Monday, December 28, 2015

Vocabulary "VESTED"

What is “Vested?”

Simply put, vested means “secured in the possession of or assigned to a person.”

In public education, the term vested for a future retiree means a pension fully and unconditionally guaranteed as a legal right, benefit, or privilege – although any Tier 1 or Tier 2 educator in Illinois realizes that save for the Illinois Supreme Court, the General Assembly would have ignored any guarantees morally or legally implied.

In the private business world, the full benefit(s) of being vested may include different remunerations in lieu of a defined benefit or pension.  Those would include but not be limited to profit sharing, stock options, 401K matching contributions, etc.  

The benefit to any company or school district in providing an accumulating vesting schedule is to retain the talent and productivity of employee(s) at a firm or in a district over an extended period of time.  Workers who decide to leave a company may find themselves losing access to thousands of dollars or tens of thousands in investment instruments.

According to, “This strategy (vesting employees) can backfire when it promotes the retention of disgruntled employees who may hurt morale and simply do the minimum required until it is possible to collect previously unvested benefits.”

You already know this person – you teach next to him/her.

Seriously, this may also explain just one reason why the concept of tenure – the right to due process in the dismissal of a public worker – seems so strange for the private world to comprehend.  It appears on the surface a too-good-to-be-true deal.

Keep the talent.
On the other hand, without social security or matching retirement savings plans, educators in Illinois are doubly dependent upon their defined benefit at the end of a career. 

Likewise, Illinois public pension schedules require a considerably longer vesting schedule than normally found for private sector benefits: Illinois pension participants do not qualify for retirement benefits until completing between eight and ten years of service, while those in the private sector are vested usually after seven years. 

Regardless, in both cases, public or private benefits for an employee become fully vested as prescribed by a schedule of accrual, often at a gradual pace over a period of time.  In the public sector (and often in the private), age rules also establish a minimum age at which a participant can begin drawing those retirement benefits. 

Retirement benefits may also be capped at maximum levels or at a percentage allowable as a final retirement benefit.

If you are a current active watching your older colleagues figuring out whether or not to retire, you’ll begin to understand why they all carry calculators.  A considerable number of items go into figuring out the numbers – and pity the poor English teachers, who have acquired an expergefacient  phobia for all things math. 

Complicating all of this was the addition of a Tier 2 in 2010, changing the retirement qualifications for those hired after January of 2011. 


Pension Code Section
Age & Vesting Rules
(Pre-2011 Hires)
Age & Vesting Rules
(Post-2011 Hires)
Teachers’ Retirement
40 ILCS 5/16-133
·      62 with 5 years of service
·      60 with 10 years of service
·      55 with 20 years of service
·      55 with 35 years of service (full annuity)
·      67 with 10 years of service
·      62 with 10 years of service for a reduced benefit

In Illinois, there are more than a fifteen different public sector pensions, each establishing separate and unique requirements for vesting, in establishing age requirements, and providing maximum annuity pay-outs. 

Accrual Rate

In every Illinois public pension plan – teachers’ retirement to judges – the Pension Code provides for a method to determine the benefits of a pension over the course of an individual’s career in public service.

In sum, the benefit accrual rules follow two paths: the percentage of pension benefit an employee accrues per unit (annual employment) of service and the average pay rules – calculating pension benefits based on average of final years of employee service.  This calculation provides the ultimate or highest amount (percentage) of an ending salary/average that can be earned as retirement benefit.

Pension Code Section
Current Accrual Rate
Maximum Percent of Final Salary
Teachers’ Retirement
40 ILCS 5/16-133
40 ILCS 5/18-125
Years 1-10: 3.5%
Years 10+: 5.0%

Pension Codes in Illinois also regulate what contributions are made by various employees, what caps may be in place, what percentage of salary is required for contribution to retirement. 

It’s a mixed bag, and one that is complicated, but it is worth the time for a current teacher to know a little bit about before it closes in – especially for you English teachers.

More to come.

No comments:

Post a Comment