year. This reduces the current limit of 6% per year.

There are multiple implications of this provision for employers to consider. The penalty applies if the amount of a TRS member’s salary for any school year used to determine the final average salary exceeds the prior year’s salary by more than 3%. If the salary increase exceeds the 3% limit, the employer must pay a penalty to TRS equal to the present value of the increase in benefits resulting from the portion of the salary increase in excess of 3%. Employers should also keep in mind that creditable earnings include more than salaries. They also include extracurricular pay, stipends, and contributions to tax-deferred retirement plans, among other payments. Finally, the average salary for Tier I employees is calculated using the four highest, consecutive annual salary rates within the last 10 years of creditable service. For Tier II members, the average salary is the average of the eight highest, consecutive annual salary rates within the last 10 years of creditable service.

Again, this legislation does not change the law for current employment contracts and collective bargaining agreements. Only new and modified contracts will incur the penalty. Therefore, employers should carefully review any new and modified contracts to ensure they are in compliance. 

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