Illinois Pension Reform

[ERD50]

I think they are pretty much past the discussion stage here. They already had HB512 introduced that went nowhere that had similiar ideas but a little more extreme. If I were a betting man I would say they will have something in place by 1/2013.

Yes, but there isn't an actual bill now, is there? Everything I've googled refers to a 'plan'.

New employees hired after 1/2011 are already on some form of this new agenda.

Yes, DD started teaching in IL in 2011, so she is 'tier 2'. Details here:

Senate Bill 1946

One key point - FRA moved from 60YO to 67YO.

-ERD50

 

[MichaelB]

There is no bill yet. Compare with last Ocober when Rhode Island announced its effort, which included a bill which passed a month later.

On his web site Gov Quinn refers to the "Governor's pension working group", mentions "weeks of discussion", and ends with this

This plan reflects the discussions of the working group. The working group continues to work in an effort to find full consensus on all elements of the proposal. Members of the pension working group include Sen. Mike Noland, Sen. Bill Brady, Rep. Elaine Nekritz and Rep. Darlene Senger.

If this is a serious effort, legislation needs to be introduced very soon.

 

[ripper1]

I heard a several constitutional law professors argue about this with respect to California similar laws. The interesting question is what happens when the state constitutions mandates that spends A$ on the schools B$ on pensions, C$ clean water conservation and $D on anti-smoking education (paid by the tobacco settlement) but the state doesn't even have enough for A+B.

I guess a simpler solution would be simply tax pensions.

As a retiree from Illinois I now reside in Indiana. In Indiana out of state pensions like mine is fully taxed. (3.4%) It is not the end of the world. I think it would be better off taxed than to lose the 3% compounded COLA.

 

[donheff]

I believe most public pension plans should move toward a FERS model with both a defined benefit and a defined contribution portion. The pension portion would be smaller but there could also be an employer match into a 403b plan to offset it. Obviously, whatever pension benefits have already been accrued for service already performed should be honored (and generally must by federal law, I think), but future accruals could be split between pension and a 403b.
.

I happen to be a big proponent of the "three-legged stool" model of retirement funding, and that is one I think FERS definitely got right.

I too like the FERS model. It has portability if you move to other employers and places more responsibility/control in the employees' hands. Many state and local governments have adopted something similar. But if you are a Fed it seems a bit like two legs since the Fed pays both the DB and SS. Pretty secure legs.

 

[Texas Proud]

They should have increased that state tax for Illinois a long time ago. Illinois has one of the lowest tax rates in the nation even now at 5%. I propose that it should also be progressive so that it hits higher earners. Also as a way to help with the reform they should also tax the pensions in Illinois. I would rather see that than to have the COLA reduced or eliminated. If the gutless wonders in Illinois find a way to get some form of this passed it will probably take effect in January of 2013. Before then you will see a lot of jump ship. I worked for the City of Chicago Water Dept. for 30 years and believe me there is a lot of dead weight there. Too many Chiefs and not enough Indians.

Unless you count the states that have a income tax rate of 0%....

 

[Steel Rain]

They should have increased that state tax for Illinois a long time ago. Illinois has one of the lowest tax rates in the nation even now at 5%. I propose that it should also be progressive so that it hits higher earners. Also as a way to help with the reform they should also tax the pensions in Illinois. I would rather see that than to have the COLA reduced or eliminated. If the gutless wonders in Illinois find a way to get some form of this passed it will probably take effect in January of 2013. Before then you will see a lot of jump ship. I worked for the City of Chicago Water Dept. for 30 years and believe me there is a lot of dead weight there. Too many Chiefs and not enough Indians.

As a tax payer in Illinois I have a very much differnt view of this. The state is cratering and this is a big reason why. Our overall tax burden is top 5 in the nation and getting worse every year. Our unemployment is over 11% and rising, its a race to see who craters first, us or california. By the way, the massive 67% increase in taxes only yielded something like 25% of the expected revenue, who would have thunk it that pesky Laffer curve at work i guess......

Steel

 

[Steel Rain]

I fairly impressed those are significant changes to the system. Moving the retirement age to 67 and capping and deferring the COLA are roughly 20% increases in the pensions financial health. A system with 2.2% multiplier needs a combined contribution (state + employee) of between 25-30% so increasing the contribution to by 3% is another ~10% increase. All and all I think the plan would be about 50% better funded than current system.

Still I am surprised that no sacrifice was asked of current retirees. Why not make the COLA provision apply to everybody working or retired?

I believe the reason is because Pension Obligations are protected by the State Constitution. Any changes to existing pensions would require an ammendment to the constitutes, that is not going to happen.

Steel

 

[Flsail]

It puzzles me the way some look at pension benefits.
Let me first say that I receive a pension for my career in the fire service in Illinois and have served on the pension board.
Our pensions are state regulated, but locally controlled. That is why the local fire and police department pensions are in much better shape than the state run funds. The state has been trying to get their hands on the local fund's assets for years, and had they succeed, we would be in the same position as the state workers.
You must understand, when we received benefits years ago it was in leu of raises that others may have taken.
Look at it this way.
Lets say in 1980 two employees are negotiating for an increase. One accepts a 5% salary increase, while the other accepts a future pension benefit, lets say a COLA adjustment for his future pension.
Now more than 30 years later, do to a failure of the state to properly fund the system ( a whole other issue), there is a crisis and we think its OK to talk about telling a retiree to give back his COLA provision. No one would think of going back and asking the first worker for that extra 5% he received and all of the compounded salary since then, so why is it OK to ask for a negotiated provision of a worker's retirement when they where both negotiated in good faith back in 1980. Just because a provision of his pension has not been yet been realized, does not mean that it is not owed.
Just my 2¢

 

[Midpack]

It puzzles me the way some look at pension benefits.
Let me first say that I receive a pension for my career in the fire service in Illinois and have served on the pension board.
Our pensions are state regulated, but locally controlled. That is why the local fire and police department pensions are in much better shape than the state run funds. The state has been trying to get their hands on the local fund's assets for years, and had they succeed, we would be in the same position as the state workers.
You must understand, when we received benefits years ago it was in leu of raises that others may have taken.
Look at it this way.
Lets say in 1980 two employees are negotiating for an increase. One accepts a 5% salary increase, while the other accepts a future pension benefit, lets say a COLA adjustment for his future pension.
Now more than 30 years later, do to a failure of the state to properly fund the system ( a whole other issue), there is a crisis and we think its OK to talk about telling a retiree to give back his COLA provision. No one would think of going back and asking the first worker for that extra 5% he received and all of the compounded salary since then, so why is it OK to ask for a negotiated provision of a worker's retirement when they where both negotiated in good faith back in 1980. Just because a provision of his pension has not been yet been realized, does not mean that it is not owed.
Just my 2¢

May be all true, but absent any numbers it's hard to judge. If the pension benefits were the long term equivalent of the increases waived you may have an argument. However, if the pension benefits were exorbitant because incumbents on both sides knew they would never have to deal with the fiscal consequences many years later, that's another kettle of fish. There are far too many documented examples of the latter.

And asking taxpayers from the private sector, who are much less likely to have any pension at all than public sector employees, to make good on under funded pensions is a tall order no? Where public sector employees used to have lower salaries and better benefits, public sector salaries have caught and surpassed private sector salaries from what I've read.

Whether any of this applies to IL I don't know. In most cases I suspect all parties will have to make sacrifices, it may not be enough to just say 'not me.'

 

[ERD50]

It puzzles me the way some look at pension benefits. ....
Now more than 30 years later, do to a failure of the state to properly fund the system ( a whole other issue), there is a crisis and we think its OK to talk about telling a retiree to give back his COLA provision. ...

Several things.

First, I'm not sure that people in general are saying it is "OK" to ask a retiree to give back his COLA provision. I actually think most people view this as a pretty extreme measure.

Second, I'm pretty sure that there is no serious talk about changing benefits for those already retired in IL. That appears to be a Constitutional issue, and probably a political third-rail.

Third, as Midpack points out, there is a reality that must be addressed: 'However, if the pension benefits were exorbitant because incumbents on both sides knew they would never have to deal with the fiscal consequences many years later, that's another kettle of fish.'


Looking at your intro post, I see you have a $40,000, 3% COLA pension at 55 YO, plus SS. Let's compare that to a typical corp pension - a corp pension would have a FRA of 65 and be cut in half at 55 YO. So that makes your $40,000 equivalent to an $80,000 corp pension. And a corp pension is typically zero COLA, and a COLA pension is worth ~ 2X what a non-COLA pension is, so that doubles your pension again to.... $160,000 annually. Plus SS.

Now, is it still so puzzling that the public might have a little push-back to having their taxes raised to cover those kinds of pensions that they don't get, in hard economic times?

-ERD50

 

[Chuckanut]

Looking at your intro post, I see you have a $40,000, 3% COLA pension at 55 YO, plus SS. Let's compare that to a typical corp pension -

I may be wrong again, but I believe that pensions for public safety in workers in many states tend to be significantly better (retire earlier at a higher % of pay) than the pensions for some accountants, engineers, teachers, clerks, scientists, carpenters, etc. who work for the state.

 

[Flsail]

Not that this will change any minds but, yes we did make less than in the private sector. As was mentioned, that may not be the case today, and their benefit package should be reflective of that.

My SS is based on my work history prior to and since the department, as well as part time work, and is subject to the WEP. I didn't realize that there was anything wrong with this or that for some reason it should impact the discussion of this thread.

In our City, and all that I am are of, there was no profit sharing or matching programs found in many private systems, although I did prepare for my later retirement in a 457 plan as well, but that was on my own. Should that have a negative impact on the discussions about pensions as well?

Please understand, I am not against pension reform. I just believe that commitments made should be honored.
We all make our choices in life whether Public/Private and the associated benefits and/or hazards that they each contain. What we don't get is a do over.

 

[Brdofpray]

Please understand, I am not against pension reform. I just believe that commitments made should be honored.
We all make our choices in life whether Public/Private and the associated benefits and/or hazards that they each contain. What we don't get is a do over.

+1

 

[ERD50]

My SS is based on my work history prior to and since the department, as well as part time work, and is subject to the WEP. I didn't realize that there was anything wrong with this or that for some reason it should impact the discussion of this thread..

I don't think anyone implied there was anything 'wrong' with it, but you mentioned you are getting SS, so I referenced it.

In our City, and all that I am are of, there was no profit sharing or matching programs found in many private systems, although I did prepare for my later retirement in a 457 plan as well, but that was on my own. Should that have a negative impact on the discussions about pensions as well?

I'm not sure why you keep saying 'negative impact on the discussions', it's just numbers, and numbers is numbers. So let's run some numbers on profit sharing and matching programs:

So your $40K cola pension @ 55 is ~ $80K cola pension at 65. A typical middle manager career mega-corp type with 30 years in might expect ~ $40K non-cola pension @ 65, which brings it down to ~ $20K equivalent to a cola'd pension.

Using the 4% SWR (x25) as a reference, that $80K cola pension would represent a 'phantom portfolio' of $2M, while a $20K cola pension would represent a 'phantom portfolio' of $500K - a $1.5M difference.

I can assure you that a career's worth of profit sharing, matching, etc would not make up anywhere near $1.5M, as I had nowhere near that in my 401K, even with my own contributions.

-ERD50

 

[MichaelB]

Flsail, welcome to the forum. In case you hadn't noticed there is lots of passion around here when it comes to pensions.

ERD, you can't make those equivalents without considering other compensation and benefits as well, as paid over a lifetime, or at least the entire working period. The $40k is just that, no more.

 

[ERD50]

ERD, you can't make those equivalents without considering other compensation and benefits as well, as paid over a lifetime, or at least the entire working period. The $40k is just that, no more.

Sure, there are all sorts of external factors.

My point is that a $40K pension isn't just a $40K pension. COLA and when you can start are HUGE factors, and often times these are ignored or brushed over in comparisons between public and private pensions.

-ERD50

 

[youbet]

So let's run some numbers on profit sharing and matching programs:

So your $40K cola pension @ 55 is ~ $80K cola pension at 65. A typical middle manager career mega-corp type with 30 years in might expect ~ $40K non-cola pension @ 65, which brings it down to ~ $20K equivalent to a cola'd pension.

Using the 4% SWR (x25) as a reference, that $80K cola pension would represent a 'phantom portfolio' of $2M, while a $20K cola pension would represent a 'phantom portfolio' of $500K - a $1.5M difference.

I can assure you that a career's worth of profit sharing, matching, etc would not make up anywhere near $1.5M, as I had nowhere near that in my 401K, even with my own contributions.

-ERD50

I'm not sure where you're going with this. The poster you're addressing obviously has a very handsome pension situation by any standards. But having said that, where are you going with this? Are you suggesting that pensions should be reviewed and trimmed or enhanced based on today's evaluation of the "fairness" or "appropriateness" of the benefit? What are you suggesting the actionable outcome be?

My own opinion is that if the public sector determines they can hire and retain qualified employees with more modest compensation packages, they should be empowered to do so, political consequences notwithstanding. But I don't think that changing compensation packages, such as pensions already earned or vacation time already earned, etc., is really fair play. And I would say this about either the public or private sector. I certainly expect the MegaCorp I retired from to come through with the pension I earned under their rules in existenance while I was working or for the pension insurance to pay it if MegaCorp is unable. I do not expect the "fairness" or "appropriateness" of my already earned but not yet started pension to be judged and modified at this stage. At 64 yrs old and 6 yrs retired, that would leave me in a bit of a pickle.

 

[Chuckanut]

I think we should also keep in mind that many public safety workers are required to put their own safety and health at risk to protect the public. IMHO, the public seems to feel that is worth something extra. Whether the 'extra' is excessive is another question.

Note1: Employees of Mega-corp as well as most other public employees are not asked to risk their lives and health.

Note 2: I am assuming that when he metioned being in the fire service he was actually a fireman who took risks, not an adminstrator who spent all his time at a desk issuing policy statemnents.

 

[youbet]

I think we should also keep in mind that many public safety workers are required to put their own safety and health at risk to protect the public. IMHO, the public seems to feel that is worth something extra. Whether the 'extra' is excessive is another question.

Note: Employees of Mega-corp as well as most other public employees are not asked to risk their lives and health.

The amount that public safety workers are compensated should be determined in the market place. What level of compensation package attracts and retains highly qualified employees to do the job? It should not be determined by subjective discussions involving perceived worth of the activity.

Everybody's mother is sure their child is underpaid on the job. Only the market place has the correct answer.

 

[ERD50]

I'm not sure where you're going with this. The poster you're addressing obviously has a very handsome pension situation by any standards. But having said that, where are you going with this? Are you suggesting that pensions should be reviewed and trimmed or enhanced based on today's evaluation of the "fairness" or "appropriateness" of the benefit? What are you suggesting the actionable outcome be?

No, I'm just get the impression that he doesn't fully appreciate just how good that pension is compared to the typical pensions of the taxpayers who are now being asked to support those payments. Just trying to provide some perspective.

Actionable outcome - the train's left the station. What should have been done is to have all pensions 100% funded, and an insurance program in place (similar to PBGC) to cover any problem areas. We've discussed this before. If the pensions were 100% funded, then taxpayers could have accepted it or rejected those costs in 'real time'. But coming back to the taxpayer years later and saying we owe for all those past years is a problem. And I'll go so far as to say current retirees share in that problem, as they sat by as their pension was under-funded (as did taxpayers - plenty of blame to go around)

There are no good solutions, and I hope that making changes going forward, w/o impacting the promised benefits earned to date can be done. If push comes to shove, and some adjustment is needed to current retirees, well, maybe that has to be considered. Should be about the last thing to go, IMO.

-ERD50

 

[ripper1]

Here is an interesting article to google, "Illinois may be broken but not the civic committee of the commercial club of chicago, dated August 26th, 2011.

 

[youbet]

No, I'm just get the impression that he doesn't fully appreciate just how good that pension is compared to the typical pensions of the taxpayers who are now being asked to support those payments. Just trying to provide some perspective.

It does appear to be a generous pension given what I know from the discussion.

Actionable outcome - the train's left the station. What should have been done is to have all pensions 100% funded, and an insurance program in place (similar to PBGC) to cover any problem areas. We've discussed this before. If the pensions were 100% funded, then taxpayers could have accepted it or rejected those costs in 'real time'.

Exactly. Governments that allow liability to grow and be placed on the backs of future tax payers are lame. But it's going on today in places other than just pension systems. Think deficit spending in general. I agree with you. Spending should be covered with taxes real time so citizens can judge the value. But, we didn't do that.

But coming back to the taxpayer years later and saying we owe for all those past years is a problem. And I'll go so far as to say current retirees share in that problem, as they sat by as their pension was under-funded (as did taxpayers - plenty of blame to go around)

The same thing can be said of private pensions, or course. And I do feel that several corporations where I am a stock holder have excessive pension obligations today due to past underfunding which their current pensioners saw and did nothing about. Certainly, just like the public employees, these folks in line for private DB pensions should have them trimmed as appropriate so I'm not deprived of dividends or growth in share price due to the firm struggling to fund the pension plan. Right?

Private pension recepients would be quite hyprcritical if they weren't anxious to have their own pensions trimmed if the corporation is having to scramble to catch up on pension funding today due to underfunding yesterday. I can think of at least three firms I'm involved with financially in this predicament. I'm sure as a stock holder I'd be better off if these firms were allowed some slack on these pension commitments just as I'd be better off as a tax payer if already earned gov't pensions were trimmed due to previous underfunding.

 

[ERD50]

I think we should also keep in mind that many public safety workers are required to put their own safety and health at risk to protect the public. IMHO, the public seems to feel that is worth something extra. Whether the 'extra' is excessive is another question.

Note1: Employees of Mega-corp as well as most other public employees are not asked to risk their lives and health.

Note 2: I am assuming that when he metioned being in the fire service he was actually a fireman who took risks, not an adminstrator who spent all his time at a desk issuing policy statemnents.

The amount that public safety workers are compensated should be determined in the market place. What level of compensation package attracts and retains highly qualified employees to do the job? It should not be determined by subjective discussions involving perceived worth of the activity.

Everybody's mother is sure their child is underpaid on the job. Only the market place has the correct answer.

+1 youbet.

Chuckanut, even if we take that into consideration, take a look at the BLS figures, and you'll find that Fishermen, Truck Drivers, Industrial Maintenance workers, Farmers & Ranchers, Roofers, Loggers, and Garbage & Recyclables Collectors all face a higher hazard rate than Fire Fighters (they aren't in the top ten in this report, but I have seen them in others at ~ 15-20 down the list IIRC).

IIRC from an earlier discussion on this, the dozen years I spent on a family farm put me at a far higher statistical risk than a 30 year career as a Fire Fighter would have.

-ERD50

http://www.bls.gov/iif/oshwc/cfoi/cfch0009.pdf

 

[MichaelB]

My understanding is many of the public safety employees pensions are well funded in Illinois and do not / will not need taxpayer support. It would be a sad outcome if this funding were captured by the state and used to fill shortcomings elsewhere. It should also not be a surprise to see discussions of unfair pensions (pension envy) in the media and elsewhere as they easily change the subject and attention away from the elected political leadership, which is in all cases ultimately responsible for the mismanagement.

 

[ERD50]

... The same thing can be said of private pensions, or course. And I do feel that several corporations where I am a stock holder have excessive pension obligations today due to past underfunding which their current pensioners saw and did nothing about. Certainly, just like the public employees, these folks in line for private DB pensions should have them trimmed as appropriate so I'm not deprived of dividends or growth in share price due to the firm struggling to fund the pension plan. Right?

It's a matter of degrees. Because private pensions had the PBGC watch-doging them, a private pension could never get too far underfunded (ironic, isn't it?). The PBGC is dealing with it in pretty much real-time. Sure, they may come in and say, OK, this year you need to boost it by $X, but that is probably a pretty small hit to the shareholders. And if it goes on year after year, maybe that shareholder should dump his investment?

Should taxpayers accept a small hit to their taxes due to avoid cutting pensions to public workers who are already retired? Yes, I think so. But when the funding gets down to the levels it has in IL, perhaps more drastic measures need to be brought to the table.

Again, adjustments to current retirees should be about last on the list, IMO.

note to MBs last post- yes, the IL Municipal Retirment plan is reasonably well funded (80% or so, I'd have to look it up), it is the Teachers fund that is miserable (40s?) - gotta run, or I'd look them up.

-ERD50