Public-sector employees will get less of a cost-of-living increase and in many cases wait longer to retire under a pension reform bill that Illinois lawmakers will take up next Tuesday in special session.
Reining in the 3 percent compounded COLAs that retirees in the five state-run pension systems get is at the core of the plan hashed out earlier this week by the General Assembly’s four legislative leaders, according to a summary sent Friday to rank-and-file lawmakers and obtained by the Northwest Herald. The plan, which seems aimed at lessening the hurt on lower-income public employees, will save an estimated $160 billion over the next 30 years, and $1.5 billion in the first year alone, according to sources.
But this is far from the first time that lawmakers have been presented pension reform, only to fall short. Mounting pressure to fix the state’s crushing pension obligations aside, a vote with an election year looming – and with the promise of a court challenge by the state’s powerful public-sector unions – will all but certainly be close.
The five state-run pension systems for teachers, university employees, judges, state workers and General Assembly lawmakers are underfunded by at least $100 billion, and the state’s pension obligations take up 20 percent of the current 2014 budget. Lack of reform is regularly cited by bond rating agencies in repeated downgrades which have resulted in Illinois having the worst credit rating of all 50 states.
Under the plan, the 3 percent COLA still will be compounded, but only off a base salary of $1,000 for each year an employee works – for example, a 30-year employee’s COLA will be based off $30,000. That base on which the COLA is calculated will increase by the rate of inflation that year.
That COLA will skip some years based on the retiree’s age. Employees at least 50 years old will not get the COLA in their second year of retirement. Employees 47 to 49 years old will miss three raises, employees ages 44 to 46 will miss four, and employees 43 and under will miss five, all of them every other year.
The plan will also raise the retirement ages for employees 45 years or younger by four months for each year an employee is under 46, for a maximum of five years. The provision does not apply to “Tier 2” employees hired since 2011, whose retirement is set at age 67 under a previous pension reform bill.
The proposed reform does impose the Tier 2 benefits cap on pensionable income on all employees. That cap, annually adjusted by 3 percent or half the rate of inflation, whichever is less, was $109,971 for 2013. But salaries already higher than that amount will be grandfathered in.
State employees get thrown a bone or two in the proposed legislation. Their contributions to their pensions will decrease by 1 percent. Language in the bill will require lawmakers to pay the full annual amount required into the pension system, and the five state-run pension systems can take the state to court to force them if they don’t.
Public-sector unions have pointed to lawmakers’ habit over the decades of shorting the state’s payments to the pension systems as one of the reasons they are in such dire financial straits today.
The proposal also will allow up to 5 percent of employees hired before 2011 to enter a 401(k)-style plan if they so choose.
Local lawmakers only started late Friday morning to digest the provisions of the summary sent to them. The bill itself has not yet been drafted, and may not be ready until lawmakers return to Springfield to vote.
State Rep. David McSweeney, R-Barrington Hills, said he is cautiously optimistic about its provisions, but has sent a slew of questions to Republican legislative leaders about the cost savings, where they are coming from and how they are calculated.
“I think that it’s absolutely essential that we adopt pension reform, but I want to make sure this is the right bill,” McSweeney said Friday.
McSweeney said he is relieved the proposed reforms do not include shifting the burden of paying teacher pensions onto local school districts, which he and other suburban lawmakers have alleged would cause property taxes to soar even higher. While House Speaker Michael Madigan, D-Chicago, has long sought a cost shift, conventional wisdom has held that it would be a deal-killer as part of a pension reform package.
Rep. Mike Tryon, R-Crystal Lake, echoed the concerns over constitutionality that he has aired with previous efforts at pension reform. He said he is “a little more favorable” to the proposed reforms, but warned that altering existing benefits clearly violates the Illinois Constitution, which states that pension benefits “shall not be diminished or impaired.”
“I think it’s a huge mistake to pass a pension bill that is unconstitutional and loses in court,” Tryon said.
The We Are One Illinois coalition representing the state’s public-sector workers has been gearing up to fight the proposal since it was announced Wednesday. Members have been calling their legislators in the days leading up to the vote.
“This is it – the biggest legislative threat to our retirement security that we’ve faced. And our response has to be just as big. This is a real emergency situation,” the group stated in its alert to members.
The General Assembly’s legislative leaders – Madigan, Democratic Senate President John Cullerton, and Republican House and Senate Minority Leaders Jim Durkin and Christine Radogno – took up the job of a reform package when an effort by a 10-member committee made up of members from both houses to come up with a fix stalled.
If six of the 10 members agree to the deal’s terms on Tuesday, it could come up for a vote that day in both the House and Senate.