DeKALB – Linda Chapman only can hold her breath as she watches state lawmakers debate the future of the state’s five different pension systems.
For the past few weeks, a select group of lawmakers from the House and Senate have discussed compromises to tackle pension reform before Tuesday’s deadline. The conference committee was formed after lawmakers failed to pass pension reform during the spring session.
House Speaker Michael Madigan and Senate President John Cullerton, both Chicago Democrats, pushed their own solution to the state’s pension problem through their respective chambers, but both Senate Bill 1 and Senate Bill 2404 failed to gain traction in the other chamber.
For Chapman, a DeKalb resident who taught at Burlington Central High School, she’d take the Cullerton plan over Madigan’s, which she described as penalizing teachers for being teachers. According to the Better Government Association’s pension database, Chapman makes at least $89,000 a year through her pension before federal taxes and other deductions.
“I am just hoping they’ll be able to meet ... and hammer out a compromise to S.B. 2404,” Chapman said. “We saw that as a way to preserve our pensions, while at the same time, have some give and take on both sides.”
Tuesday is the deadline Gov. Pat Quinn gave to lawmakers to pass some measure of pension reform. Both the House and Senate are scheduled to convene in regular session that day, but the leader of the conference committee said he does not think they’ll be ready.
But pension reform won’t be the only thing grabbing lawmakers’ attention. They also will vote to confirm or override Quinn’s changes to a concealed-carry bill that passed out of both chambers with veto-proof majorities. DeKalb-area lawmakers have said they will vote to override Quinn’s changes.
Tuesday is also the deadline for Illinois to legalize concealed carry, as mandated by a federal court.
Pension reform has proven to be problematic because of the guarantee outlined in Article 13, Section 5, of the Illinois Constitution, which declares that anyone receiving a pension in any unit of government cannot have their benefits diminished or impaired.
As a result, the debate over pension reform has focused around what kind of annual cost-of-living adjustment retirees should receive; the retirement age; how much local school districts should contribute to employee pensions; and whether the state should provide free health insurance to retirees.
Employees in all five pension systems receive a 3 percent cost-of-living adjustment that is compounded annually if they retire at a certain age and have worked for a certain number of years. Retirees do not pay state taxes on their pensions, but most pay federal taxes.
All retirees are capped on how much of their final average salary they will receive as a pension. All retirees, except for those in the General Assembly Retirement System and the Judges’ Retirement System, are capped at 75 percent. Retirees in those two systems are capped at 85 percent.
The cost-of-living raise is not counted in that salary cap. For instance, a judge who retired with a salary of $136,546 after more than 20 years of service would receive $9,672 a month – or $116,064 a year. When the cost-of-living adjustment is added, that amount increases by 3 percent, compounded annually.
The Cullerton plan was touted as being able to save the state $46 billion, while the Madigan plan is estimated to save $150 billion.
Cullerton’s plan offered retirees a choice between their annually compounded 3 percent cost-of-living adjustment and free health insurance. Chapman, who likes Cullerton’s plan, would pick the cost-of-living adjustment.
“Health insurance is going up anyway,” Chapman said. “When I looked at it how it was going to impact me ... it was more economical for me to go out and find my own health insurance.”
But not everyone sees it that way. For Cathy Hill, the president of the DeKalb County Retired Teachers’ Association, she thinks the trade-off in the Cullerton plan will hurt retirees either way.
“Do you want me to shoot you in the heart or shoot you in the head?” Hill said, describing the choice between the cost-of-living adjustment and the health insurance.
According to the Better Government Association, Hill makes about $77,000 a year through her pension. However, she said she pays about $20,000 a year in federal taxes, health insurance and dental insurance, bringing her final salary to about $56,000.
“I am not anywhere near $77,000,” Hill said.
Hill said she regarded the Madigan plan as less drastic. In S.B. 1, Madigan proposes changes to how cost-of-living adjustments were implemented, taking into account people’s age, salary and how many years they worked for the state. It also guarantees that the state would contribute its full share of pension payments each year.
Jim Lockard, president of the Northern Illinois University Annuitant’s Association, said he is not holding out much hope for the conference committee, stating that no one on it has shown capacity to think of new ideas.
“I don’t think there’s a ghost of a chance that anything useful will come out of it at all,” Lockard said.
Lockard, whose pension earns him at least $112,000 a year before federal taxes and other deductions, said he wants to see lawmakers tackle the real source of the problem: the lack of employer contributions. Of the state’s $96.8 billion unfunded pension liability, about $41 billion is from the lack of employer contributions, according to a June 27 report from the state’s Commission on Government Forecasting and Accountability.
“It’s not that the pension systems are badly set up or they’re too generous to employees,” Lockard said. “The reason that the money isn’t there is because the state didn’t make its payments year after year after year.”
Lockard said he’d also like to see lawmakers address the pension payment plan they crafted in 1995, which he described as being the origin point of the current mess.
“The real annual cost is eminently handable in the state service,” Lockard said. “The debt service is the problem.”
The payment plan would have funded pensions at 90 percent by 2045 by having lawmakers make annual payments that increased over time. But lawmakers didn’t vote to have the state pay in every year, Lockard said.
“We need someone who is responsible to make those payments, and the state has proven again and again that it’s not responsible,” he said.
Regardless of what plan is passed, Lockard said he thinks someone will sue over its constitutionality, leaving it in the courts’ hands.