On Dec. 3, after years of wrangling, the Illinois General Assembly approved major changes to the pension system for teachers and state government workers. The bill passed by a 63-53 vote in the House and 30-24 in the Senate. Governor Pat Quinn said he would sign the bill.
State Senator Daniel Biss and State Representatives Laura Fine and Robyn Gabel voted for the bill.
The bill is intended to address an unfunded liability in the pensions, which is estimated at more than $100 billion, using liberal assumptions that may substantially understate the unfunded liability.
Legislative leaders reportedly worked out a deal last week, and a 325-page bill was released to legislators on Dec. 2. The bill would establish a payment plan to eliminate the unfunded liability by 2044, allow a retirement system to sue the State if a required payment were not made, decrease employee contributions into the system by one percent, limit the cost of living increase for certain workers, skip some cost of living increases for current workers, raise the retirement age by up to five years for workers who are currently younger than 46, and create a 401(k) defined contribution plan that a worker could opt into instead of continuing with the state pension plan.
The legislative leaders say the savings due to these changes are estimated at $160 billion.
State Senator Daniel Biss was a member of the 10-member conference committee that issued the report used as a basis for the final negotiations between the four legislative leaders. He said in a prepared statement, “The biggest cost savings come from a cap on the annual cost-of-living increase that will have no impact on workers with small pensions and only a modest impact on workers with average pensions. The next biggest cost savings come from an increase in retirement age and a delay in some cost-of-living increases. These are carefully phased in so as to have no impact on retirees and almost no impact on those close to retirement.”
He said the biggest single cause of the unfunded liability in the pension funds was legislators’ “irresponsible and selfish behavior” in skipping payments into the funds. He said the bill provides a responsible funding schedule that will eliminate the unfunded liability by 2044 and it will contain a funding guarantee that he “fought hard to include.”
Sen. Biss said he recognized that the bill will likely be challenged on the ground it violates Article XIII, Section 5 of the Illinois Constitution, which provides that pension benefits “shall not be diminished or impaired.” He said he thought the bill would pass constitutional muster because it provided consideration to workers and retirees by reducing employee contributions by one percent and providing a funding guarantee. He added, “I believe that our state’s fiscal problems are so dire that the courts will seek to balance the pension clause against other constitutional, legal, and public priorities.”
Rep. Gabel, said in a prepared statement that the bill met three important criteria. “First, there is a strong funding guarantee for the state to make its correct payment each year. Otherwise we could end up in the same situation again. Second, those closest to retirement (age 46 and older) will have no changes to the age at which they can retire. Thirdly, the middle/lower income pensioners who have a yearly annuity of $30,000 or less who worked for 30 years will see no changes to their COLA (cost of living allowance) formula. The bill protects the fiscal stability of the pension plans to ensure that they will be there for future generations. It also removes the uncertainty that all of us have lived with regarding our financial futures.
“In the context of the state’s fiscal crisis,” Rep. Gabel continued, “changing the pension liability was one step that needed to be taken. Illinois has the lowest credit rating of any state and a $100 billion unfunded pension liability. From 2008 to 2014, pension payments have substantially risen from 6% to over 20% of our general revenue fund. Deep cuts have been made to education, human services and public safety over the past few years to address the fiscal troubles, but it has not been enough.”
Dale Leibforth, president of the teachers union at ETHS, said, “Faculty at ETHS understand that some kind of pension reform is necessary and has been for a while. The We are One Illinois union coalition which includes the Illinois Education Association proposed several changes, including increasing our contribution to the pension system, which would represent a shared sacrifice. Faculty already are required to contribute 9.4% of their salary every year of employment. Our pension system represents the entire life savings for faculty and most do not receive any Social Security. During the recent push for reform, union representatives were not allowed a seat at the table, so were not afforded the opportunity to pass a fair, legal and negotiated solution.
“Once we have had time to review all of the details of the bill,” Mr. Leibforth continued,”we can start to break down the ramifications for our faculty and their futures as well as what this will mean for the teaching profession, schools and students in our community and in Illinois moving forward. We will also need to see what will happen with regard to the inevitable court challenge,” Mr. Leibforth said.
“Our teachers have shown time and again that they are willing to work to solve a pension problem that they did not cause,” Paula Zelinski, president of the District Educators Council (the teachers union for School District 65), told the RoundTable. “We teach our students to collaborate with one another, but that is not the respect we have been shown by members of the Illinois legislature.”