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Illinois Dems release details 'pension reform' bill, saving $160B over 30 years

Senate President John Culerton (left) and House Speaker Michael Madigan have release details of a pension reform bill.
Senate President John Culerton (left) and House Speaker Michael Madigan have release details of a pension reform bill.

The four leaders from both sides of the aisle in the Illinois legislature have today released the details of the proposed "pension reform" bill that will be voted upon on Tuesday, Dec. 4. The four leaders are the following: Democrat Illinois Senate President John Cullerton, Democrat House Speaker Mike Madigan, Republican Senate Minority Leader Christine Radogno and Republican House Minority Leader Jim Durkin.

Governor Pat Quinn is excited about the pending deal with the Illinois legislature. Quinn was so motivated to get a "pension deal" that earlier this year he vetoed a bill that held back the pay of lawmakers unless they came up with a "pension reform: bill.

Former chief-of-staff to President Obama, Bill Daley, briefly ran against Quinn for governor in the Democratic primary and was at times harshly critical of Quinn. Daley called the withholding of lawmakers pay a "political stunt," but undeterred, Quinn soldiered on.

Bill Daley's campaign never got its political footing, and after a short time, Daley withdrew from the race. Daley exited the race with a "less than graceful exit."

In an interview with the Tribune's Rick Pearson, Daley bashed Quinn and his leadership and ended in a harsh manner, as Bill Daley took a not-so-nice parting slap at Quinn. "There’s no doubt in my mind that Pat Quinn will not be the next governor of Illinois," said Bill Daley. "This governor is not that strong that somebody should fear running against him."

However, nobody has, at least in the Democratic primary. With the passage on the "pension reform" bill on Tuesday, Quinn can call out a number of major victories, including the same-sex marriage bill.

Quinn issued a statement commending the legislative leaders for their hard work to reach this critical "pension reform" agreement. Quinn commended members of the conference committee, "For their work throughout the summer and fall to get us to this point. When I proposed the creation of a conference committee in June, I asked members to draft a plan that eliminated the unfunded pension debt and fully stabilized the pension systems."

Quinn added, "This plan meets that standard."

Mayor Rahm Emanuel is also buoyed by the bill "I applaud the news that legislative leaders have reached a deal on pensions and look forward to seeing what this proposal encompasses. Fixing the state pension issue is critical for Chicago's future and I will be working actively on behalf of the legislation."

Emanuel added that a bill needs to be passed to help Chicago "It is critical to remember that Illinois' pension crisis will not truly be solved until relief is brought to Chicago and all of the other local governments across our state that now stand on the brink of a fiscal cliff because of our pension liabilities."

The legislature is expected to take up the issue of Chicago pensions shortly after voting for the state pension funds. The Chicago "fix" is expected to be modeled after this bill.

The issue of pension reform" has been discussed for many years and it will now be a reality in the state of Illinois. The majority of the savings — now projected to total about $160 billion over 30 years — would come from a reduction in annual cost-of-living adjustments (COLAs). At this time, all pensions receive a flat 3 percent a year, which is compounded.

According to Greg Hinz of Crain's Chicago Business, a new formula to calculate COLAs have been written into the new law and only would apply to one's years on the government job, times $1,000. For instance, that a 25-year government veteran would get a 3 percent annual COLA on the first $25,000 of their pension, and nothing on the remainder.

This compromise addressed the criticism that the law would shortchange lower paid pensioners.

That $1,000 figure would increase with inflation. But insiders say there would still be huge savings because of the portion of one's pension that would not get a COLA. Those with particularly high pensions would be really zapped; lower-salaried workers, less so.

In addition, all COLAs would be eliminated for one to five years for current state workers (not retirees), depending on their age.

Another savings would come from raising the retirement age. Those workers who are at least 45 years old would see no change. But younger workers would gradually have to work up to five years longer to start receiving their pension. (In some plans, you can retire as young as 58.)

In exchange, workers would contribute 1 percentage point less of their salary toward their retirement than what they pay now.

The state would agree to contribute 10 percent of the savings from the overall pension deal into the funds each year, thereby speeding up how fast they would become fully funded.

Employees would also have a chance voluntarily to drop their pension and instead manage their own funds in a 401(k)-style account.

Capitol Fax's Rich Miller had earlier released the details to his subscribers, but now the details have been disseminated to the media, according to Miller. Here are some of those details.

  • Funding schedule and method for certifying contributions: Establishes an actuarially sound funding schedule to achieve 100% funding no later than the end of FY 2044. Contributions will be certified using the entry age normal actuarial cost method (EAN), which averages costs evenly over the pensioner’s employment and results in level contributions.

  • Supplemental contributions: The State will contribute (i) $364 million in FY 2019, (ii) $1 billion annually thereafter through 2045 or until the system reaches 100% funding, and (iii) 10% of the annual savings resulting from pension reform beginning in FY 2016 until the system reaches 100% funding. These contributions will be “pure add on,” which means State contributions in any year will not be reduced by these amounts.

  • Funding guarantee: If the State fails to make a pension payment or a supplemental contribution, a retirement system may file an action in the Illinois Supreme Court to compel the State to make the required pension payment and/or supplemental contribution set by law each year.

  • Employee contribution: Employees will contribute 1% less of their salary toward their pension.

  • Annual annuity adjustment (COLAs): Future COLAs will be based on a retiree’s years of service and the full CPI. The annual increase will be equal to 3% of years of service multiplied by $1,000 ($800 for those coordinated with social security). The $1000/$800 will be adjusted each year by the CPI for everyone (retirees and current employees). Those with an annuity that is less than their years of service multiplied by $1000/$800, or whatever the amount is at the time of retirement, will receive a COLA equal to 3% compounded each year until their annuity reaches that amount.

    Additionally, current employees will miss annual adjustments depending on age: employees 50 or over miss 1 adjustment (year 2); 49-47 miss 3 adjustments (years 2, 4, and 6); 46-44 miss 4 adjustments (years 2, 4, 6, and 8); 43 and under miss 5 adjustments (years 2, 4, 6, 8, 10).

  • Pensionable salary cap: Applies the Tier II salary cap ($109,971 for 2013), which is annually adjusted by the lesser of 3% or ½ of the annual CPI-U. Salaries that currently exceed the cap or that will exceed the cap based on raises in a collective bargaining agreement would be grandfathered in.

  • Retirement age: For those 45 years of age or under, the retirement age will be increased on a graduated scale. For each year a member is under 46, the retirement age will be increased by 4 months (up to 5 years).

  • Effective rate of interest (ERI): For all purposes, the ERI for SURS and the rate of regular interest for TRS will be the interest rate paid by 30-year U.S. Treasury bonds plus 75 basis points.

  • GARS Tier 2 fix: Brings GARS Tier 2 salary cap and annual adjustment in line with other Tier 2 benefits.

  • Pension abuses: Prohibits future members of non-governmental organizations from participating in IMRF, SURS, and TRS. Prohibits new hires from using sick or vacation time toward pensionable salary or years of service (applies to SERS, SURS, TRS, IMRF, Cook County, and Chicago Teachers).

  • Defined contribution plan: Beginning July 1, 2015, up to 5% of Tier 1 active members have the option of joining a defined contribution plan. The plan must be revenue neutral and employee contributions will be equal to those for the defined benefit plan. If a member chooses to opt into the defined contribution plan, benefits previously accrued in the defined benefit plan will be frozen.

  • Collective bargaining: All pension matters, except pension pickups, are removed from collective bargaining.

  • Healthcare payments: Prohibits the State pension systems from using pension funds to pay healthcare costs.

Labor unions are opposed to this bill. We Are One Illinois, a labor union coalition said, "We will urge lawmakers to reject it and continue to fight to protect the hard-earned life savings of Illinois public servants, as well as the sanctity of the state's constitution."

However, it will very likely pass given the support from both sides of the aisle.

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