Wednesday brought the latest in a long line of proposals to fix the state’s underfunded pension systems. The measure also comes as members of the Illinois House of Representatives are set to have a marathon debate on pensions today.
Most of the ideas in this plan have been around for a while.
Current retirees and employees would see some of their benefits cut. Cost-of-living adjustments for retirees, which are currently 3 percent compounded annually, would only apply to the first $25,000 of an employee’s pension.
And those increases would be delayed until age 67 or five years after retirement, whichever comes first.
The retirement age would not change for workers age 45 and older, but it would hit younger workers on a sliding scale – from one more year for those in their early 40s to five more years if you’re 34 or younger.
Again, many of these ideas have been out there. But Sen. Daniel Biss, a Democrat from Evanston, says the previous efforts were each lacking in some way.
BISS “Everyone was working in good faith. Everyone was pulling in the same direction. But fundamentally we were never able to get a bill that a critical mass of both Democrats and Republicans could support.”
Biss says the new proposal is different.
BISS “We all knew that there was a way of meeting in the middle that could put together both coalitions at once, and I think today we’ve found it.”
One of the major sticking points so far has been a so-called “cost shift” to Downstate and suburban school districts and public universities. Under current law, teachers pay into their retirement, but the state pays the employers’ share.
Democratic leaders say those institutions should have take over those payments, so they’re more responsible about negotiating salaries and benefits with employees.
But Republicans say previous plans for a cost shift would have led to property tax hikes by schools and tuition spikes at universities.
The new plan sidesteps the issue by creating an entirely new retirement system for teachers and university employees hired in 2014 or later. House Republican Leader Tom Cross is one of the lead backers of the proposal:
CROSS “What this does is it combines a DC component with a DB component.”
Yeah, in plain English, that means it’s got both a traditional pension and a 401-k-style private account.
In this way, the entire cost of pensions for future employees is on school districts and teachers, and universities and their employees.
Cross says for those two systems, the state will eventually be out of the pension business.
CROSS “We think that is the wave of the future. It’s the way that many other states have gone. And it’s the only we think, as a state, we can sustain a pension system and take care of our employees at the same time.”
There’s little doubt the state can set up whatever kind of system it wants for brand new employees. What’s less clear is how much latitude lawmakers have to monkey around with the benefits of current employees and retirees.
CROSS “Look, my view on this is whatever we pass is going to end up in the courts.”
The courts are likely to get involved because the Illinois Constitution says government employee pension benefits are a contractual obligation that shall not be diminished.
That means any reduction in benefits is likely to spur a lawsuit.
Elaine Nekritz is a Democratic Representative from Northbrook, and the lead sponsor of the new pension plan.
NEKRITZ “None of us want to take a vote that will require that we be back here in five to seven years. We know that these changes are really significant, but that’s the level of changes that need to occur in order to fix the problem.”
Some lawmakers say Nekritz’s unilateral approach is not constitutional, because you have to offer employees something in exchange for accepting reduced benefits. That’s been the view of Democratic Senate President John Cullerton, though he says he’ll pass the Nekritz plan in legislation that has his own ideas as a back-up … in case the courts strike it down.
But Nekritz says she thinks the courts will give lawmakers broad latitude to solve the pension problem.
NEKRITZ “The Constitution is restrictive, but it’s not a death march for us. We have to be able to fix these things in a way that achieves some balance between all the competing demands that the Constitution requires.”
So far most lawmakers have not clearly taken positions on specific ideas to address the pension mess. That could change today when House Speaker Michael Madigan has scheduled a debate on several hot-button pension changes. Even more benefit cuts are on the agenda – like eliminating cost-of-living increases, raising the retirement age to 67 for everyone, and forcing workers to pay an extra five percent of their salaries toward pensions.
It’s not thought this is a final attempt at a pension fix, but a way to show workers, unions, and others what the worst-case scenarios might be if they can’t agree to milder changes. (Brian Mackey)