Illinois moving closer to deal on public employee pensions

Springfield – Illinois’ enormous unfunded pension liability for public employees has dominated state decision-making this year, leaving officials unable to respond to myriad other issues for lack of financial flexibility.

It has also left thousands of employees and retirees uncertain about their own future incomes. Efforts to deal with the problem this summer failed in a disagreement between the House and Senate.

A committee of 10 legislators that has been working on the $100 billion problem for four months has now developed the “framework” for a solution and is working out the details.

Members hope to present the plan during the Legislature’s veto session, which begins Oct. 22.

News reports from the Chicago Tribune and Associated Press indicate a proposal that falls between the smaller savings of the Senate’s plan and the more aggressive House plan.

This summer, public employee unions supported the Senate plan and were opposed to the House plan. Now their ally on the earlier proposal, Senate President John Cullerton, has endorsed the new plan.

As it currently stands, the plan would:

• Save the state money by trimming future cost-of-living increases, now set at 3 percent a year. The new amount or formula is still under discussion, but it could start at half the consumer price index and then be adjusted by minimums and caps, according to news reports.

• Save employees money by reducing their retirement contributions by 1 percent.

• Reduce pension payouts by basing them on employees’ salaries over their careers, not just their highest salaries typically paid just before retirement.

This plan would be expected to reduce the unfunded pension liability by $18 billion and have the retirement system fully funded in 30 years.

Rep. Elaine Nekritz (D-Northbrook) and the House leader on the issue said the committee expects its proposal to be challenged in court on constitutional grounds by public employee unions regardless of its contents. The constitution guarantees that promised pension benefits will not be reduced.

Another potential roadblock is that Republican legislators – in the minority in both the Senate and House – are insisting on additional measures including raising the retirement age from the current 55 and giving workers an option for moving into a defined contribution plan, like a 401K, instead of the state’s defined benefits plan. Republican votes may be needed if Democrats cannot reach a consensus.

House Speaker Michael Madigan had not yet issued a position on the plans by last week, and Gov. Pat Quinn said he was waiting for the committee to finalize more details, although he said it has “a lot of good ideas” and he wants a vote yet this month.

For months, Quinn has been insisting that the Legislature send him a plan to reduce the unfunded pension liability. He has even cut off members’ salaries until they deliver a plan, although a judge has now ruled that he must pay them, and the Governor is appealing. Nekritz called that issue a “distraction” that has not affected the committee’s work.

Quinn has also held up an effort to offer Archer Daniels Midland  $24 million in tax incentives if the agri-business giant stays in Illinois; it recently said it will leave its longstanding headquarters in Decatur. Quinn said legislators must first deal with the pension issue.

Nekritz says that despite the potential holdups, the committee is close to agreement and is still likely to present a compromise bill. She said the point is to protect retirees in the long run by making sure the system is sustainable.

As she told the Chicago Tribune: “To me, the most immoral thing that could happen is to say to someone, a 75- or 80-year-old retiree, ‘I’m sorry, the system’s broke. I can send you no check.’ I would rather make the increases in their benefit going forward smaller and know that the system is secure so they know they’re going to get a check in the future.”