More pension reform coming?
Bills filed in the General Assembly and uncharacteristic tough talk from the House Speaker could hint that lawmakers are serious about further reforming Illinois’ pension system.
Proposed legislation would build on reforms approved last year creating a two-tiered pension system for new hires. The more drastic proposals almost surely would spark a legal battle with public employee unions should they become law.
Speaker Michael Madigan, D-Chicago, hinted Tuesday that the previously taboo subject of altering existing pensions and retiree health benefits could get serious consideration. He said that legislators face “... tough decision-making, telling people you’re not going to get everything you thought you were going to get, telling people you may have to pay in more.”
Local legislators said Wednesday that they expect, and hope, that reforming a pension system with an estimated $83 billion liability will take center stage in the spring legislative session. At the very least, state Rep. Jack Franks said, the slew of bills aimed at the pension system will spark honest debate that could lead to better and meaningful reform, while protecting what public employees were promised and paid into.
“I think all of this is going to be open for discussion, which it should be – sit down, strip away all the emotion and look at the situation we have to deal with, and find a solution that is fair for everyone, most importantly the taxpayers,” Franks, D-Marengo, said.
Illinois Senate President John Cullerton on Wednesday tossed cold water on the idea of reducing future pension benefits for current state workers.
“We’ve asked our staff to do research on it,” Cullerton, D-Chicago, said. “I’m pretty clear that it would be unconstitutional.”
However, Cullerton left open the possibility of the Senate considering a bill that comes over from the House.
“We’re not going to initiate a bill in the Senate,” he said. “I’d vote against the bill in the Senate. If the House passes a bill and [Madigan] wants it to be called ... we’ll certainly talk.”
Illinois is one of at least 20 states looking to trim pension costs by raising the retirement age, increasing employee contributions, or paring down cost-of-living increases, according to the National Conference of State Legislatures.
One study co-written by researchers at Northwestern University and the University of Rochester concluded that state and local governments face a total gap of $3.6 trillion – an amount equal to the entire 2010 federal budget – between their pension assets and their liabilities.
Pension benefits for new Illinois hires as of Jan. 1 are now capped based on a maximum salary of $106,800 like Social Security, and annual increases are calculated at half the rate of inflation or 3 percent, whichever is smaller. The minimum age for new hires to get full benefits is now 67 instead of 60.
A bill filed by Franks would impose that cap on the previous hires as well, possibly running afoul of a provision in the Illinois Constitution that states that existing pensions “shall not be diminished or impaired.” Another Franks bill would cut off future participation in the pension system for General Assembly members, which is the smallest of the five state-run systems for teachers, state employees, judges and university professors.
A bill filed by House Minority Leader Tom Cross, R-Oswego, would require current state employees to pick from three options: Keep current benefits but pay more for them, participate in the new second tier imposed on new hires, or join a new defined-contribution plan requiring a 6 percent annual contribution with an equal state match.
Cross’ bill would not affect benefits already earned by state employees – they would receive whatever pension they earned through June 30, 2012, and switch to the new system afterward.
State Rep. Mike Tryon, R-Crystal Lake, is among the bill’s sponsors. While the constitution doesn’t allow existing pensions to be diminished, Tryon said he believes it allows the creation of a new pension system.
Tryon said that reform is in the best interest of public employees because the system could run out of money, and taxpayers whom were recently socked with a 67 percent income tax increase are not amenable to subsidizing public pensions many feel far exceed the private sector.
“There are a lot of things to discuss, and anybody who has one of these pensions needs to know that [the system] is a house of cards,” Tryon said. “There is a lot of controversy surrounding pension benefits and the liability of the pension system – the average Illinoisian isn’t going to want to pay for it.”