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* Bill Brady says the pension reform conference committee is still a ways from completing its work…
A partisan split is developing as Republicans — three of whom are running for higher office next year — are demanding more information on additional cost-cutting measures they’re seeking, which could take weeks.
“We know the Democrats can’t pass this on their own,” said Republican Sen. Bill Brady. “Unfortunately I don’t see anything happening legislatively for at least four weeks at the earliest.”
The AP’s story is pretty doom and gloom about the prospects for getting a deal done.
* I’m told, however, that the committee members are asking the legislative leaders to set some parameters so that the negotiations can be better defined.
And if you read between the lines, it’s not a one hundred percent no-go. For instance, buried at the bottom is this…
[Sen. Matt Murphy], a deputy Republican leader, called the latest plan “back-loaded in its current form” because it relies on future lawmakers keeping promises. But he declined to say outright whether he would vote for it or not.
“Past general assemblies’ unwillingness to do that is exactly what got us here in the first place,” Murphy said. “We only get one bite at this apple.”
The AP could’ve just as easily put Murphy’s quote at the top instead of burying it at the bottom to illustrate how it ain’t over ’til it’s over.
*** UPDATE *** WLS has more on a possible solution…
Republicans on the conference committee apparently want more savings. State Rep. Mike Zalewski of Chicago – a Democrat on the committee – says the Republicans are not making unreasonable requests.
“To maybe bring the savings number up just a little bit with respect to the cost of living, things like that, maybe an alternative to a defined contribution plan for teachers that don’t want to stay in the system their whole careers,” Zalewski said.
* Meanwhile, this is a pretty bold statement by Bruce Rauner…
He favors capping pensions that have already been earned and moving government employees to a defined benefit, 401(k)-type of retirement plan.
“It’s what’s fair and affordable,” Rauner said. “Every dollar of excess pension … is a dollar that can’t go into other things.”
Making such a change would cut the state’s liability from $100 billion to $50 billion, according to Rauner.
None of the other plans, even Speaker Madigan’s harshest proposal, comes anywhere near to cutting the unfunded liability in half. Madigan’s plan would’ve “only” cut $21 billion from the unfunded liability.
I’ve asked for an explanation and will let you know what the Rauner campaign says.
*** UPDATE *** Thanks to a commenter, the Rauner plan appears to be based on HB 3303. From the synopsis…
Amends the Illinois Pension Code. With respect to the 5 State-funded retirement systems: Provides a new funding formula for State contributions, with a 100% funding goal and amortization calculated on a level dollar amount.
Provides that no additional service credit may be accrued and no automatic increase in a retirement annuity shall be received. Provides that the pensionable salary of an active participant may not exceed that individual’s pensionable salary as of the effective date.
Provides that State-funded retirement systems shall establish self-directed retirement plans for all active participants and all employees hired on or after the effective date. Provides that all active participants shall have the option of participating in a self-directed retirement plan. Provides that these changes are controlling over any other law. Effective immediately.
* COGFA studied the impact on one system, TRS…
The Commission’s actuary performed a cost study on a proposal that is substantially similar to HB 3303. That cost study showed a long-term reduction in State contributions for TRS only (through FY 2045) of $71.4 billion, and a reduction in FY 2014 unfunded liability of $27.4 billion. However, this cost study assumed no deviation from the current statutory funding target of amassing assets that are equal to 90% of DB liabilities by FY 2045. HB 3303 changes this target to 100% by FY 2045, and it specifies a level-dollar amortization approach. These two changes would result in greater long-term savings than those previously mentioned; however, an updated actuarial study would be required to capture the precise savings associated with the funding changes.
However, the bill has just three co-sponsors, and all three (Morrison, Ives, Wheeler) are probably the furthest to the right of any House member. It ain’t exactly a popular idea.
As he runs for re-election, Gov. Pat Quinn is staking a lot on getting something done with pensions. He’s making a show of asking the state Supreme Court let him cancel legislators’ salaries until it’s done, and he says he won’t deal with other major issues before the General Assembly — like using tax credits to keep ADM headquartered in Illinois — until there’s what he calls a “comprehensive pension solution.”
But it’s hard to tell just what that means.
Most of the ten legislators he tasked with crafting that solution don’t even seem to know. They say he’s been largely absent … until this month. Amanda Vinicky checked in with the ten representatives and senators on a special pension committee to see how involved the governor has been as they negotiate a pension deal.
posted by Rich Miller
Tuesday, Oct 15, 13 @ 11:24 am
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Is there a Constitutional Question that can be raised in the Rauner Plan, and further, if the General Assembly does not go along with the Rauner Plan, will Bruce Rauner “shut down” the state, knowing full well the General Assembly may feel 1) the votes are not there to DO the Rauner Plan, and 2) the Rauner Plan faces serious Constitutional Questions?
This ain’t Wisconsin, this ain’t Indiana, and that pesky Constitution makes this all difficult, regardless of the Plan, the Votes, or the compromises.
If it was easy, it would have been already done.
I will be waiting patiently for the Rauner Campaign to respond to Rich.
Comment by Oswego Willy Tuesday, Oct 15, 13 @ 11:30 am
–Making such a change would cut the state’s liability from $100 billion to $50 billion, according to Rauner.–
Does he have any math to prove this?
Comment by Ahoy! Tuesday, Oct 15, 13 @ 11:31 am
I’ll believe Rauner’s numbers when I see them. It might not be rocket science, but nothing is as easy as he likes to pretend.
If it was, it would have been done by now.
Comment by wordslinger Tuesday, Oct 15, 13 @ 11:33 am
And wouldn’t it be so much fun to watch the state fund existing retirements without fresh and ongoing contributions from employees who jumped into the 401(k) plans?
Comment by Wallinger Dickus Tuesday, Oct 15, 13 @ 11:35 am
Moving to a 401(k) plan would constitute the biggest possible diminishment of benefits imaginable outside of simply not paying the accrued benefits.
Comment by Anonymous Tuesday, Oct 15, 13 @ 11:39 am
You move into 401K, all of a sudden your in the Social Security business.
And as any business operator will tell you, the federales don’t let you be a day late on making your full required FICA payment, much less short it or blow it off.
Comment by wordslinger Tuesday, Oct 15, 13 @ 11:40 am
The Rauner statement sounds consistent with HB3303/SB2026. The pension note for HB3303 had a current unfunded liability reduction for TRS of $27.4B and would be consistent with a $50B reduction if extended to all 5 systems.
Comment by muon Tuesday, Oct 15, 13 @ 11:41 am
Rauner also has a bridge in Brooklyn that he can sell you. Rich, I believe you will be waiting a long time for any details out of his campaign.
Comment by Norseman Tuesday, Oct 15, 13 @ 11:43 am
Wallinger -
I think that’s what is referred to as “legacy costs”. You will probably hear that term used a lot if the state seriously considers a DC plan. Kinda like retiring the mortgage on an upside-down property.
Comment by Six Degrees of Separation Tuesday, Oct 15, 13 @ 11:45 am
Too bad we didn’t cap pension fund management fees paid to firm’s like Rauner’s.
Rauner has some good obvious points sometimes on the pension issue - usually ones that others have made for years. But it would be difficult to imagine a worse messenger.
Comment by too obvious Tuesday, Oct 15, 13 @ 11:52 am
I hate to say it, but perhaps that is what the state needs at this point an adult up the chain you makes it so you can’t weasel out.
Comment by OneMan Tuesday, Oct 15, 13 @ 12:00 pm
==every dollar of excess pension “(what exactly is EXCESS? Should we cap them at 5K/year?
==is a dollar that can’t go to other things==
I think the man has this backwards. Because every dollar that should’ve gone into the pension fund was “gone to other things”, we now have a problem. Convenient bait and switch that appeals to lesser minds. Blame the victim mentality and those of us in the thick of this are getting madder every single day.
Comment by Anonymous One Tuesday, Oct 15, 13 @ 12:02 pm
==Rauner also has a bridge in Brooklyn that he can sell you. Rich, I believe you will be waiting a long time for any details out of his campaign.==
The details of his plan were probably stolen from the Governor’s top secret plan, which he really, really does mean to share with us someday.
Comment by Anon. Tuesday, Oct 15, 13 @ 12:16 pm
OF COURSE there is now a split in the conference committee. No one wants anything votable to come out of there. Delay, delay, delay. The earliest the GA will vote through anything will be the next lame duck.
Comment by PolPal56 Tuesday, Oct 15, 13 @ 12:19 pm
==You move into 401K, all of a sudden your in the Social Security business.==
The beauty of that is that the state would be off the hook. The Feds would send each school district a bill. The school districts already have the statutory authority to pass the entire bill on to the local property tax payers via the uncapped retirement fund. So, the Rauner plan is, in effect, a large property tax increase with no referendum required!
Comment by Pot calling kettle Tuesday, Oct 15, 13 @ 12:29 pm
- until there’s what he (Quinn) calls a “comprehensive pension solution.”-
Try paying the state’s obligation into the pension fund. That sounds like a logical solution to me.
-Provides a new funding formula for State contributions, with a 100% funding goal and amortization calculated on a level dollar amount.-
That’s the only thing in the Rauner plan that sounds good to me.
Comment by Rusty618 Tuesday, Oct 15, 13 @ 1:04 pm
While you can never be 100% sure, the “Rauner plan” for existing employee’s doesn’t pass constitutional muster based on the previous ISC rulings about rules in place at hiring plus GA granted enhancements. The only part I see flying is changing it for new hires.
As others have noted, moving to a DC plan will mostly likely kick in mandatory SS payments. I haven’t ran the numbers, but my gut feeling is combining some level of State matching to DC contributions plus SS contribution plus a higher payment on the existing pension debt (to achieve 100% in the same period) would actually increase the needed payments short term … especially if you can’t shed the current employee’s from earning further pension benefits.
It may require less of a State level contribution (than today) if all the future TRS / some SURS pension fund contributions are dumped back on the school districts. I suspect that is where a lot of the projected State level savings comes from. But as I have noted before, if you dump that back on the districts and then up the “school aid” you send the districts, nothing has changed but the label.
Comment by RNUG Tuesday, Oct 15, 13 @ 1:17 pm
Sen Matt Murphy has it exactly right about the back-end loading of the rumored current plan. Assuming it passes constutional muster (which I don’t think it will), maybe the current compromise is the best that we can hope to achieve at this point: kicking the can down the road about 20 years.
Comment by RNUG Tuesday, Oct 15, 13 @ 1:17 pm
“He favors capping pensions that have already been earned”
That sounds like a diminishment of benefits to me. If Rauner’s idea is enacted I would look for multiple parties from the various pension plans going to court for a lengthy, and costly, fight.
A $50B reduction in unfunded liabilities sounds good to me but what about the other $50B? Is there any plan for paying off the other half of the unfunded liabilities?
Comment by Hit or Miss Tuesday, Oct 15, 13 @ 1:41 pm
Any action forcing current teachers, state, and state university employees out of the pension system would certainly be challenged in court, and seem to violate the Constitution and previous court rulings. Of course, new employees could be offered something different.
One question though, could current employees be offered something different that they voluntarily agreed to? Personally, I want to stick with the defined benefit pension.
However, new hires within the State University Retirement System have been offered a self-managed plan for years. The employee contributes 8.0% of earnings and the state contributes 7.6%—of which up to 1% is used to provide the employee with eligibility for disability benefits. And the State does actually make their 7.6% contribution each year. And those employees who choose that option do not contribute to Social Security.
http://www.surs.org/self-managed-plan
Could that be offered to current employees? If so, could the State afford to continue to contribute their 7.6% if large numbers of employees were in that plan?
And one problem with a lot of new or current employees leaving the existing defined benefit system is that means less money going into the system from employee contributions. And at some point there would only be money going out and no new money going into the defined benefit system. Yet those still in the defined benefit system would still have to be paid their pensions. And what about paying down the existing $100 billion in debt? Regardless of the plan, doesn’t that have to be paid off?
Comment by Joe M Tuesday, Oct 15, 13 @ 1:59 pm
A key part about his plan (assuming it is the same as the Policy Institute’s plan) is that it doesn’t grant any COLAs to retirees EVER. Your pension today, is the same as your pension in 20 years.
Last week, on Fox News nonetheless, they had a piece on the projected increase in Social Security benefits and how low it was, thus placing an increasing burden on seniors. Imagine never getting an increase…
Comment by Really? Tuesday, Oct 15, 13 @ 2:02 pm
HB 3033: Provides that no additional service credit may be accrued and no automatic increase in a retirement annuity shall be received.
In other words, the Rauner plan reduces the 3% AAI spelled out in the pension code for all five systems to zero. This is obviously even more draconian than the conference committee plan, which reduces the AAI (in expectational terms) to 1.2%, and I suspect the majority of the cost savings are coming from this provision.
None of this can possibly fly under either the Illinois State or U.S. Constitutions because the 3% AAI is an earned benefit. Indeed, in SURS and probably some of the other systems, employees have contributed a specific, dedicated % of salary towards the AAI. I have the same contractual right to my compounded 3% AAI as to the pension on which it is based.
Comment by Andrew Szakmary Tuesday, Oct 15, 13 @ 2:17 pm
I am in agreement with RNUG. Senator Murphy is making public what is obvious, that the pension reform plan has heavily back loaded cost reductions for the state. While else would every reference to cost saving only be discussed as being over a 30 year period. If there were massive savings in the first 5 years or so what politician wouldn’t tout those numbers to bolster their argument.
A week ago the WTTW program Chicago Tonight had two members of the State House on the program to discuss the pension issue (http://chicagotonight.wttw.com/2013/10/07/fall-legislative-veto-session). One was Rep Zalewski who is on the joint committee that is attempting to reconcile bills from the House and Senate on this issue who is quoted in the extract Rich posted. What was clearly established in this discussion was that over a 30 year period of time the likely proposal floated last week that could be voted on by the Assembly would realize $138 billion savings in State payments. If these savings were distributed equally each year over each of the 30 years the yearly payment reduction would be about $4.6 billion a year. Don’t you think that is worth talking about?
While Illinois’ pension payment jumped $1.1 billion in fiscal 2013, from $4.2 billion in 2012 to $5.3 billion. By 2015, Illinois should be making an annual pension payment of $5.9 billion or more. By fiscal 2017, the state could be paying $6.2 billion into its pension funds if there was no plan for payment reductions. In theory in 2017 the state would be reducing its payment obligations by a whopping 78% if the saving were actually uniform, but that is not what likely will happen.
The savings based over 30 years will not be equal and savings will be heavily back loaded and the biggest savings will not kick in for years. That perspective was hotly contested by Rep Zalewski on the Chicago Tonight program, so hotly it really led me to believe it was true.
Now the other side of the coin here is having minimal savings early on may make the bill more likely to pass the Constitutionality test because the public sector employees and retirees can only litigate an actual impairment not a theoretical one to come in future years. But if this bill becomes the model on which the supposed pension reform plan for the City of Chicago and Chicago Public Schools is built on then Mayor Emanuel is in deep fiscal trouble. Because he is banking on immediate savings to forestall the need to raise Chicago’s low property tax rates beyond the cap or face fiscal disaster. Now that would be doom and gloom.
Comment by Rod Tuesday, Oct 15, 13 @ 2:22 pm
===Your pension today, is the same as your pension in 20 years. ===
If you read the Con-Con transcripts, delegates debated whether the “diminished” language meant pension benefits had to be protected from inflation. The clear response is that they didn’t have to be protected and that the GA didn’t have to do pass any laws to do so, which is what gives lawmakers a tiny opening on this one.
Comment by Rich Miller Tuesday, Oct 15, 13 @ 2:25 pm
== Indeed, in SURS and probably some of the other systems, employees have contributed a specific, dedicated % of salary towards the AAI.==
Andrew is right. In SUR’s defined benefit plans, .5% out of the 8% employee contribution goes to “Automatic Annual Increases In Retirement Benefits”
Full-time community college employees (except
City Colleges of Chicago) pay an additional
0.5% of earnings to fund a health insurance
plan devised for community college retirees
Comment by Joe M Tuesday, Oct 15, 13 @ 2:27 pm
The AP article made clear that the three CC members running for higher office have all apparently retreated to previously rejected GOP party-line statements. They might truly believe these positions are correct, but the whole point of a conference committee is to move to compromise off of previously-held positions.
Comment by walkinfool Tuesday, Oct 15, 13 @ 2:32 pm
That plan would make these systems insolvent, when you have peple opting out of a system that is so underfunded there is not enough money to pay current retirees and costs skyrocket for the state. It is a cancer that would lead to more problems. Rauner likes it because his investment industry friends would make a killing by being able to charge enormous fees on these DC accounts. Come on Rich you can see right through that can’t you?
Comment by Obama's Puppy Tuesday, Oct 15, 13 @ 2:34 pm
==delegates debated whether the “diminished” language meant pension benefits had to be protected from inflation. The clear response is that they didn’t have to be protected and that the GA didn’t have to do pass any laws to do so, which is what gives lawmakers a tiny opening on this one.==
Interesting point. However the GA did put COLAs in effect, and isn’t the Pension Code of the Illinois Compiled Statutes the actual “contract” that is the “contractual relationship” protected by the Constitution’s pension clause? Some have suggested that once something has been put into the pension code, then it is part of the contractual relationship and can’t be diminished.
It would also seem that general contract law might come into play as well as the COLA was a condition of employment at the time of hire? And then there is also the issue that SURS and other employees have actually contributed out of their paychecks towards their COLAS in retirement. A complicated issue.
Comment by Joe M Tuesday, Oct 15, 13 @ 2:46 pm
Cullerton now feels that the legislature doesn’t need to wait for the pension committee to produce a pension bill.
http://www.sj-r.com/breaking/x450310239/Cullerton-Pension-issue-could-bypass-committee
Comment by Where will it end Tuesday, Oct 15, 13 @ 3:10 pm
Rod - The opposite of savings that are back loaded would be payments that are back loaded with front loaded savings which sounds like the 95 ramp. I would say it is easier to have up front savings because you can just say whatever your payment is going to be and then rely on the GA in 20 years to make up the difference.
Comment by Really? Tuesday, Oct 15, 13 @ 3:49 pm
After reading Cullerton’s remarks in the SJ-R story, I hear the train acomin’ … we’re about to get railroaded so the GA can say they did something.
Comment by RNUG Tuesday, Oct 15, 13 @ 3:51 pm
Rich Miller @ 2:25 pm:
And I would contend that in the few cases to date specifically on the AAI, it has been found protected.
The biggest thing we don’t know when trying to second guess things is what amount the ISC will consider to be a “diminishment”. In one pension case in the later 1970’s, as little as $35 a month was considered to be diminishment. Will the ISC look at that number the same way today?
Comment by RNUG Tuesday, Oct 15, 13 @ 4:17 pm
Yes “Really” I am totally not opposed to Ralph Martire’s approach. But apparently even progressive Democrats in the GA are not willing to push it legislatively. So here we sit.
Comment by Rod Tuesday, Oct 15, 13 @ 4:17 pm
I became a member of SURS in August 1990. Given the following language from the SURS pension code, I do not see how any rational judge could uphold any diminishment of my AAI. It is clearly part of my contract with the state. I had two other comparable job offers, and would never have moved to Illinois to begin with if there were any possibility I would not receive the 3% AAI.
Sec. 15-157. Employee Contributions.
(b) Starting September 1, 1969, each participating employee shall make additional contributions of 1/2 of 1% of earnings to finance a portion of the cost of the annual increases in retirement annuity provided under Section 15-136, except that with respect to participants in the self-managed plan this additional contribution shall be used to finance the benefits obtained under that retirement program.
Section 15-136
(d) A Tier 1 member whose status as an employee terminates after August 14, 1969 shall receive automatic increases in his or her retirement annuity as follows:
…The annuitant shall receive an increase in his or her monthly retirement annuity on each January 1 thereafter [i.e. after January 1, 1978] during the annuitant’s life of 3% of the monthly annuity provided under Rule 1, Rule 2, Rule 3, or Rule 4 contained in this Section. The change made under this subsection by P.A. 81-970 is effective January 1, 1980 and applies to each annuitant whose status as an employee terminates before or after that date.
Beginning January 1, 1990, all automatic annual increases payable under this Section shall be calculated as a percentage of the total annuity payable at the time of the increase, including all increases previously granted under this Article.
The change made in this subsection by P.A. 85-1008 is effective January 26, 1988, and is applicable without regard to whether status as an employee terminated before that date.
Comment by Andrew Szakmary Tuesday, Oct 15, 13 @ 4:44 pm
RNUG, I went through Madiar’s paper again to refresh my memory. The nuance here is that the constitutional convention delegates argued that the clause itself couldn’t be used as the basis for suing to get additional money to cover the cost of inflation. However, if the pension benefit included a cost-of-living increase then the diminishment protection would apply.
Comment by Norseman Tuesday, Oct 15, 13 @ 4:54 pm
I did a present value calculation under the terms of the proposed AAI (COLA) changes and found that it diminished a typical pension by 28%.
How can anyone think that will pass the supreme court? What will happen when sleep-walking educators wake up to realize the degree of the diminishment?
Comment by cod Tuesday, Oct 15, 13 @ 5:23 pm
Can he the legislature, at least, admit most of these pension reform proposals require a significant reduction in the pension checks of current retirees. By my own estimation as a retiree, I stand to loose 12 grand a year in 7-8 years if my COLAs don’t remain. That is a ridiculous amount and the political players should admit the devastation they will cause to senior current retirees. Even the media news papers have failed in educating the public on this issue and the local financial trouble this will cause to the communities where retirees live and spend money.
Comment by George Tuesday, Oct 15, 13 @ 5:53 pm
The COLA is a huge liability for the pensions.
Comment by Hacks Tuesday, Oct 15, 13 @ 7:09 pm
Pass whatever bill you’d like. I’ll see you in court, and you’ll feel my rath at election time when I, my relatives, friends, and those fellow voters who believe that keeping your promises to those who relied on them throughout their decades long career of state service work against your re-election. State employees tried and were unable to prevent the state from meeting their annual pension payments. The courts ruled when we sued that although we couldn’t force tha state to fund pensions annually, that the state was ultimately responsible for paying the pensions when they come due. Let’s call the current bills that are being spun as “reducing unfunded pension liabilities” what they actually are, that being theft of deferred compensation that state employees relied upon during their decades long careers in public service. We don’t relish litigation, but we’re being left with no choice. These spineless, remorseless, thieving politicians and their supporters need to be taught a lesson. I fully expect the Illinois Supreme Court to rule in our favor, and allow Illinois to get on with the business of paying their accrued liabilities, just as you and I do.
Comment by PublicServant Tuesday, Oct 15, 13 @ 7:46 pm
What the state needs is revenue. What the state needs is the “haircut tax”, i.e., a tax on services now excluded from the sales tax. COGFA estimated it could bring in $4 to $8 billion a year, depending on what services were included.
Pass a service tax and dedicate all revenue from it to pensions. It’s a simple way to get out of the mess. Most people won’t mind paying 40 or 50 cents on top of a $10 haircut. Most people for that matter probably don’t realize they are not paying a tax on that haircut now.
Comment by DuPage Dave Tuesday, Oct 15, 13 @ 8:14 pm
Pass Ralph Martire’s approach! Tell me why you think it can not be done.
Comment by Mama Tuesday, Oct 15, 13 @ 9:31 pm
Mama @ 9:31 pm:
While the Martire proposal would work, the biggest problem is the proposal to shift from a flat income tax to a graduated income tax. That will require an amendment to the State Constitution that must pass and then be approved by the voters. While I think it could be sold with a honest explanation, Quinn and company are not the people who could do it.
Comment by RNUG Tuesday, Oct 15, 13 @ 9:43 pm
“[Sen. Matt Murphy], a deputy Republican leader, called the latest plan “back-loaded in its current form” because it relies on future lawmakers keeping promises. But he declined to say outright whether he would vote for it or not.”
While Murphy’s concern is valid, it is a concern that applies to every single thing a legislature does. Most every “promise” legislators make fiscally or through more general statute creation requires future legislators to play along.
Comment by Precinct Captain Tuesday, Oct 15, 13 @ 10:52 pm
== Most every “promise” legislators make fiscally or through more general statute creation requires future legislators to play along. ==
And that is precisely the problem with the pension funding … current GA’s and Gov’s have not honored previous commitments.
Comment by RNUG Wednesday, Oct 16, 13 @ 12:50 am