The AAI Program, or Accelerated Annual Increase, is a relatively new program that requires TRS to offer all Tier 1 members an accelerated retirement benefit. This accelerated benefit would be equal to a portion of your future pension benefit. By agreeing to the voluntary program, you’re agreeing to a one-time reduction in your annual increase that would have applied to your future pension. Deciding to enroll in the program is an irreversible choice – so it’s important to fully understand what you’re signing up for!
If you’re feeling confused about the AAI Program, you’re not alone. Many Illinois teachers who have been paying into TRS aren’t completely sure whether they should enroll. My hope is that this blog series will provide some clarity around the AAI Program, it’s pros and cons, and whether it’s right for you.
How Long is the Program Available?
The AAI Program is available until June 30, 2021 (01/01/20 edit: now 2024). It went into effect on June 4, 2018. So, if you’re an eligible Tier 1 member, and are planning to retire in a few years, this program applies to you.
What is a Tier 1 Member?
First and foremost, let’s go over who’s eligible for the AAI Program. Only Tier 1 members who have been contributing to TRS before January 2011, had previous service credit with TRS, or had transfer credit from a reciprocal pension system before 2011, are eligible. Not sure if you qualify as a Tier 1 member of TRS? Check out their website, where positions that are covered by TRS are outlines more clearly.
What Is The AAI Program?
The AAI Program has several pros and cons that retirees should weigh carefully before committing one way or another. Through the AAI Program, TRS Tier 1 members are giving up their right to an automatic annual increase for their pension, which is currently 3%. This increase is calculated on current pension amount (“compounded”). Instead, AAI offers a reduced automatic annual increase of 1.5% which is calculated on the original pension amount (non-compounded or “simple”).
Although you may be accepting a lower annual increase if you elect to participate in the AAI Program, you’ll also be permitted to take a lump sum of cash from the pension now in exchange for the reduced annual increase over the course of the rest of your life.
This program is completely voluntary. You’re not obligated to enroll at any point, and you must be retiring to enroll. It’s also important to note that this option won’t be around indefinitely. Because it expires in 2024, you only have a few years left to make the decision.
How Do I Receive My Accelerated Benefit?
If you do decide to go with the AAI Program, you’ll receive an accelerated benefit that equals 70% of the monetary difference in your pension. This lump-sum is received either as a cash payment, or as a roll-over into a private, tax-qualified account (like an IRA). As it is a payout of retirement benefits, I suggest that anyone taking a buyout have this money rolled over to a retirement account. This will also defer taxes on the buyout amount as well.
Over the course of my next few posts, I’m going to be taking a deep-dive into the AAI Program to empower you with the knowledge you need to make a decision that fits your retirement plan. If you ever have any questions, don’t hesitate to reach out! I’d be happy to help.
Next blog in the series: