Illinois Pension Reform

[ripper1]

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?

 

[bizlady]

It will be interesting to see whether or not pensions of citizens remain tax free in Illinois.

 

[ripper1]

It will be interesting to see whether or not pensions of citizens remain tax free in Illinois.

I think from a financial standpoint you would be better off to have them taxed than to lose the COLA.

 

[ripper1]

One other point on the COLA. It would not start until 5 years after retirement or age 67 whichever comes first. Also it would be based on simple interest and not compounded.

 

[ERD50]

This will be interesting, I have not caught up on all the details yet. I'm curious about the 5 year delay - is that the only thing that phases it in? Not sure if that is as fair as it could be - someone retiring next year would have this hit, but someone retiring this year would not (assuming it goes through and effective next year).

I also have to get a read on the votes - does this have any chance of passing? The unions are up in arms, but what can they do? They supported the very dark blue legislature & administration - it's not like they can turn to the other party for relief. This is getting so bad that even the union-friendly politicians realize they have to do something. There are more voters in general than there are union members. They almost doubled (5% from 3%) the state income tax rate last year, and that isn't enough to help.

-ERD50

 

[Mulligan]

I read an article about it too, today. Took some courage from the governor propose it as he will no doubt take heat from it. The system definitely needs to be reformed to insure its solvency. Too bad the pensioners will have to take the hit as he all but recognized it was the governments fault for its unfunded balances. No way however can you expect a tax increase to protect it as Joe citizen is tapped out and his sympathy for pensions isnt probably at an all time high now.

 

[ripper1]

I believe the retirement age of 67 would also be phased in.

 

[ripper1]

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.

 

[youbet]

From a recent email sent out by the Teachers Retirement System of Illinois:

This afternoon Governor Pat Quinn outlined a “public pension stabilization plan”
that he estimates will save the state between $65 billion and $85 billion by
2045 and will erase the TRS unfunded liability of $44 billion by 2042.

There is no timetable or deadline for action on this plan, or a date when the
changes would take effect if enacted, so TRS cannot really advise any members
what they should do about retirement decisions to be made in the foreseeable
future. If enacted, these changes would likely face a court challenge lasting
several years.

What we do know is that under the plan changes in benefits and contributions
only affect active and inactive members. The plan does not change one thing for
members who already are retired. TRS has not yet modeled aspects of the
governor’s plan so we do not yet know how much this plan will cost active TRS
members. We have seen no specific legislative language.

In announcing the plan, the governor said that action is needed this spring on
pension reforms in order to avoid changes in the state’s credit rating. A lower
rating would cost all taxpayers millions of dollars in extra interest payments
when the state borrows money. The governor’s call, however, does not mean the
General Assembly will act this spring.

Here are changes in the plan that affect active TRS members:

• A 3 percentage point increase in the member contribution, from 9.4
percent to 12.4 percent
• The retirement age will be gradually increased over several years to age
67.
• Upon retirement, the cost of living adjustment will be changed from 3
percent compounded to a COLA that is capped at 3 percent or one-half of the
consumer price index, whichever is less. The new COLA is not compounded.
• Upon retirement, a member’s COLA will not begin until 5 years after
retirement, or age 67, whichever comes first.

Here is what the plan does not change for TRS members:

• The basic 2.2 benefit formula that is based on service credit and final
average salary
• The alternative “money purchase” formula for members with service prior
to 2005, a formula that is based on total contributions
• Post-retirement work rules
• Creditable earnings – there is no cap on earnings applied to a pension
• Survivor benefits

While the governor’s plan alludes to reducing the current state “subsidy” for
health insurance premiums that retired state employees receive, this part of the
plan is likely not aimed at TRS members. TRS members pay an average health
insurance premium of $577 in retirement. State employees that have worked 20
years currently pay no health insurance premium in retirement. The reality is
the state wants them to be like TRS members and pay a premium.

Other parts of the pension stabilization plan are:

• A strong guarantee written into state law that requires the state to pay
its full annual contribution to TRS and the other pension systems. No detailed
language of this guarantee was provided.
• Over the next several years, school districts will gradually begin to pay
the total annual cost of TRS pensions. Last year school districts paid $155
million and the state paid $2.1 billion for pensions. Under this shift, those
numbers would change. School districts would have paid about $800 million and
the state would have paid $1.6 billion.
• Only public employees will be allowed to be members of the state’s public
pension systems – no private organization employees will be allowed membership
in TRS.

 

[ERD50]

I propose that it should also be progressive so that it hits higher earners.

I'm really surprised that the increase wasn't along some sort of progressive line. Both the 3% and 5% are absolutely flat above whatever the standard deduction is.

-ERD50

 

[Brdofpray]

Current retirees would not be part of the equation.

As it stands now, given that my DW is a retired teacher from Il, I particularly like the quote above.

 

[ripper1]

I'm really surprised that the increase wasn't along some sort of progressive line. Both the 3% and 5% are absolutely flat above whatever the standard deduction is.

-ERD50

Here is another one....The Teachers only contribute 2% and the CPS picks up the other 7%. So this 9.4 of their contribution already is misleading.

 

[ripper1]

As it stands now, given that my DW is a retired teacher from Il, I particularly like the quote above.

Once they open up this can of worms anything and everything from now on will be on the table though. I just hope this is a shared sacrifice. I mean everybody should be involved, employees, politicians, judges, and even those idiots from the Civic Committee who are part of the pensions involved.

 

[Mulligan]

Here is another one....The Teachers only contribute 2% and the CPS picks up the other 7%. So this 9.4 of their contribution already is misleading.

I dont know how the math adds up. Across the river, MO teachers contribute 14% plus school match 14% to get their 2.5 multiplier at 30 years. COLA is changed to 2% per year. Of course the system is about 90% funded instead of 40% so maybe thats the reason. If I was retired over there, I certainly would want reform to avoid having the system run dry late in life. Otherwise they may start "paying" their monthly pension checks the way they do with vendors. An IOU note that may be paid a year down the road.

 

[youbet]

Here is another one....The Teachers only contribute 2% and the CPS picks up the other 7%. So this 9.4 of their contribution already is misleading.

Note, that's only for the Chicago Public Schools not the rest of the public teachers in the state.

 

[Chuckanut]

Was there any mention of a hybrid plan that is part defined benefit and part defined contribution?

 

[youbet]

These are interesting changes. The current Illinoise pension system is certainly far more generous than the the current plan I work under. Assuming the changes are made as the governor has recommended, my initial impression is that the new Illinoise plan will be a bit worse, especially in the area of the COLA. But, I could be comletely wrong in this area.

What is far more generous about the current Illinois plan than the current plan in your state Chuckanut? Is it the 2.2% formula? The 9.4% participant contribution? Or the 3% COLA?

I'm curious where Illinois is giving away the farm compared to other states. Understanding that would help with understanding whether the proposed changes would fix the problem.

 

[Chuckanut]

What is far more generous about the current Illinois plan than the current plan in your state Chuckanut? Is it the 2.2% formula? The 9.4% participant contribution? Or the 3% COLA?

I'm curious where Illinois is giving away the farm compared to other states. Understanding that would help with understanding whether the proposed changes would fix the problem.

I found I was woefully underinformed about Illinoise pension plans and have 'withdrawn' my comments.

 

[Mulligan]

I would say it is the retiree health benefits. My only health benefit is the ability to buy into a group plan. That does same me some money, but I do pay 100% of the premium.

Another difference is the 2.2 factor compared to the 2.0 factor in my state. That buys a lot of extra dollars over a 30+ year period.

Oh, my state's newest pension plan is a hybred - half defined benefit and half defined contribution.

Illinoise workers do contribute more to their plan than I do, about 4 percentage points more (though my contribution rate varies from year to year).

I like Illinoise's idea of requiring the state to fully fund the pensions every year. In my home state of Washington some legislators wanted to skip the pension payment to help balance the budget. That would have cost many extra dollars down the road. Thankfully, it did not happen.

Are you aware you are mixing the two (Illinois state workers and Illinois teachers)? The teachers from what I understand do not get the health benefit while apparently some state workers do. Each state seems to have as many pension systems as a dog has fleas, so a universal comment usually doesnt apply. BTW- From what this link says, the educators themselves contribute 9.4 % and the school .54%. The state has supposed to have been contributing "x" amount each year, but hasn't been fulfilling its obligations over the years which has led to the problem. To compound the problem, Illinois teachers do not contribute to SS, meaning if their pensions get whacked, they dont have that other security blanket. Some states teachers contribute to SS, and some do not.

http://www.ilretirementsecurity.org/news?id=0050

 

[Chuckanut]

Are you aware you are mixing the two (Illinois state workers and Illinois teachers)? The teachers from what I understand do not get the health benefit while apparently some state workers do. <snip> To compound the problem, Illinois teachers do not contribute to SS, meaning if their pensions get whacked, they dont have that other security blanket. Some states teachers contribute to SS, and some do not.

Thanks for the information. I did not realize it was that complex. And I had forgotten about not having to contribute to SS - something which I do.

I think I will 'withdraw' my comments and yield to those who are more knowledgable.

 

[ripper1]

Note, that's only for the Chicago Public Schools not the rest of the public teachers in the state.

I stand corrected. Thank you.

 

[Mulligan]

Thanks for the information. I did not realize it was that complex. And I had forgotten about not having to contribute to SS - something which I do.

I think I will 'withdraw' my comments and yield to those who are more knowledgable.

Before I go any further, I must fully disclose I only know enough to be dangerous, as they say

 

[clifp]

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?

 

[youbet]

Before I go any further, I must fully disclose I only know enough to be dangerous, as they say

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.

 

[youbet]

Why not make the COLA provision apply to everybody working or retired?

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.