Pension Reform As we try to fix the financial crisis for the State of Illinois, one of the largest single items is reform of the pension systems. Due to decades of chronic underfunding of the government share, declining asset values due to the economic downturn and changes in actuarial assumptions, etc., significant changes must be made if the our pension systems are to remain sustainable for the retirees, and to keep the cost from crowding out education, healthcare, public safety and other programs.
There have been several previous proposals floated to address the problems which have drawn too much opposition to move forward. This week, I along with about two dozen of my colleagues, led by Pension Committee Chair Elaine Nekritz and Rep. Daniel Biss, introduced a proposal drawing on what we think are the best of previous proposals and adding new concepts.
We understand that this is far from a finished product due to the incredibly complex legal, actuarial, political and financial considerations which have to be evaluated, compromised upon and written into law…..but we hope to kick-start a languishing process that would 1) protect the sustainability of our retirement systems for those who count on them, particularly those who will be retiring with modest pensions, and 2) stop the unsustainable drain on the state budget and taxpayers.
Here are some of the key provisions in the current draft of the proposed law:
- For current pension system members in Tier I:
- COLAs on only the first $25,000 of pensions ($20,000 for those in Social Security)
- COLAs take effect when employee turns 67 or 5 years after retirement, whichever comes first
- Graduated increase in retirement age (no increase for those currently 46 or older)
- Phased in 2 point increase in employee contribution
- Cap on pensionable salary at the Social Security cap, or the participants salary when the bill becomes law (if higher than the cap)
- For members in the Tier II system:
- New TRS and University Retirement System members would be in a cash balance plan
- Current TRS and SURS members can elect to remain in the current plan or choose the cash balance plan
- COLAs for GARS members will be reduced to match those of other system members
- Employer Contributions
- Schools and colleges/universities will gradually assume employer contribution costs now borne by the State at a rate of 0.5% of payroll each year.
- TRS and SURS employers will pay the specific pension costs of new raises to prevent shifts to the State.
- Employer (government/school districts) contributions will be on a 30-year level-funding plan to achieve 100% funding.
- If employers attempt to skip payments, payments will be enforced by court action or intercept of other state funds
- Revenues currently being used to pay pension obligation debt will be directed toward the remaining unfunded pension liability when the POB debt is retired. (This item would mean $693.5 million towards reducing the unfunded pension liability starting in 2016, and $900 million per year starting in 2020 with no new revenue required)
I look forward to an intense and hopefully productive review, analysis of the actuarial, constitutional and legal assumptions, and revisions that would allow this effort to be a catalyst for legislation that could pass both Chambers and be signed into law.
You can view the actual language of HB6258 here: http://ilga.gov/legislation/97/HB/09700HB6258lv.htm
More Budget Items The appropriation leaders heard more requests for supplemental appropriations this week, although happily there were new revenues and other funds available to actually pay for many of these:
- Illinois Dept. of Transportation requested another $783.5 million for broadband expansion, land acquisition, expedited highway repairs and new construction projects, rail and cargo improvements, and newly awarded Federal transportation projects.
- The Dept. of Insurance requested another $8 million to fill open positions to assist consumers, conduct investigations under the External Review Act and other functions. These funds would come from existing industry assessments.
- The State Board of Education is seeking $9 million in emergency assistance the East St. Louis Public Schools due to failure of revenue.
As always, I appreciate your suggestions and comments. I can be reached at 773 348 3434 or at greg@gregharris.org