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Lawmakers have options for pension problem

Published: Monday, May 6, 2013 5:30 a.m. CST

CHICAGO – After years of trying, lawmakers return to Springfield today with something they haven’t had before: two potential options for finally addressing Illinois’ multibillion-dollar pension problem.

Last week, the Illinois House approved legislation sponsored by House Speaker Michael Madigan, marking the first time the chamber has advanced a unilateral pension proposal in four years of debate. Senate President John Cullerton and union leaders also announced they had sketched out an as-yet-undisclosed plan that a Cullerton spokeswoman described as “substantive.”

Now, lawmakers must weigh each proposal, including how much money it could save the state and the likelihood it could survive an inevitable court challenge.

The Illinois Constitution states that membership in a pension or retirement system “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Union leaders have vowed to file lawsuits against any plan they think violates that language. If the Illinois Supreme Court sides with them, the state could be right back where it started – but with an unfunded pension liability even larger than the current $97 billion shortfall.

Cullerton believes his plan is clearly constitutional and Madigan’s is not. Madigan counters that his proposal will pass court muster, save more money and would reduce the liability by $30 billion. It also seems to be the measure with the most momentum and bipartisan support, as well as backing from Gov. Pat Quinn.

The Chicago Democrat said last week that his plan “obviously does not make everyone happy,” but that it’s necessary to deal with the state’s severe financial problems. Those problems are outlined in a nine-page preamble that Madigan included in the legislation to show the courts what the state was up against when the legislation was approved. He and other supporters believe justices will find that Illinois’ dire finances justify cutting benefits, despite what’s in the constitution.

The plan also has support from Senate Republicans, said Patty Schuh, spokeswoman for Senate GOP Leader Christine Radogno.

“We are certainly hopeful we get an opportunity to vote on [it],” Schuh said.

Rikeesha Phelon, a spokeswoman for Cullerton, said he will ask Senate Democrats to calculate the risks when they meet this afternoon.

“The end of that calculation may be ‘Let’s go for it,’” Phelon said, referring to Madigan’s bill. “We’ll have to see.”

Here’s a look at the options:

Madigan Plan

• Applies to four of the five public employee pension systems: teachers, public university employees, state workers and legislators. Not included are judges, who may have to rule on whether the legislation is constitutional.

• Requires employees to pay 2 percent more of their salaries toward pensions.

• Requires the pension systems be 100 percent funded by 2044. Currently the five systems contain about 39 percent of what’s needed to pay benefits as promised to retirees and current employees. That’s the worst unfunded liability of any state.

• Includes a guarantee the state will make its scheduled payments to the funds — something it didn’t do for many years. If the payments aren’t made, the systems could sue.

• Caps the amount of salary on which a pension benefit is based at about $110,000.

• Calculates annual cost-of-living adjustments at 3 percent of a maximum annuity amount. That amount would be $1,000 for each year of service, with a cap of 30 years.

• Raises the retirement age for employees under age 45. It would increase one year for people age 40 to 44, three years for age 35 to 39 and five years for workers below 35.

Cullerton/Union Plan

The plan proposed by the unions in collaboration with Cullerton has not yet been detailed, at least publicly. It came out of a meeting that occurred as Madigan was moving his bill through the House, and Phelon said Cullerton felt for the first time that it represented “movement” on the part of the unions.

While the specifics won’t be disclosed until the union leaders have shared them with members, Phelon said it is the same framework as a Cullerton-backed bill that the Senate approved in March. That bill — which Madigan gutted to insert his own proposal — offered public employees a choice on whether they want retirement health care or reduced annual cost-of-living increases. Cullerton’s chief legal counsel concluded in a 77-page legal analysis that offering such a choice is the only way for a pension reform measure to be considered constitutional.

Plan B

Lawmakers also could resurrect another Cullerton idea that attaches his framework as a back-up plan to Madigan’s bill. That way if unilateral cuts are deemed unconstitutional, the bill giving employees a choice between health insurance and cost-of-living adjustments would take effect. The “plan B” option isn’t a part of Madigan’s bill, but the Senate could add it.

The bill is SB1.

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