State lawmakers representing DeKalb County don’t consider the latest pension reform proposal to be perfect, but they seem open to supporting it when the legislature convenes a special session Tuesday.
The proposal was announced Wednesday after negotiations among the Republican and Democrat leaders in the General Assembly. Key details of the plan, including increasing retirement ages and reducing cost-of-living adjustments for retirees, were released to legislators in a summary Friday.
“It’s something that was a give-and-take among the four leaders, and it probably is the best deal that we’re going to get at the moment,” state Rep. Robert Pritchard, R-Hinckley, said. “I’m listening. I would like to see us have reform, but I won’t support it if it is overly egregious and troublesome for retirees. It has got to be a shared pain, so to speak.”
Reining in the 3 percent compounded COLAs that retirees in the five state-run pension systems get is at the core of the plan, which seems aimed at lessening the hurt on lower-income public employees. If it is enacted and survives an expected court challenge, it would save an estimated $160 billion over the next 30 years, and $1.5 billion in the first year alone, according to a memo sent to legislators Friday.
Under the plan, the 3 percent COLA still would be compounded, but only off of a base salary of $1,000 for each year an employee works – for example, a 30-year employee’s COLA will be based on $30,000. That base on which the COLA is calculated would increase by the rate of inflation that year.
Retirees also would have to skip increases in some years, based on their age. Employees at least 50 years old will not receive raises in their second year of retirement. Employees 47 to 49 years old will miss three raises, employees 44 to 46 will miss four, and employees 43 and younger will miss five, all of them every other year.
The plan also would raise the retirement ages for employees 45 years or younger by four months for each year an employee is younger than 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.
There are some concessions for state employees. Their contributions to their pensions will decrease by 1 percent, and as many as 5 percent of employees hired before 2011 can enter a 401(k)-style plan if they so choose.
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 if they don’t.
“This gives the pension system standing to appeal to the [Illinois] Supreme Court if the state has not made its payment,” Pritchard said. “That’s one of the reasons we’ve gotten into the problem that we’re in is that people could not sue in court, and we didn’t have the kinds of demonstrations in Springfield that are necessary to get the legislature to move on an issue.”
Local lawmakers only started Friday to digest the provisions of the summary sent to them. The bill itself has not yet been drafted, and might not be ready until lawmakers return to Springfield to vote.
Rep. Tom Demmer, a Dixon Republican, said he had yet to reach a conclusion on the finer points of the proposal, but said he thinks pension reform is needed and was happy to see a proposal coming for a vote.
“I’m eager to get a chance to vote on a real pension reform bill,” Demmer said. “I’m not sure if this is the right one, but I’m very happy to see that this is a comprehensive bill. ... I’m happy we have a real, concrete proposal on the table now to debate.”
State Sen. Dave Syverson, R-Rockford, said he was leaning toward supporting the reforms, although he has concerns that it doesn’t go far enough to ensure future legislators will act responsibly.
“The people who created the problem the last 10 years are the same people who will be in charge of funding this system for the next 10 years,” he said.
Syverson said he would like to see any future changes to pension funding or payments require a “supermajority” – or 60 percent in favor – to pass. Although there are some provisions for putting some of the expected savings into a pension sustainability fund, he wondered what would become of the rest.
“The projected savings the first year it’s implemented is going to be in the neighborhood of $1 billion,” Syverson said. “Is that money going to be used to pay bills or reduce taxes, or is that just going to be money that they will turn around and use to expand other government programs and the taxpayers are in no better shape then they were before we passed this?”
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 more than 20 percent of the current 2014 budget, crowding out needs for K-through-12 and secondary education, road and bridge maintenance, and other programs. Indecision on reform has routinely been cited by bond rating agencies in repeated downgrades which have resulted in Illinois having the worst credit rating of all 50 states.
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,” the group stated in its alert to members. “And our response has to be just as big. This is a real emergency situation.”
Detractors of pension reform proposals point out the Illinois Constitution states that pension benefits “shall not be diminished or impaired.” But Pritchard said the courts would look not only at the wording of the constitution, but also at the reality of the situation – that without changes, the pension system might not survive.
“If we stop paying because we’re spending more than 22 percent of our general revenue for pensions, if we stop doing that as we’ve done for many years prior to 2009, then I think the pension system will go broke,” Pritchard said. “I think people have not considered that possibility strongly enough.”
About the plan
• Reduces cost-of-living increases for retirees; bases future pension increases on years of service rather than annual pension.
• Requires retirees to skip some increases, from one to as many as five based on their age.
• Raises the retirement age by as much as five years, based on employee age.
• Projected to save the state $160 billion over 30 years and fully fund pensions by 2044.
• Provides for paying 10 percent of savings into a pension stability fund beginning in 2016.
• Decreases employees’ individual pension contributions by 1 percent.