Possible landmark pension reform legislation is about to get voted on today in Illinois capitol in Springfield. Anybody have any skin in the game. Any thoughts. The sticking points are a reduced COLA, increased age.
Looks like it passed. Here's a good summary http://www.chicagobusiness.com/article/20131127/BLOGS02/131129786/here-are-the-details-of-the-big-illinois-pension-deal
Looks like it passed. Here's a good summary Crain's Chicago Business : Subscription Center
Under the proposed new formula, the COLA only would apply to one's years on the government job, times $1,000. That means, for instance, that a 25-year government veteran would get a 3 percent annual COLA only on the first $25,000 of their pension, even if the total pension was $50,000. That employee would get no COLA on that second 25-grand.
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.
A 1% decrease in employee contributions for a plan that is in trouble? Now that is GD dumb.
An extremely important distinction is that Illinois refuses to declare bankruptcy, fully open their kimonas, and allow the courts to reorganize state finances as would happen with a private company before turning over pensions to the PBGC. Maybe some day in the future.......For reference, a private pensioner that got taken over by the PBGC .........
I don't understand how any of this can stand up to an IL Supreme Court challenge though (and a fight is promised). The IL Constitution says that retirement benefits:
"shall be an enforceable contractual relationship, the benefits of which
shall not be diminished or impaired."
I would think that limits them to changes only to future earned benefits (which they did in 2011), but not those already earned. I think they would need a Constitutional amendment.
-ERD50
An extremely important distinction is that Illinois refuses to declare bankruptcy, fully open their kimonas, and allow the courts to reorganize state finances as would happen with a private company before turning over pensions to the PBGC.
It will pass muster with the Illinois Supreme Court because the judges are all political appointees, appointed by the same folks who sponsored this legislation.
Oh yeah..... the reason for the 1% reduction in employee contribution is that the justices requested it. ... So they gave them the 1% reduction "in consideration" of losing some pension dollars. ...
I know several people who are just starting their careers in the Illinois public sector and are quite excited for the 401K plan that will now be offered (court challenge pending I think?)
An extremely important distinction is that Illinois refuses to declare bankruptcy, fully open their kimonas, and allow the courts to reorganize state finances as would happen with a private company before turning over pensions to the PBGC. Maybe some day in the future.......
Think of it this way. UAL declared bankruptcy and turned their pensions over to PBGC. Some employees had their pensions capped at the PBGC maximum. But this is different than having UAL, without declaring bankruptcy, simply declare that they are having trouble paying pensions and still keep up with their other expenses so they are going to cap pensions themselves without declaring bankruptcy just "because." It doesn't work that way. The bankruptcy court must get involved and decide how whatever money is available is to be split among the various creditors, including retirees owed pensions.
It will pass muster with the Illinois Supreme Court because the judges are all political appointees, appointed by the same folks who sponsored this legislation. One judge is the wife of notorious Chicago Alderman Edward ("Mr Payola") Burke! Madigan would not have brought the legislation to vote if the justices had not already been spoken with and a deal worked out.
Remember, the justices' pensions (and the legislators' too) are not subject to the reductions the rest of the employees are receiving. This is all well "under control."
Word on the street is that iterations of the legislation were passed back and forth between the justices and the legislators until they came up with a package the justices thought they could say was not unconstitutional without excessive embarrassment. The procedure is already in place for a simple thumbs up or thumbs down decision. My understanding is that public disclosure of written opinions as to why justices voted as they did will not happen.
The same applies to the part of the new legislation which gives the various state pension funds the right to sue if the state continues to not fund in the future. Sure, the retirement system can sue but where does that get you when the justices are beholding to the folks who have some reason (yet again) for not funding?
Oh yeah..... the reason for the 1% reduction in employee contribution is that the justices requested it. It turns out (I'm no lawyer so excuse my non-legal wording) that it's easier to take something from somebody (in this case pension dollars already earned) when those people receive something "in consideration." So they gave them the 1% reduction "in consideration" of losing some pension dollars. Rumor has it that when the justices made this suggestion to Madigan, he countered with "how about I give the retirees a kick in the ass in consideration?" Nice guy our man Madigan.......
BTW, if there are still any issues taking care of this goofy "constitutionality thing," Mike Madigan's daughter is Lisa Madigan......... Gee, isn't she Illinois Attoney General? Funny how this all works out.
Big win here in Illinois for megacorp and loss for vast majority of public employees. The middle class erosion continues.
Another example of someone talking about extreme examples of exorbitant pensions. Sure there are people making 6 figures here but that is an extremely small sampling. For most also this is it and no social security. BTW, two thirds of Illinois megacorp pay no taxes through deductions, perks, and loopholes. Also what jobs are you talking about. Illinois has one of the highest unemployment figures in the country.Here's a little more perspective on the 'middle class' issue -
Current IL pension liability is $83B, but that assumes an 8% return on investments. This source estimates it at $209B if you assume 4% returns going forward. Let's split the difference and say $146B.
There are 4,773,002 households in IL, so that comes to $30,589 per IL household. How can a middle class household afford that bill? Now factor in the lower class that aren't going to be able to pay anything, and that goes up. Also, our credit rating is hurt by this, causing us to pay higher interest on bonds. There are many factors.
I do think something has to give, and I think the way to help the 'middle class' may be to make some adjustments to above middle class level pensions.
-ERD50
I don't see where ERD50 cherry picked any extreme pensions in the post you attacked. The figures used were for the entire pension plan. It doesn't matter if everyone was getting $250,000/yr or $25,000/yr. The higher value would have fewer recipients and the lower value more. ERD50 gave total plan liabilities at different returns and numbers for the average households liability.Another example of someone talking about extreme examples of exorbitant pensions. Sure there are people making 6 figures here but that is an extremely small sampling. For most also this is it and no social security. BTW, two thirds of Illinois megacorp pay no taxes through deductions, perks, and loopholes. Also what jobs are you talking about. Illinois has one of the highest unemployment figures in the country.
Another example of someone talking about extreme examples of exorbitant pensions. Sure there are people making 6 figures here but that is an extremely small sampling. For most also this is it and no social security. BTW, two thirds of Illinois megacorp pay no taxes through deductions, perks, and loopholes. Also what jobs are you talking about. Illinois has one of the highest unemployment figures in the country.
Just for reference, the kinds of pensions that many of these public sector employees get in Illinois puts them more in the top 5% income area, not the middle class. I know a couple of retired, married teachers - their household income from their pensions is ~ $130,000 - $150,000, and before this law that was all 3% COLA'd for life. That is not middle class, independent of any opinion of 'fair' or not. A more useful figure would be what is the median pension for someone who worked a full career. I don't have that number, but I'd bet it is above the 'middle class' definition, especially when you take into consideration retirement age and COLA value. What about the middle class who has to pay the taxes to fund those pensions? IL income tax is a flat tax, BTW. Recently raised from 3% to 5%. Plus, a 'win for MegaCorps' can mean more middle-class jobs in IL. It isn't always an 'us-versus-them' game. -ERD50
Considering the kind of pay out Illinois retirees have been getting under the current system, I don't see how a 401k would be superior. Maybe if they live on rice and beans for 40 years.
... The middle class erosion continues.
... BTW, two thirds of Illinois megacorp pay no taxes through deductions, perks, and loopholes. ...