Latest Post | Last 10 Posts | Archives
Previous Post: Pension roundup
Next Post: Budget cut react continues to roll in
Posted in:
* SJ-R…
Sen. Kwame Raoul, D-Chicago, sponsored the pension reform bill in the Senate, even though he did not agree with all of its provisions. He attended the oral arguments Wednesday and didn’t sound optimistic afterward.
“I think the indications are there won’t be a remand (to the circuit court) and we’ll be back to the negotiating table,” Raoul said.
* Our in-house pension expert RNUG offered up a few ideas yesterday…
What is probably back on the table plus some previous ideas:
Normal cost shift for TRS
‘Tier 3′ aka 401K type plan for new hires
Voluntary / optional 401K type plan for the systems that don’t currently offer it. Devil will be in the details.
Voluntary higher contribution rate in exchange for an early retirement option (rule of 75 but at least 10 - 15 years of higher payments first?) for SERS
Voluntary trade of the 3% AAI for a straight CPI
A lot of other small items I can’t remember at the moment.
Not saying any of these are necessarily good ideas or would even save any money but they would probably be legal.
Any other thoughts?
posted by Rich Miller
Thursday, Mar 12, 15 @ 10:08 am
Sorry, comments are closed at this time.
Previous Post: Pension roundup
Next Post: Budget cut react continues to roll in
WordPress Mobile Edition available at alexking.org.
powered by WordPress.
Tax retirement income. IL is only a handful of states that currently do not.
Comment by Dirt Diver Thursday, Mar 12, 15 @ 10:16 am
Shift the pension costs to the local government entities and give the local government entities flexibility to offer voluntary options. Saves the state billions of dollars.
Comment by Apocalypse Now Thursday, Mar 12, 15 @ 10:21 am
Looking forward to a positive ruling for state workers. It seems clear that future workers will receive less, but at least stop threatening retirees and long-term workers near retirement. I will be glad to get out of here in 2016.
Comment by Joe Biden Was Here Thursday, Mar 12, 15 @ 10:22 am
Tax retirement income over a set amount so as to relieve lower income retirees of a burden they likely can not sustain. Tier 3 would take way to long to have the near term effect needed. Cost shifts will only pass on the burden to local school districts - may be fair, etc, but only moves the chairs around on the deck. Higher payments to encourage even earlier retirement - I ain’t no mathematician but I wonder how THAT helps. How do you sell an even earlier retirement plan as a solution to this mess to voters at this stage of the game?
Comment by dupage dan Thursday, Mar 12, 15 @ 10:25 am
And just who will Raoul be “negotiating” with? The unions? Do the unions represent employees on pension issues? Do they represent retirees?
Who sits across the table?
Comment by dupage dan Thursday, Mar 12, 15 @ 10:27 am
@Apocalypse Now—how do you expect smaller communities to pay?
Comment by NewWestSuburbanGOP'er Thursday, Mar 12, 15 @ 10:27 am
If our state is really adverse to taxing in proportion to the services its people want, then the State would be incented to exit the pension business. Utilizing the normal cost shift and creating a third pension tier (401k-focused) would permit the State to have zero pension costs in 75 years (and see a rapid decline in costs within 30-35 years, as pension costs die away, literally.)
Comment by Diogenes in DuPage Thursday, Mar 12, 15 @ 10:29 am
I would bet more than a few retirees and current workers who remember the double digit inflation of the 80s would opt for a CPI based annual increase that offered inflation protection rather than the 3% automatic. It would probably not save the state any money over the long term, unless inflation stays low for an incredibly long time, but it would certainly help budgeting in the near term with annual increases of less than 2% for pensioners, if enough people opted for it.
Comment by Six Degrees of Separation Thursday, Mar 12, 15 @ 10:29 am
Is there a legal method of consolidating the boards overseeing the various pensions in this State? The administrative costs under the current system should be reduced.
Comment by Louis G Atsaves Thursday, Mar 12, 15 @ 10:29 am
Dirt Driver, Sure, Tax retirees pensions, and increase the number of retirees leaving the state. See if you can off set a tax increase on pensions, by a net exit of retirees from the state. Florida and Nevada are nice in the winter, and have no state income tax.
Comment by Anonymous Thursday, Mar 12, 15 @ 10:34 am
@ Dirt Driver-States exempting pension income entirely for qualified individuals are Illinois, Mississippi and Pennsylvania. States exempting a portion of pension income include: Arkansas, Colorado, Delaware, Georgia, Hawaii, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Oklahoma, South Carolina, Virginia and Wisconsin. States generally taxing pension income include: Alabama, Arizona, California, Connecticut, District of Columbia, Idaho, Indiana, Kansas, Massachusetts, Minnesota, Nebraska, North Carolina, North Dakota, Rhode Island, Vermont and West Virginia.
Comment by Apocalypse Now Thursday, Mar 12, 15 @ 10:37 am
All those ideas work around the edges. All can be part of the financial and political package to make it sale able. But The issue is the unfunded liability, $110+ billion. The answer is that it all can be bonded over 50 years, flat funding like a fixed rate mortgage at today’s low interest rates, under Ralph Martire’s CTBA proposal. Like a fixed rate mortgage, the bond costs become a smaller percentage of the state’s income. Of course the civic committee and Trib will scream about debt but the Ctba plan gets the job done.
Comment by Anon Thursday, Mar 12, 15 @ 10:38 am
The voluntary 401k (technically 403b in the public and nonprofit sector) extended to more systems is a good idea. This option has existed in SURS since 1998. The state contributes only 7% of salary and it (and the employees) still manage to stay out of Social Security. I’m guessing something like 30% of folks joining SURS since 1998 have chosen this option. The state saved a lot of money on Tier 1 employees that have chosen this. Not so sure about Tier 2, as the defined benefit option under that may cost the state even less.
Comment by Andy S. Thursday, Mar 12, 15 @ 10:38 am
I wouldn’t take the 3% for CPI Swap. Inflation has been above 3% only 7 of the last 25 years. People (conservatives) been sayin for years that inflation is just around the corner, the dollar was doomed (By Obamma),put your money in gold. All bad calls. Not wise to make financial decisions based on your politics.
Comment by anotherretiree Thursday, Mar 12, 15 @ 10:39 am
Tax retirement income.
Have this giant retirement generation help pay their own way. It is just wrong to see working moms at Walmart get taxed to order to help keep Boomer’s internet connections open and their Cialis flowing.
Comment by VanillaMan Thursday, Mar 12, 15 @ 10:42 am
Play the Power Ball and hope to win.
Seriously, revisit the ramp.
Comment by Sir Reel Thursday, Mar 12, 15 @ 10:42 am
===Tax retirees pensions, and increase the number of retirees leaving the state===
First, it ain’t gonna happen.
Second, if your retirement check originates in Illinois, it would almost surely be taxed no matter where you lived.
Comment by Rich Miller Thursday, Mar 12, 15 @ 10:43 am
Be careful for what you wish. It would be ironic if folks agreed to go to straight CPI and then the rate shot up. The state would be begging for the 3% back.
Comment by Demise Thursday, Mar 12, 15 @ 10:43 am
put the school districts on the hook for end of career salary bumps(24%) that increase pensions costs.
Comment by foster brooks Thursday, Mar 12, 15 @ 10:46 am
===how do you expect smaller communities to pay?===
Well no one is suggesting it would be easy, but smaller communities currently pay their teachers’ salaries. Shifting the pension payments to local districts would add what, 10% more to payroll costs?
I think the cost shift is going to happen, just as I think future SURS payments will come out of the universities’ budgets and not directly from the state anymore. The pain will be spread as broadly as possible and will put the responsibility in the hands of those local officials (and university officials) who are making personnel decisions. That’s as it should be.
The question going forward is who pays, and how much? After that you can talk about new retirement schemes for future employees and other ways to permanently prevent this debt bubble from ever happening again.
We’ll pay the debt because we owe it. That’s the American way. Stiffing retirees and employees, either by law or bankruptcy, is a cowardly way out. I’m glad the court is about to close the door on SB1.
Comment by 47th Ward Thursday, Mar 12, 15 @ 10:48 am
For TRS:
State sets a “limit” that they will pay each (currently working) retiree.
The threshold will be set so poorer districts/ones that don’t have extremely high end salaries would be covered. (As an example 100K)
Districts that want to pay teachers a higher amount would have to cover the cost difference between what the state will cover, and what is owed. (if the benefit is 120K they would be on the hook for 20K)
This is kind of like a partial cost shift. However districts, when negotiating, can set the highest salary to what the state pays out before they are “penalized”.(It is a way to “control” out of control local spend)
This would encourage districts to keep end of year boost down. However give them the option to do so if they choose(and have the money).
Many other factors to deal with as well such as current contracts, changing districts, ect…, this is the start of an idea.
Just an idea, no clue if its legal, but just I’d throw it out there.
Comment by Person 8 Thursday, Mar 12, 15 @ 10:49 am
Somebody needs to explain to me how shifting costs from the state to other governmental entities saves me, the taxpayer, any money. Won’t my local taxes go up to make up the difference? Isn’t this just wishful thinking that somehow this saves money?
Comment by RetiredStateEmployee Thursday, Mar 12, 15 @ 10:52 am
I’m embarrassed to say that I really do not understand this stuff very well, although I should. RNUG is about the only one who can make me understand, and for that I am grateful.
That being stated, can someone explain why Martire’s proposal has achieved zero traction? I’m not advocating it, but it doesn’t seem to have been seriously considered.
Is it one of those things that will only be seriously discussed if SB1 is struck down by the Supremes?
Comment by LincolnLounger Thursday, Mar 12, 15 @ 10:53 am
===can someone explain why Martire’s proposal has achieved zero traction===
Ralph’s plan increases annual costs by a billion dollars.
Get it now?
Comment by Rich Miller Thursday, Mar 12, 15 @ 10:56 am
Disagree with you Rich. Pension income paid by a state can not be taxed by that state, if the individual is a resident of another state, that does not tax pensions. In other words Illinois can not Tax your Illinois pension! This is federal law. See this On Jan. 10, 1996, Congress enacted the Pension Source Tax Act of 1996 (P.L. 104-94). This law specifically stipulates that, “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State.” While the Source Tax law still allows individual states to define residency on their own terms, it prohibits any state from taxing non-residents for pensions earned within the state. If you earn a pension in Vermont, for instance, then retire to New York, Vermont may not tax your pension income
Comment by Anonymous Thursday, Mar 12, 15 @ 11:00 am
Sir reel at 10:42 a.,m. Re revisit the ramp. . Of course. The original ramp, 1995 to 2045 was designed to get to an actuarially acceptable level of 90% funding. But it had a built in failure point as a balloon payment mortgage with big bumps in state contributions in 2040-45 culminating in $14 and $16 B B B BILLIONS annual payments the last two years. Then the state messed up the ramp with rod’s arbitrage play and then the $2.2 billion pension holiday adding $7 billion to the unfunded liability. The fiscal problem with SB 1 is that it squeezed all that mess into the remaining 30 years of the original ramp coupled to a goal of 100% funding. SB 1 is Not only unconstitutional but a fiscal disaster for the state and real harm to public pension members. So, back to sir reels point of revisiting the ramp, and the answer is CTBA’s plan for a 50 year bond on the unfunded liability, plus political cover by taxing high pensions (and rolling those revenues into paying the bonds) and ultimately a cost shift to local school districts. Only happens if a real solution is sought instead of another kick the can cover like the original ramp.
Comment by Anon Thursday, Mar 12, 15 @ 11:04 am
It might be painful to think about but… Illinois may have to cut thousands of higher education employees off the payroll to freeze their long term pension benefits. Let’s say they privatized 3 universities and told those employees they are no longer government workers accruing future pension benefits: that would save a lot of taxpayer money. I haven’t heard anyone talk about it but it is one way to cut pension benefits without violating the Illinois state constitution.
Comment by Steve Thursday, Mar 12, 15 @ 11:06 am
Re the comment that if pension originates in Illinois it will surely be taxed (presumably by Illinois) no matter where you move out of state: Federal law, P.L. 104-95, effective 1996, prohibits any state from taxing the pension of a non-resident, even if the pension was earned in that state. Illinois state retirees establishing residence in a state such as Florida would have no personal income tax at all on their pension. Federal law prohibits such a grab by Illinois.
Comment by Jerry in Chicago Thursday, Mar 12, 15 @ 11:10 am
Rich - are you sure they could tax pensions where they originate? Many retirees live out of State now. Could you imagine the chaos if the started losing thousands out of their yearly pension amount in addition to being taxed in the State they live? I don’t think so but could be wrong.
Comment by Georgeatt Thursday, Mar 12, 15 @ 11:14 am
First, pensions do not need to be “reformed”. Our legislature and executive branches of government however, are in dire need to reform. Especially considering the fact that they have, for decades, done silly things like violate the laws that they themselves wrote and passed.
If, as part of a bargain to increase pension funding levels and thus preserving the pension, one wished to make some reasonable changes and cost reduction moves I suggest:
1) Re-amortize the existing debt over 50 years.
2) target a 70-80% funding level
3) Shift annual cost of the pension to local districts, universities, municipalities (those in IMRF have already done so) and allow them to levy for cost if they choose, Chicago does. This will save money in the state budget but does not save the People of Illinois any money.
4)COLA- single biggest driver of the annual cost increase can be brought in line with SSI (CPI or 3% which ever is less)
5) All new employees stay in Tier 2 (401k does nothing to save money and actually makes pension system less stable)
6) cap pension (never going to get consensus here but $125K-$150K is a range). Income above that level is not subject to pension calculation and employee/district does not make pension payment on the amount above cap. Employee is free to use money above that level as the choose (no forced 401k contribution to enrich vulture capitalists like Rauner unless you want to). Districts are free to pay employees what they believe is appropriate but the entire state is not burdened by that compensation.
On the revenue side-
1) tax pensions over $50,000 (or $75,000)
2) Graduated income tax (AZ Bob likes to be like everyone else so this should work for him)
3)State my not enact ANY new legislation/program without establish a new funding stream for the law and that funding must be new or eliminating a program with same costs.
4) close corporate tax loopholes
5) 1% sales tax on everything except medication and medical, milk and formula. This should come with a guaranteed of minimum 10& reduction in property tax in some form (tax credit).
Comment by JS Mill Thursday, Mar 12, 15 @ 11:14 am
I believe the 401K would work for new employees. ..tier3. It would have to be all people receiving a pension from the state would have to fall within this tier3 not just “state employees”….no special pension for judges,law makers,troopersonal etc for this to work in the long run.
Comment by jazzy Thursday, Mar 12, 15 @ 11:14 am
Negotiate? Why and with whom? As a SERS retiree I just went through a period where part of my income was lifted for health insurance premiums. Final outcome. State gets to use my money interest free and attorneys get 15% off the top and I was the winner.
State can try and collect taxes if you move out of state but I don’t think that will work. People moving into the state from non taxing states will claim an exemption and that ain’t gonna work.
I really don’t care how the State solves it’s pension funding problem, just pay me the money it owes me..
Comment by Mouthy Thursday, Mar 12, 15 @ 11:18 am
==annual cost increase can be brought in line with SSI=
http://www.socialsecurity.gov/news/cola/automatic-cola.htm
When averaged out over the years, it’s about 3%. Lately, we’ve seen a low COLA, but what about those years of 14% when public annuitants were receiving a measly 3%?
Comment by AnonymousOne Thursday, Mar 12, 15 @ 11:23 am
Tier 2 may end up costing the state and school districts more because social security requires it to be at least equal to the benefits of social security. Tier 3 (403b with no employer match will be even worse). The SURS voluntary 403b has a 7% match which is paid into the account every paycheck. If the state had paid 7% every paycheck into the Tier 1 systems, there would not be as much of a shortfall today. The voluntary 403b was set up to attract employees who were unsure they would stay long enough to get the traditional SURS pension. It was not set up as a way to lower the state’s cost, in many cases it costs more. That is because under the traditional SURS Tier 1’s, an employee who leaves with less then 5 years in gets only a refund of their own contributions and a fraction of the interest it earned. The state paid nothing. A lot of the best applicants turned down the job offers because of that. With the 403b the shorter term employees at least get the 7% match. If they leave, the money goes with them.
Comment by DuPage Thursday, Mar 12, 15 @ 11:25 am
===Somebody needs to explain to me how shifting costs from the state to other governmental entities saves me, the taxpayer, any money.===
Why would you think you’d be saving money under any scenario? Taxpayers received the benefits of government services without paying the full cost of those services for decades. Now the bill is due.
This isn’t like saying you only had the soup when the dinner tab comes, and therefore you shouldn’t have to pay for my lobster dinner. That’s not how this works.
Comment by 47th Ward Thursday, Mar 12, 15 @ 11:29 am
4)COLA- single biggest driver of the annual cost increase can be brought in line with SSI (CPI or 3% which ever is less)
If this is a mandatory rather than an elective change at the member’s choice, it might be challenged in court, and with a 3% ceiling it would definitely be a diminishment in the court’s eyes. It would be difficult to prove one way or another as a diminishment if there were no ceiling, but a court might buy the recent history of 3% vs. the CPI as a diminishment for the recently retired. Do we really need another court case?
Comment by Six Degrees of Separation Thursday, Mar 12, 15 @ 11:32 am
=When averaged out over the years, it’s about 3%. Lately, we’ve seen a low COLA, but what about those years of 14% when public annuitants were receiving a measly 3%? =
What about it? My suggestion is that the pension system COLA be the same as SSI recipients get. I continue to hear how the pension should be the same as SSI so why not make this adjustment?
And your suggestion is…….?
Comment by JS Mill Thursday, Mar 12, 15 @ 11:33 am
===Somebody needs to explain to me how shifting costs from the state to other governmental entities saves me, the taxpayer, any money.===
I think the word you’re glossing over is “shifting”. You can even call it an “irresponsible behavior tax” for some school boards. They’ve been writing checks locally that the state has been forced to cash. If it ain’t your money, it’s value makes little difference. It’s going to become your money very soon. Behavior will change. Quickly.
Comment by A guy Thursday, Mar 12, 15 @ 11:34 am
@Six Degrees- It would have to be negotiated.
I gave my suggestion and I would be more than happy to review yours.
BTW- I am in TRS and hope to receive a pension someday.
Comment by JS Mill Thursday, Mar 12, 15 @ 11:35 am
Tax public and private retiree income, and have the money go right to the state pension systems. Would that help out?
Comment by Big Joe Thursday, Mar 12, 15 @ 11:37 am
@ A Guy- I think I understand what you are saying but things have changes in the last decade. If an entity grants an increase above 6% in a calculable year then the entity is liable for a penalty that is $13 for every $1 over the cap.
The entity granting the raise IS paying the salary, so they are paying some of the tab just not the tab for the long term costs.
I get what you are saying but it is not entirely accurate. On top of that, they had little say in setting the benefit levels or expenses when these rules were put in place. The cost shift could answer part of that.
Comment by JS Mill Thursday, Mar 12, 15 @ 11:40 am
Not my idea but I think rauner-arduin would raise retiree health ins deductibles/co-pay dependant premiums to astronomical amounts.
Comment by foster brooks Thursday, Mar 12, 15 @ 11:48 am
Re rich Ctba plan adds $1 billion annual payments. Never said it would be easy, just that it solves the pension debt once and for all.
Comment by Anon Thursday, Mar 12, 15 @ 11:51 am
Any Pension Reform Legislation needs to start with the language “Under no circumstances shall the legislature borrow against……”. The current pension obligation to TRS is mostly debt repayment, not “real-time” obligation. This issue mirrors the feds dealings with Social Security (the number one holder of U.S. debt). Difference being, the state can’t print more money!
Comment by Just The Facts Thursday, Mar 12, 15 @ 11:51 am
Rich Miller at 10:43
“Second, if your retirement check originates in Illinois, it would almost surely be taxed no matter where you lived.”
Income Taxes are based on where you reside not where your company resides. Or does Illinois tax all the pay for the Boeing employees in Washington state since Boeing is Headquartered in Illinois?
Comment by Frank Ambrose Thursday, Mar 12, 15 @ 11:53 am
=== Any other thoughts? ===
Lowering the target to 90% is extremely likely.
It will not go as low as 70% as someone else suggested, but 90% was the target of the Edgar Ramp.
Comment by Juvenal Thursday, Mar 12, 15 @ 11:54 am
Maybe someone knows, but when the AAI was implemented way back when, didn’t the employees share increased to pay for that benefit?
Comment by Spidad60 Thursday, Mar 12, 15 @ 11:57 am
Can anyone (RNUG?) explain the threat of the feds imposing Social Security on the public sector if a 401(k) plan is instituted in place of a pension?
My understanding is that if the retirement plan offered by a state gives a smaller benefit than what Social Security would, the state loses its Social Security exemption. Is it that simple?
Comment by chi Thursday, Mar 12, 15 @ 11:59 am
Spidad60
Yes it did. AAI is bought and paid for along the way. I remember my contributions increasing.
Comment by AnonymousOne Thursday, Mar 12, 15 @ 11:59 am
There really isn’t a pension funding crisis,this has all been orchestrated by the bond houses to increase yields. To my knowledge no one has ever not received a pension check and our funding level has never been above 50%.So why now do we need a 100% funding level?
Comment by Joe Blow Thursday, Mar 12, 15 @ 11:59 am
JS Mill, retirement benefits can’t be “negotiated” down by a union, legislators or anyone else, since under our state constitution they are an enforceable individual contract. Else all it takes is one person who objects, and then it’s “see you in court”…that was the eventual flaw of the Cullerton plan that We Are One Coalition negotiated with him but didn’t get passed…even he said it was “less unconstitutional” (ha) than SB1, and probably expected a challenge from someone.
Make it voluntary, and it eliminates the mess, although it doesn’t go as far as a mandatory reduction. In this case, as in all politics and law, it will be “the art of the possible”.
Comment by Six Degrees of Separation Thursday, Mar 12, 15 @ 12:00 pm
I just love how so many of the comments reflect continued “shared sacrifice” being on the backs of the victims who have now become the culprits.
Comment by forwhatitsworth Thursday, Mar 12, 15 @ 12:05 pm
My main concern is that the GA is going to make unions, and specifically state workers, the “sacrificial lamb” to Rauner. That Bruce will sign whatever they want, as long as he at least gets to destroy unionized state workers in some fashion.
Comment by CharlieKratos Thursday, Mar 12, 15 @ 12:07 pm
@- Six Degrees of Separation - In 2011 a deal was on the table and agreed upon by representatives of the interested parties.
Would an individual challenge that deal? We will never know.
Could they, probably.
Still waiting for your idea. Make it all voluntary? I would guess that is not going to happen.
Again, I am a TRS member. I am well versed in the law. There are issues that can be resolved legally but so far most of what has been proposed is just less with zero give and take.
Comment by JS Mill Thursday, Mar 12, 15 @ 12:09 pm
How about revamping the General Assembly Retirement plan first? Move them into the 401(k) style system. How much money would that save?
Comment by In_The_Middle Thursday, Mar 12, 15 @ 12:09 pm
Revamp? How about eliminate or fold contents of their fund into others in thanks for what they’ve done to innocent people who just went to work and paid? How many hours/weeks do legislators work anyway? And why doesn’t anyone ever talk about that?
Comment by AnonymousOne Thursday, Mar 12, 15 @ 12:17 pm
Foster Brooks
I’m hearing current workers and non Medicare retirees will be taken down to a bronze level plan July 1.
Comment by anotherretiree Thursday, Mar 12, 15 @ 12:17 pm
JS Mill - the primary problem now will be an ISC that has issued one adverse opinion and likely to soon issue another, on the ability of the state to reduce pensioners rights. Back in 2011, that was not the case and the landscape was more unsure, and the unions were more amenable to a fix that might include a diminishment, albeit one that was legally challengeable.
Comment by Six Degrees of Separation Thursday, Mar 12, 15 @ 12:23 pm
As far as solutions, I’d just take RNUG’s list and vet it to see what components work the best, add amortizing the accrued pension debt, likely increases in health care premiums (where they are allowed), and probably looking at some form of taxing retirement income.
Comment by Six Degrees of Separation Thursday, Mar 12, 15 @ 12:28 pm
Retirement income should be taxed. Income is income.
Comment by jogger Thursday, Mar 12, 15 @ 12:36 pm
The Matire / CTBA Plan of re-amortization only increases costs for a few years. Then it decreases. If they reinstituted the temporary tax to address it that would help. Shift some of the normal cost slowly to Districts. Lower the shift of responsibility to school district’s for end of career increases from a cap of 6% to say 3% after current contracts expire. Tax some retirement income above a significant threshold and dedicate it to pensions. But that is all logical so it won’t happen.
Anyway, here are some bullet points on the CTBA Plan from them:
CTBA’s Approach
•Does not eliminate the problem in 30 years –But
•Is constitutional
•Works in conjunction with other proposals
•Eliminates the pressure on the fiscal system created by the unfunded liability
•Frees up current revenue to fund current services
•Provides for payment of all retirement benefits as they become due
•Enhances the funded ratio to 72% in FY2045
•Saves $111.5 billion through FY2045
•Overall, costs less than current law—even after extending repayment schedule through FY2059
Comment by Bobbysox Thursday, Mar 12, 15 @ 12:38 pm
Increase the Chicago and Illinois centric investment strategy of the pension funds in exchange for negotiating COLA and other parts of the deal. Maybe even a public old folks home to recapture some of those social security and pension dollars with all that HUD money that needs to be spent. Lets keep some pension dollars spent in Chicago.
Comment by Biker Thursday, Mar 12, 15 @ 12:40 pm
An answer to the income tax question can be found in the IL1040 form instructions which reads in part “a nonresident, you must file form IL1040 and schedule NR if you earned enough taxable income from Illinois sources to have a tax liability…..”
Comment by Pacman Thursday, Mar 12, 15 @ 12:55 pm
== Maybe someone knows, but when the AAI was implemented way back when, didn’t the employees share increased to pay for that benefit? ==
Yes. Depending on the system, either 0.5% or 1.0% of the employee contribution (anywhere from 4% to 11.5%) is for the 3% AAI.
Comment by RNUG Thursday, Mar 12, 15 @ 1:00 pm
The biggest problem with almost every State proposed pension solution to date is that such proposal starts with the assumption that some of the already accrued pension debt can be negated. Until that mindset is changed, nothing substantial will get done.
Once the State acknowledges it HAS to pay the existing debt (and it’s highly likely the IL SC is going to cram that down their throat), then, and only then, will solutions based on math get serious consideration.
I’m going to keep sounding like a broken record; TIER 2 WITH INCREASED PERMANENT REVENUE WAS THE SOLUTION … you just have to give it the time to work. We got into this mess over about 100 years (or 45 years if you count from the Pension Clause) and it’s going to take a lot of time to get out of it.
Comment by RNUG Thursday, Mar 12, 15 @ 1:11 pm
I live in Virginia, receive an Illinois pension, and I am pretty sure that, as others have pointed out, a federal law passed in 1996 would prohibit Illinois from taxing my pension if I do not reside in the state. However, even if you could tax my pension, it would not affect me because I would simply credit any tax paid to Illinois on my Virginia income tax. Our income tax rate, at 5.75%, is higher than yours. It makes no difference to me if I pay 3.75% to IL and 2% to VA, or 5.75% to VA as I do now.
Comment by Andy S. Thursday, Mar 12, 15 @ 1:16 pm
===Somebody needs to explain to me how shifting costs from the state to other governmental entities saves me, the taxpayer, any money.===
Unfortunately, it is not designed to save the taxpayers money. Bruce Rauber and the people who have been messaging this scheme, just want us to think that.
Comment by Cheswick Thursday, Mar 12, 15 @ 1:26 pm
Rich and Team — there are at least 2 other areas that could be developed and fleshed out to help solve the pension problems created by the State.
First, statutes could be revised to give some public workers (especially Tier 1s) some consideration in return for some concessions. One form of consideration could be some revisions to current work terms and conditions — such as more personal time off or greater healthcare benefits for TODAY’s workers who make pension concessions.
Another strategy would be to transfer some State assets to the pension funds, who could then utlize them to gain additional money or revenue. This isn’t as far-fetched as it seems — for instance, one of the Canadian public pension funds has ownership interest in several public airports. Now, while it might not be politically popular to transfer the Chicago Tollway, for instance, to the pension funds, this is one other strategy available to the State. Maybe tranfer the Lottery to TRS and CTPF — at least then the Lottery will be funding educators (if not education as originally promised by General Assembly).
Comment by ChiTownSeven Thursday, Mar 12, 15 @ 1:27 pm
Joe Blow, put down the crack pipe.
It’s beyond a stretch to believe this century-old problem was conjured up by some bond salesmen chasing a few basis points.
Further, the pension funds were on a steady stream of increased funded status through the 90s and early into this century. TRS and SERS were 70% funded at the high point and SURS was briefly over 90% as I recall. ERI, WorldCom, ENRON, the tech collapse, and pension holidays stopped the forward progress along with two recessions in the 2000’s.
Comment by Arthur Andersen Thursday, Mar 12, 15 @ 1:27 pm
Discontinue Legislative Pensions that should do the trick.
Comment by Springfield watcher Thursday, Mar 12, 15 @ 1:43 pm
Possible negotiation ideas for the General Assembly to consider:
Re-Amortize Illinois’ pension debt.
Tax retirement income.
Raise state income tax to 5 or 6 percent.
Work toward a progressive state income tax.
Comment by Enviro Thursday, Mar 12, 15 @ 2:38 pm
- JS Mill - Thursday, Mar 12, 15 @ 11:14 am & - JS Mill - Thursday, Mar 12, 15 @ 11:40 am:
@ A Guy- I think I understand what you are saying but things have changes in the last decade. If an entity grants an increase above 6% in a calculable year then the entity is liable for a penalty that is $13 for every $1 over the cap.
As a 26 year employee of TRS and member of SERS until Feb 2015, I want to correct the misinformation in A Guy’s post on the school district’s employer costs for paying salary increases used in FAS/pension benefit calc exceeding a 6% increase. The $ 13 referred to is actually an actuarial factor of 13 to 14 used in calculating the pension benefit amount created buy the salary increase paid by in excess of 6%. So if you want to say the employer cost is equal to $13 to $14 for each $1 in retirement benefit generated from the excess salary then that would be acccurate. However, since the TRS retirement benefit is based upon a 4 year average and an average salary multiplier maxed at 75%, the reality is school districts at the time of implementation of the 2005 state pension law only had to pay a max of $2.60 for each $1 paid to their retired teacher that was above a 6% increase over the prior year salary the district paid to this retiree. Due to changes in actuarial assumptions since then, that max # is @ $2.90 for each $1 above the average salary increase of above a 6% increase. See for yourself at the TRS link to a 2006 employer bulletin insert that I personally calculated and wrote http://trs.illinois.gov/employers/bulletins/INS40.pdf
I do want to commend JS Mill and as usual RNUG for the lists of potential solutions that might be worth considering for the pension funding problem. It is a long-term pension funding problem & not a pension benefit problem. Illinois is not in a short-term fiscal crisis either but hard choices in a combination of spending cuts and permanent revenue increases are required very soon.
Comment by MJG Citizen 4 Thursday, Mar 12, 15 @ 2:39 pm
My undestanding is that Tier 2 does not meet Social Security standards and if it is not fixed, it will cost the state more than Tier 1. The state would be forced to pay social security plus Tier 2.
In addition, if the state moves to 403bs, the state will have to pay social security plus their share of 403bs plus make up the amount that current employeess would have been paying into their pensions instead of the 403b. It would likely cost more. 4 states have tried 403bs and gone back to defined benefit plans which are actually less expensive for the state.
The CTBA answer is one reasonable plan based in reality. The problem is a political one, not a numbers one.
Comment by Zach Thursday, Mar 12, 15 @ 2:45 pm
@ MJG Citizen 4- I looked at your chart, thanks for providing the link and refining my statement. The $13 part came from me.
Comment by JS Mill Thursday, Mar 12, 15 @ 3:08 pm
The only thing I would say at this point (I’ve made 2 or 3 suggestions in posts over the last couple of years)is this. Be very thoughtful about reducing the percent funded target by too much. I generally favor doing that, but the remaining unfunded liability, however much it is, will be by far the most expensive debt the state has.
Comment by steve schnorf Thursday, Mar 12, 15 @ 3:24 pm
re post by - Zach - Thursday, Mar 12, 15 @ 2:45 pm:
Tier 2 currently meets the safe harbor provisions and would not require mandatory social coverage in addition to IL public pension system membership & contributrions. A few executives of TRS have raised that concern about future SS coverage problems with Tier 2. None of the other systems have expressed this opinion. The story is that Tier 2 benefits are only worth 7% of member’s salary. This 7% is total and would cover the full normal cost of benefits (the teacher’s 9.4% contribution on salary plus the state’s employer normal cost @ 8%). So the story is Tier 2 members pay for all of their anticipated retirement benefits by themselves plus a portion of Tier 1 memmber’s contributions and the state effectively pays zero towards the Tier 2 member’s benefit. Is that propaganda to convince the legislators to fix or improve Tier 2 benefits or decrease their contributions or is it the truth?
What i know is that any teacher that earns $25,000 or above per year in salary and teaches for at least 10 years will receive a much better benefit under Tier 2 than if they instead contributed to and received benefits from Social Security on their teaching service in lieu of State of IL Tier 2 benefits. Social Security benefits inflate low salary employee’s benefits and deflate medium to higher salaried employees. TRS and other IL public retirement systems don’t have this redistribution or discriminatory component.
So regardless of what the member contribution rate should be and what % it should be to cover their anticipate benefits, for Tier 2 employees that work enough to qualify to receive retirement benefits are better off than Social Security contributors/retirees.
Any fixes if needed should focus on career employees or at least vested employees that qualify for retirement benefits. Why should a pulic retirement system instead cater to employees that are mercenaries and hop from one profession to several others and only earn enough service in a IL ret system to take a refund?
State employees have an optional Deferred Comp program that can be used to fund separate retirement accounts and other system employees have ability to payroll deduct optional contributions to other retirement accounts such as 403(b) tax-sheltered annuities. There is not an unmet need for IL public employees to have the state either add some optional plan or hybrid plan to IL public retirement systems. Just fund the Tier 1 system benefits that must be paid and let the current Tier 2 remain as is unchanged. There are no legal negotiated pension benefit changes for any current employees or retirees. You can allow each current member a choice but one of the choices must be their current benefit plan without changes that reduce already earned or future ongoing employment-earned pension benefits.
Comment by MJG Citizen 4 Thursday, Mar 12, 15 @ 3:26 pm
Every now and then, I’ll see a post pop up by someone advocating an early retirement incentive as a strategy to help resolve this issue. I tend to disregard these as I cannot comprehend how the math would work to do this. It seems that any ERI would ADD to the State’s burden. Can any of our resident experts confirm this for me? Thanks.
Comment by Original Rambler Thursday, Mar 12, 15 @ 4:25 pm
I would appreciate some help with this question. As far as taxing retirement income / pensions, does this mean taxing only state pensions, or ALL retirement income including Social Security? Could you do one and not the other?
Comment by forwhatitsworth Thursday, Mar 12, 15 @ 4:37 pm
OR, as they say, the devil is in the details. Both law and politics dictate that a new ERI has to be fully funded by some mix of employee/employer contributions. In order to cover the full cost and assuming the “employer” (the State) is not going to pick up a significant share of the cost, the resulting employee contributions may be prohibitively high.
Comment by Arthur Andersen Thursday, Mar 12, 15 @ 4:39 pm
FWIW - you have to tax ALL retirement income.
Comment by Original Rambler Thursday, Mar 12, 15 @ 4:46 pm
- Original Rambler -
It all depends on how you look at it.
If you look at it from a complete State cost perspective, then it isn’t a good idea.
If you are looking at it strictly from the viewpoint of reducing current year / next year payroll expenses and ignore the future liability to both the pension fund and health insurance (the 2002 ERI scenario), then it makes perfect sense.
Comment by RNUG Thursday, Mar 12, 15 @ 4:56 pm
== As far as taxing retirement income / pensions ==
Other states tax pensions, or a portion of them, while excluding Social Security.
What would be clearly illegal would be to tax ONLY government based pensions.
Taxing pensions but not Social Security in Illinois with the current flat income tax is going to be a gray area … especially for the people, like teachers, that were not allowed to pay into SS. And gray areas get presumed legal until proven otherwise. Going to depend on whether or not the courts view that taxation as diminishment to the government pension.
Comment by RNUG Thursday, Mar 12, 15 @ 5:01 pm
- Original Rambler -
I think it all depends on what the incentive entails. I would assume if the state offered someone to retire early, there would be an up front cost to the employee, and also a futures penalty(reduction in cola perhaps). In return they’d get to retire earlier.
I’ve run some numbers on just the reduction of cola part suing trs, and if the incentive is 2 years early, with half a cut in cola (1.5%) the state doesn’t see any gains unless that person lives well into thier 90s.
So that leads me to believe that there would be an increase in salery deduction as well.
Comment by Person 8 Thursday, Mar 12, 15 @ 5:17 pm
Some here are advocating a cost shift to local governments. Whether that is considered, or not, isn’t the issue I’m concerned with. The primary promise to ultimately pay the pensions must remain with the state. Any shift of this responsibility to a local government that might through legislation be allowed to declare bankruptcy and therefore diminish the pension via bankruptcy would be unconstitutional. The state, an sovereign entity which exists in perpetuity, and cannot declare bankruptcy, must remain the payor of last resort, or the transfer is a clear impairment.
Comment by PublicServant Thursday, Mar 12, 15 @ 6:28 pm
==Second, if your retirement check originates in Illinois, it would almost surely be taxed no matter where you lived.==
Federal law prohibits states from taxing retirement income of nonresidents.
Comment by Anon. Thursday, Mar 12, 15 @ 6:33 pm
RE:Stiffing retirees and employees, either by law or bankruptcy, is a cowardly way out.
Thats wall streets MO, taught in havard business school,
Comment by foster brooks Thursday, Mar 12, 15 @ 8:57 pm
Didn’t the legislature amend the law to prohibit collective bargaining with respect to pensions? don’t recall that provision being part of the Supreme Court cse. How is he going to negotiate with any union for anything about the pensions in light of that law? On the positive side, the elimination of pension benefits from collective bargaining might prevent another We Are One Illinois attempt to sell out its members by agreeing to pension cuts.
Comment by anon Monday, Mar 16, 15 @ 2:00 pm