Illinois Pension Reform

[clifp]

I am also surprised that state aren't taking these opportunities to move their employees into Social Security. It seems to me that SS should act as universal safety net. If a state like IL or CA continue to be economic basket cases and need to cut pension for current workers like we are seeing Europe pension, state retirees aren't completely hosed.

 

[Mulligan]

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?

Our system imposed a shared sacrifice. The contribution rates when up for the current workers, while the COLA got capped at 2% instead of yearly CPI rate for existing retirees.
YOUBET- I always thought it was strange a state would have 2 different pension systems for state teachers. MO has the exact same thing. KC and STL have their own which involves SS, but the out state has their own with no SS contributions.

 

[clifp]

Because that would reduce discretionary spending at the youbet household. Totally unacceptable. Shut your mouth please.......

It goes without saying that any proposal I make shouldn't possibly impact all of my friends on the ER board . I'll happily contribute $50 so that you can bribe your local legislator for the ER board exemption to be added to the governor proposal.

 

[youbet]

I am also surprised that state aren't taking these opportunities to move their employees into Social Security. It seems to me that SS should act as universal safety net. If a state like IL or CA continue to be economic basket cases and need to cut pension for current workers like we are seeing Europe pension, state retirees aren't completely hosed.

The discussion I've heard involves the ability of the school districts to come up with the 6%+ contribution they would have to make to SS. I hear mixed feelings from teachers. Many would just as soon belong to SS, especially once they understand WEP and GPO.

Here at the youbet household, everything else being equal, we would just as soon have had DW paying into SS (with her employer paying the employer share) as not. I'm sure there are others that feel differently.

 

[Running_Man]

Gov Quinn announced on 4/20 long overdue pension reform. Current employees would see an increase in their pension contributions by 3%, retirement age increased to 67 over a period of time, COLA tied to 3% or half of CPI whichever is less and an end to free health care. Subsidy would be offered to help with health care. Current retirees would not be part of the equation. Pensions would be fully funded by 2042. Finally some leadership in Illinois. Would anybody like to comment on these state of affairs?

When the state decided to declare a pension payment holiday in 2005, despite the fact the pension fund at the time was only 60% funded, Rep. Elaine Nekritz was one of the ones leading the charge in favor of the payment holiday against opposition in order to use the pension money on other spending needs. The Illinois Commission of Government Forecasting and Accountability reported that 44% of the shortfall is due to the government not paying in the past what they were legally required to do. 22% is due to poor investment returns. The teachers paid 100% of their obligation

Now Elaine Nekritz is one of the leading people in charge for Gov Quinn for pension reform. What Illinois is trying to do is not to ensure pension benefits are provided, it is to cut the amount of contributions they are going to make. One of Elaine Nekritz's pension solution ideas is to make all contributions to the pension for government a "local" and not a state responsibility. Another provision not announced is Quinn looking to change the law for the pension funding to 80% over time instead of the present rule of 90%. so none of this is designed with any concern over the pensions but rather increasing the percentage of state money that can be spent with contractors who can contribute to local campaigns, long an Illinois specialty.

Today the pension pays a 3% annual increase every year to approximate long term inflation and yet provide an easy way for pension administrators to plan for expense. Changing this provision to no calculation for 5 years will mean for sure by 5th year of retirement the pension will be 16% less than present and are patently unfair.

Additionally, the salary expense the pension is valid for is 2.5 billion per month or 30 Billion per year. the present funding is 5.3 Billion or less than 2% of salaries. If the state of Illinois was private employer it couldn't come close to paying it's share of Social Security

http://sunshinereview.org/index.php/Illinois_public_employee_salaries

 

[ERD50]

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

It would take an IL Constitutional amendment, which would be tough. Some people are trying to interpret that as no changes to pensions period, not just to retro-active changes, but I think they'll get shut down.

SECTION 5. PENSION AND RETIREMENT RIGHTS
Membership in any pension or retirement system of the
State, any unit of local government or school district, or
any agency or instrumentality thereof, shall be an
enforceable contractual relationship, the benefits of which
shall not be diminished or impaired.
(Source: Illinois Constitution.)

-ERD50

 

[btbw2380]

These public pensions have been out of control for way too long. The structure of contract "negotiations" is ridiculous with some politician wanting to get elected giving away the store and then years later they're out of office probably collecting the same bloated benefits at taxpayer's expense. Real guts would be to go to 401k's with the match only given when times are good, just like the private sector. To make matters even worse, dead weight is throughout all of government. What other entity considers a slowdown in the INCREASE of spending a cut? This whole area is set to burst just like the out of control housing market did, especially if future market returns are below average.

 

[ripper1]

As noted by Chuckanut, yourself and others, the situation in Illinois is complicated. The main issues are differences between the way the Chicago programs are handled vs the rest of the state and secondarily the difference between teachers (TRS) and other public employees. It's easy to lump the whole thing together but in actuality there are significant differences in the plans.

The one thing they all have in common is questionable funding and a current shakey financial status. The exception may be the municipal pension fund (we have a board member who belongs and may comment) which seems to be in OK shape.

The information I provided in an earlier post uses a recently received email from TRS (Teacher Retirement System) as its basis. Retired Chicago teachers, city workers and State of Illinois workers may have different circumstances.

I believe the Municipal (Chicago) will follow suit.

 

[youbet]

It goes without saying that any proposal I make shouldn't possibly impact all of my friends on the ER board . I'll happily contribute $50 so that you can bribe your local legislator for the ER board exemption to be added to the governor proposal.

I appreciate the thought...... But I'm not sure $50 would do it these days.

It's been a long time since I and my cousins were kids doing errands and jobs for the Ward Committeeman and Precinct Captain. My dad, his brother and his sister's hubby all worked for the city. We kids used to do things like pass out packs of cigarettes (with voting instructions attached) outside polling places to keep our dads' jobs secure. We never lost an election and our dads collected City of Chicago pensions until the day they died.

But that was a long time ago and $50 doesn't go far now........ I'll stop there since we don't want this thread to go political.......

 

[Chuckanut]

Here at the youbet household, everything else being equal, we would just as soon have had DW paying into SS (with her employer paying the employer share) as not. I'm sure there are others that feel differently.

+1 I won't offer any more thoughts on the different systems. I have eaten plenty of humble pie already today.

But, I will say that, IMHO, diversification of retirement income sources is important. Having three sourcers - personal money, pension and SS - is better than having only two - personal money and a pension. Again, my 2 cents. Others may disagree.

 

[clifp]

It would take an IL Constitutional amendment, which would be tough. Some people are trying to interpret that as no changes to pensions period, not just to retro-active changes, but I think they'll get shut down.




-ERD50

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.

 

[ripper1]

Because that would reduce discretionary spending at the youbet household. Totally unacceptable. Shut your mouth please.......

Other folks might point out that imposing the COLA changes on current retirees would achieve a small financial benefit to the system at the HUGE political cost of stirring up massive opposition from an army of cranky, retired school marms itchin' to kick a certain govenor's butt. That is, a small benefit for much pain. Think Madison, Wis, 2011.

+1

 

[ripper1]

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?

Are you retired? Do you get a pension? How about they reduce your income.

 

[Mulligan]

Originally Posted by youbet
Because that would reduce discretionary spending at the youbet household. Totally unacceptable. Shut your mouth please.......

Other folks might point out that imposing the COLA changes on current retirees would achieve a small financial benefit to the system at the HUGE political cost of stirring up massive opposition from an army of cranky, retired school marms itchin' to kick a certain govenor's butt. That is, a small benefit for much pain. Think Madison, Wis, 2011.

That comment is hilarious but true! Just this week our local legislature got blindslided by 100 retired teachers who were hearing rumors that the legislature was going to take away the authority of the pension system overseer, at a local chat session. I am a pensioner of the system also, but I actually felt sorry for the guy as he was attacked by a swarm of retiree bees over something that wasnt even his doing or even totally accurate. The power of the internet, an organization misleading facts, and an army of vigorous retired teachers young enough to be no where near wheelchair status and having plenty of free time would be enough to keep me out of politics!

 

[clifp]

Are you retired? Do you get a pension? How about they reduce your income.

Yup being retired for a long time. Pension nope. Hawaii doesn't tax pension either nor employer contribution to 401K, so withdrawal from one of my IRA is exempt from Hawaii taxes.

I'd happily give up this perk, to help solve the state looming pension crisis, the state pension system is the bottom 10 for funding. I think sacrifices for digging states out of their fiscal mess needed to spread widely, not just foisted on future retirees and taxpayers.

 

[youbet]

But, I will say that, IMHO, diversification of retirement income sources is important. Having three sourcers - personal money, pension and SS - is better than having only two - personal money and a pension.

Exactly. With all the turmoil going on, we'd just as soon DW was getting a combination of state pension + SS as compared to getting a state pension alone (for the same total amounts). In Illinois, there is no choice for K -12 public school teachers. No SS, period. So FIRE hangs in the balance at the whim of our whacky state politicians. Sigh.........

 

[ziggy29]

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.

The bottom line is that there is too much risk in many defined benefit plans -- even if fully funded at the time the work was performed, a bad market, changing demographics and actuarial realities, too much "spiking" (probably the first reform that should be done before watering down benefits where it's allowed) and other factors could leave the government on the hook for major expenditures down the road.

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.

 

[clifp]

Exactly. With all the turmoil going on, we'd just as soon DW was getting a combination of state pension + SS as compared to getting a state pension alone (for the same total amounts). In Illinois, there is no choice for K -12 public school teachers. No SS, period. So FIRE hangs in the balance at the whim of our whacky state politicians. Sigh.........

It really is screwy system when you think about all of the retirees eggs are in a single basket. Compounded by a political culture which to put it mildly isn't renown for being the most prudent stewards of taxpayers money.

I am curious is the state of the pension plan pretty big news in IL? or is typically buried in page 14 of the Tribune.

 

[Mulligan]

It really is screwy system when you think about all of the retirees eggs are in a single basket. Compounded by a political culture which to put it mildly isn't renown for being the most prudent stewards of taxpayers money.

I am curious is the state of the pension plan pretty big news in IL? or is typically buried in page 14 of the Tribune.

Dont know about Tribune, but it was front page on STL Post Dispatch today.

 

[MichaelB]

There's a free article at The Bond Buyer, a subscription site for public financing news, issues, etc. Illinois Gov. Quinn Unveils Plan to Erase $80B of Pension Liabilities - The Bond Buyer Article

 

[Ronstar]

The teacher pension reform is simple- they are just shifting the pension burden from the state to the school districts. Real estate taxes will then be raised to cover the districts' pension expense.

 

[W2R]

Gov Quinn announced on 4/20 long overdue pension reform. Current employees would see an increase in their pension contributions by 3%, retirement age increased to 67 over a period of time, COLA tied to 3% or half of CPI whichever is less and an end to free health care. Subsidy would be offered to help with health care. Current retirees would not be part of the equation. Pensions would be fully funded by 2042. Finally some leadership in Illinois. Would anybody like to comment on these state of affairs?

This sounds pretty exciting, and amazing, too.... but....

I also have to get a read on the votes - does this have any chance of passing?

.... but apparently it hasn't yet passed.

I think that when a politician calls a news conference to announce a bill that hasn't passed, it is worth weighing the possibility that this could possibly be an example of political posturing.

Personally, I try not to get excited about bills that haven't passed. It's just not worth the time or energy, since it seems like usually they don't.

 

[ripper1]

This sounds pretty exciting, and amazing, too.... but....



.... but apparently it hasn't yet passed.

I think that when a politician calls a news conference to announce a bill that hasn't passed, it is worth weighing the possibility that this could possibly be an example of political posturing.

Personally, I try not to get excited about bills that haven't passed. It's just not worth the time or energy, since it seems like usually they don't.

Oh, I think something definitely is going to get done. I am from this system and it is in pretty bad shape. This has been going on for quite a while now and I believe the political will is there now. A lot of states have already adopted some reform, i e Rhode Island and New Jersey. There is a constitutional thing involved here in Illinois though but I believe if the unions and states can agree on some middle ground here this thing can work. As long as the workers can get some guarantee on future funding to keep it solvent.

 

[ERD50]

This sounds pretty exciting, and amazing, too.... but....



.... but apparently it hasn't yet passed.

I think that when a politician calls a news conference to announce a bill that hasn't passed, it is worth weighing the possibility that this could possibly be an example of political posturing.

Well, there has been a lot of that lately. Some politician gets up and says 'pass this bill and everything will be sunshine and unicorns' (knowing full well the bill will not be passed), and then that person can say 'well, if they only passed that bill, we'd have sunshine and unicorns', it's not my fault, it the legislature!

Whether that is the case here, I do not know. I think it is just about getting attention and support for the idea.

Personally, I try not to get excited about bills that haven't passed. It's just not worth the time or energy, since it seems like usually they don't.

I'm not following this. Every bill that passed was once a bill that had not passed yet. There is discussion before they get passed. We are at that stage now.

-ERD50

 

[ripper1]

Well, there has been a lot of that lately. Some politician gets up and says 'pass this bill and everything will be sunshine and unicorns' (knowing full well the bill will not be passed), and then that person can say 'well, if they only passed that bill, we'd have sunshine and unicorns', it's not my fault, it the legislature!

Whether that is the case here, I do not know. I think it is just about getting attention and support for the idea.



I'm not following this. Every bill that passed was once a bill that had not passed yet. There is discussion before they get passed. We are at that stage now.

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