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* Eric Madiar, one of the best pension reform analysts this state has, recently penned an article for the Chicago Kent College of Law. Here’s the summary…
Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” For quite some time, the “ain’t so” in Illinois has been its enormously underfunded pension system and its obligation to pay pension benefits when they become due. Indeed, as a 2009 legislative report explained, underfunding of the pension system occurred because the State’s fiscal system failed to generate sufficient revenue to both maintain public services, such as education, healthcare, and public safety, as well as cover the State’s actuarially required pension contributions. As a result, the pension system was used for decades as a proverbial credit card to fund public services and stave off the need for tax increases or service cuts.
To tackle its mounting unfunded pension liabilities, the General Assembly passed legislation in 2010 that cut the pension benefits provided to future public employees and officials entering service after January 1, 2011. The legislature also enacted a temporary income tax increase in 2011 to help retire unpaid bills and make timely pension contributions. And in 2013, the legislature passed two pension reform bills that unilaterally cut the pension benefits of retirees and current employees. The first bill applied to participants in four of the State’s five pension systems, while the second bill applied to participants in two of the City of Chicago’s four pension systems.
While passing these bills was heralded as a bipartisan political success, it was shortlived. In the last twelve months, the Illinois Supreme Court issued two unanimous decisions invalidating both bills as violative of the Pension Clause of the Illinois Constitution. In both decisions, as explained below, the court held that the Clause bars the legislature from unilaterally reducing the pension benefits of current public employees and retirees. Given this outcome and the State’s wider fiscal challenges, this Article assesses the legal options the Illinois General Assembly may pursue to mitigate the fiscal impact of funding its public pension obligations.
This Article is organized as follows: Part II begins with a primer on the Pension Clause of the Illinois Constitution (Article XIII, Section 5). Part III reviews the Illinois Supreme Court’s May 2015 decision, which found that the 2013 Pension Reform bill—Public Act 980599—violated the Clause. Part IV reviews the court’s March 2016 decision, which similarly found that Chicago’s 2013 Pension Reform Bill—Public Act 980641—violated the Clause. Part V assesses the options that the General Assembly may pursue to mitigate its financial burden of funding the pension system based on the Clause’s background and the two recent court decisions. The Article concludes that the use of ordinary contract principles—as suggested by this author five years ago—provides a means to reduce pension benefits of current employees and thereby mitigate this financial burden. The proposal offered by Senate President John J. Cullerton, in particular, provides one viable means of mitigation, as does forging an agreement with public sector labor unions through the collective bargaining process. Municipal bankruptcy and amending the Pension Clause, however, are not plausible options.
posted by Rich Miller
Monday, Jul 11, 16 @ 9:39 am
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Madiar’s pension reform presentation to the SUAA from June 21st just got posted online this weekend as well. It looks like he basically summarizes what’s being reported about his Chicago-Kent article:
https://www.youtube.com/watch?v=ynDxABbhQmU
Comment by COPN Monday, Jul 11, 16 @ 10:01 am
This is an excellent summary by Madiar, and provides more detail on Cullerton’s proposal than had previously been available. The “consideration” approach outlined in this article may well pass constitutional muster; as he notes, employees are not entitled to future raises, or in fact entitled to any compensation level. If employees don’t want to agree to the state’s offer of conditional salary increases, they don’t have to - they can reject the offer and try to negotiate on their own (if not covered by a union) or take their talents elsewhere (in the private sector).
I know this isn’t what a lot of folks want to hear, but I believe this plan has a reasonable chance at the Illinois Supreme Court. And of course, if you are anywhere within shouting distance of retirement, you’d be an idiot to agree to it.
Comment by jdcolombo Monday, Jul 11, 16 @ 10:03 am
“ordinary contract principles”
I am not a lawyer, but I question if the Cullerton model of consideration meets the legal definition. It concerns me greatly the Madiar thinks it does.
Comment by Ole' Nelson Monday, Jul 11, 16 @ 10:08 am
Madiar passes himself off as the State’s foremost pension expert. That is total BS. His summation says nothing new at all. As for Cullertons plan- it will meet the same fate as previous versions of reform. There is really only one alternative however unlikely- for municipal plans- BK reform which is not available to the State. Only relief is increasing contributions which for the Tier 2 folks a Madoff Ponzi scheme.
Comment by Sue Monday, Jul 11, 16 @ 10:09 am
“forging an agreement with public sector labor unions through the collective bargaining process”
So a union can bargain away an individual’s benefits that are constitutionally protected? This wouldn’t go down to individual decisions?
Comment by Ole' Nelson Monday, Jul 11, 16 @ 10:11 am
I must have been typing while jdcolombo posted. I see that they believe it could pass the ISC. That is indeed not what I wanted to hear.
Wouldn’t not counting future raises be considered changing the formula, as the current setup is based on the last few (typically highest) year’s salary?
I know raises aren’t guaranteed, but I would have guessed that any raises that did occur would count towards the pension deal that an individual employee was enrolled in.
Comment by Ole' Nelson Monday, Jul 11, 16 @ 10:17 am
I rarely disagree with Eric Madiar, but I think his presenting the Cullerton proposal to make future raises non-pensionable as being legal in clear black and white terms is a bit of an over-reach. There are other decisions that could be interpreted as not allowing such a proposal. (Yes, I read his dismissal of that line of reasoning.) I think it would be more accurate to say it will be in a gray area where the courts could go either way depending on the exact proposal and language. He may well be right, especially given the hints issued by the court, but I don’t think it is a slam dunk.
As to unions bargaining for employees, he rightly notes the exclusive requirement that may prove to prevent unions from negotiating pension changes.
My take-away is, I think, the same as Eric’s. You can nibble around the edges but you can ‘t really reduce much on existing Tier 1 employees … and the State HAS to pay the pensions, so the State is going to have to find a way to properly fund the pension systems.
And I’ll note that Eric accurately predicted the consideration approach in his “Welching” paper.
Comment by RNUG Monday, Jul 11, 16 @ 10:24 am
Adding … if the Cullerton bill gets passed, expect another brain drain as more Tier 1 employees decide to retire.
Comment by RNUG Monday, Jul 11, 16 @ 10:29 am
Another possibility is the SC sees this as a work around of what they plainly meant to be an ironclad decision - Pay the pensions, period. The state absolutely has the right to deny raises, in an of themselves. However, once they come forward and say “We are denying raises in order to impair the employee’s pension.” They may open the door to the SC saying, “Guess what, if you want to tie raises to pensions, we will guarantee them under the pension clause also.” A longshot, but you never know.
Comment by Han's Solo Cup Monday, Jul 11, 16 @ 10:31 am
Eric Madiar and his former boss, John Cullerton, like to tell everyone who will listen that they were right all along about the previous attempts to reform pensions. Okay, I guess, but those were hardly Nostradamus-like predictions. The fact that Cullerton hasn’t moved a lick on pension reform for over one year, despite Rauner ceding wholeheartedly to Cullerton’s “plan”, speaks volumes.
And as to Madiar’s comments now? Well, it’s a whole bunch of “look at me” nonsense; nothing more. If Illinois authorizes municipal bankruptcy, and that’s a big if, we’ll see how things pan out, but instructive cases elsewhere suggest that Chapter 9 plans are very case specific so it may be a long time before there’s definitive clarity.
Comment by Clarence Darrow He Ain't Monday, Jul 11, 16 @ 10:33 am
As I’ve said plainly for five years. THE PENSIONS MUST BE PAID AS IS! Cullerton’s BS proposal must allow for the status quo in order to be Constitutional. PERIOD! Redo the funding ramp and adequately fund State operations by raising the income tax. A low income tax in Illinois has to come to an end. Breaks are over for high income earners who write off State income taxes on their Federal return anyway for crying out loud. The piper has to be paid and now!
Comment by qualified someone nobody sent Monday, Jul 11, 16 @ 10:37 am
‘Ole Nelson:
I didn’t say that I thought it WOULD be approved by the ILSC, only that it had a reasonable chance.
One argument that Madiar did not address is the doctrine of unconstitutional conditions. While this is a very murky area of constitutional law, it is clear that there are limits on what the government can do to promote a waiver of constitutional rights. For example, I’m pretty sure that if the State passed a law saying that no future raises would be pensionable unless an employee gave up their constitutionally-protected right to a jury trial, such a law would be unconstitutional even though it technically meets the requirement of contractual consideration. But SOME limits on constitutional rights tied to employment are clearly permitted - for example, if you choose to go work for the CIA, you give up a lot of First Amendment rights regarding what you can talk about.
But I do believe that unlike the last pension “reform” bill, Cullerton’s consideration approach is not blantantly unconstitutional; like RNUG, I don’t believe it is a slam dunk, but I wouldn’t bet against it, either.
Comment by jdcolombo Monday, Jul 11, 16 @ 10:40 am
I concur with RNUG that it is not as clear as Madiar makes it out. I read the defense of the Cullerton plan, but point out it is not the same as the New York cases. Cullerton plan forces employees to choose between Tier II and non-pensionable salary increases. If an employee refuses to make a choice, how can the State make a choice for the employee without it being a unilateral change? If the State simply said, salary increases are non-pensionable if you accept it - like in the New York case - that is fine. But saying you have to choose between one diminishment (Tier II) or another (non-pensionable increases) is not, in my opinion, an actual choice based on contract principles.
Comment by DeKalb Guy Monday, Jul 11, 16 @ 10:41 am
For this to pass constitutional muster the Supreme Ct will have to overturn its own precedent that unilaterally changing the formula by which annuity is calculated, in a way that diminishes the annuity, is unconstitutional–per the Felt case as cited on page 20 of the Heaton decision.
I suspect that teh initial confusion when Rauner said he backed this but it needed one change, to take salary out of collective bargaining, was because his people figured that Cullerton’s intent was to deny raises altogether (which would not violate the Pension Clause), rater than ten unconstitutional approach of giving raises but changing how pesnionable pay is defined.
As I think RNUG observed in looking at all this a few months ago, if faced with this “choice” the member might just refuse to make the election, thereby triggering the default diminishment, in which case it would be very clear that the State is diminishing his annuity.
Unless a majority of the Court feels so pressured that it would walk away from Felt and its very recent decisions, this is just a waste of time and effort. If the idea is to intimidate the Court, well, that would be interesting…
Comment by Harry Monday, Jul 11, 16 @ 10:42 am
jdcolombo
My apologies. I did not intend to misrepresent your statement. I appreciate your well-informed take on this.
Comment by Ole' Nelson Monday, Jul 11, 16 @ 10:49 am
==… if the Cullerton bill gets passed, expect another brain drain as more Tier 1 employees decide to retire.==
And at the state universities, quite a few faculty in the middle or early part of their careers may leave. And many potential new talented faculty will say “not way” to coming to Illinois. Both of those are already happening - but such pension changes would accelerate it.
Comment by Joe M Monday, Jul 11, 16 @ 10:51 am
New potential faculty will be teir 2. This will speed up the transfer of older faculty to retired faculty…
Comment by illinois manufacturer Monday, Jul 11, 16 @ 11:00 am
I would like to hear from RNUG and AA on this, I believe they are well read as it pertains to Madair and understand him very well. I am specifically interested to hear if they agree with his thoughts on “consideration”.
The annual increase, often referred to as “Compounding COLA” was a great deal for pensioners, but a poor fiscal decision for the state. I would have no problem with a change there, per Madair it is the single biggest driver of the annual pension expense (not to be confused with the debt payments and penalties).
Comment by JS Mill Monday, Jul 11, 16 @ 11:03 am
Seriously. Courts have ruled. Tier 2 exists. Everyone can still talk about this ad nauseum for years to come, but nothing will change, other than the amount of debt. Does not paying your credit card bill get better with each month you pay nothing or the minimum. Like it or not, this debt needs to get paid. How to do it is the favorite subject to ignore.
Comment by AnonymousOne Monday, Jul 11, 16 @ 11:03 am
Sorry- last post went through before I saw RNUG’s post.
Comment by JS Mill Monday, Jul 11, 16 @ 11:04 am
Does anyone have any idea if common law practices of “that if something has been done a certain way long enough, it becomes law” - would come into play here? In other words, counting pay raises as pensionable income is the way it has been done - so therefore the practice has some legal standing? Just wondering if anyone has any thoughts on that?
Comment by Joe M Monday, Jul 11, 16 @ 11:04 am
==New potential faculty will be teir 2==
In other words, talented potential new faculty will not even consider Illinois.
Comment by Joe M Monday, Jul 11, 16 @ 11:09 am
- Joe M -
These are IL cases that address limiting pay re pensions that have been ruled invalid. As Eric notes, there are New York cases that go the other way. Nothing exactly like the proposal has been ruled on in IL. IL can and will consider NY but they don’t have to follow NY rulings.
Comment by RNUG Monday, Jul 11, 16 @ 11:13 am
Did Madier address the fact that in some of the retirement systems, active employees actually pay towards “Automatic Annual Increases (AAI)
in Retirement Benefits” out of their paychecks? If he did, I missed it. That would seem to enter into the discussion of contracts and consideration. If employees have been paying for it, then how can he say it is not guaranteed?
Comment by Joe M Monday, Jul 11, 16 @ 11:19 am
==In other words, talented potential new faculty will not even consider Illinois==
I sure hope not! Otherwise, they’re gluttons for punishment. We get what we pay for. Business sure seems to understand that concept.
Comment by AnonymousOne Monday, Jul 11, 16 @ 11:21 am
It seems to me that we are on a road of endless expert pronouncements with occasional legislative action which is later found unconstitutional. By definition it seems than any pension reform which would offer taxpayers relief from already escalating taxes and more to come to pay for pensions must by definition involve an unconstitutional impairment or diminution.
Why would any state, county or local government employee “bargain” for such a deal, except if it became clear that the government body was about to stop cutting checks? And is that “bargaining” at arms length?
Comment by Cook County Commoner Monday, Jul 11, 16 @ 11:28 am
== In other words, talented potential new faculty will not even consider Illinois. ==
Actually, that’s not true. At the College of Law, we’ve hired very talented entry-level and early-career faculty even though they were subject to the Tier 2 system. They just don’t elect Tier 2; instead, they elect the self-managed plan, and negotiate a salary that is high enough to cover any economic loss resulting from the poor pension benefits in comparison to peer institutions.
Look, I know it sounds crass, but at the end of the day it’s just about money. Pay enough in salary, and the pension benefit (or health care plan) isn’t an issue. I guarantee you that anyone being considered for a faculty position at UIUC understands this completely and negotiates a salary accordingly.
It’s not hiring faculty that will be the issue; it’s not even the potential loss of mid-career faculty, who also can negotiate for higher compensation to offset the pension issue. The problem is going to be hiring and keeping skilled support staff, who may find they have better options elsewhere. I can see a lot of these folks, particularly those in their 30’s and 40’s, heading for the exits.
Comment by jdcolombo Monday, Jul 11, 16 @ 11:28 am
== Did Madier address the fact that in some of the retirement systems, active employees actually pay towards “Automatic Annual Increases (AAI) ==
No, he didn’t … and that is one of the complications in his analysis. It also bothered me that he kept referring to it as a COLA instead of an AAI; he knows better.
Comment by RNUG Monday, Jul 11, 16 @ 11:31 am
It is notable that the issue of health insurance for those already retired was not discussed. This is a huge issue for about 1800 retirees who were hired before April 1, 1986 and are no eligible for Medicare and never will be .
One hears that Rauner wants to increase deductibles an co pays to very large amounts compared to present coverage. While that is very legally possible for current employees, it certainly would be a ‘diminishment’ for those already retired particularly if it exceeded their AAI. To merely dismiss such increases as irrelevant or not addressed by the ISC does not pass the ’smell test’
Interestingly this is all being done in a void as retirees have no elected authorized agent while one gets the impression that AFSCME is bargaining for such retirees (without any legal notice given to the affected individuals.)
So does anyone know how this would play out or anything about the situation? Is AFSCME ‘unofficially’ bargaining for the retirees?
We are under new ground here since the ISC decision on health benefits.
Madiar does not address his important issue.
Comment by Federalist Monday, Jul 11, 16 @ 11:33 am
==negotiate a salary to offset the pension issue==
Nice in jobs that can do so. When public school teachers try to do this, they are greedy villains. This is where I think we’ll see dwindling applicants and lower quality applicants. Education colleges are seeing a drop in numbers. Word is out.
Comment by AnonymousOne Monday, Jul 11, 16 @ 11:35 am
Higher Ed is having problems nationally so hot in is not a problem and you would be surprised how many very educated don’t understand the pension….but jd is right Surs has the self managed which looks comparable to the University of Chicago plan.I would add none come close to teir one which my wife has…but she has had her last raises and is signed up to retire.RNUG is right this is nibbling around the edges. In the failed effort I recall Madigan gave Fullerton the back of his hand because Cullerton would not save much. I assumed Madigans calculus was if you tick off a lot of people go for serious bucks. Even Rauner claims a billion in savings here. As much as it enrages I suspect Madigan would like to drop it.
Comment by illinois manufacturer Monday, Jul 11, 16 @ 11:41 am
There is inherent give and take between salary and benefits. People often complain about the benefits given to state employees being too high, but those benefits were negotiated over the course of decades, and in many of those negotiations, higher salaries were sacrificed in exchange for retaining good benefits.
Comment by Delimma Monday, Jul 11, 16 @ 11:44 am
==and negotiate a salary that is high enough to cover any economic loss resulting from the poor pension benefits in comparison to peer institutions.==
That doesn’t work so well at schools like EIU, NEIU, CSU, WIU, etc, that are barely staying afloat because of lack of state appropriations. And my guess is that soon UIUC, UIC, ISU and the rest may also have a tough time offering such higher salaries if the budget impasse continues. If Rauner finds out UIUC is upping faculty salaries rather than lowering them, that could lead to even smaller state appropriations for UIUC.
Comment by Joe M Monday, Jul 11, 16 @ 11:48 am
That was a long read, for Monday morning.
I don’t have much to add beyond RNUG’s and Professor Columbo’s observations. My personal opinion, as stated here before, is unless the “consideration” choices include keeping one’s current set of benefits, the proposal is not constitutional.
That notwithstanding, I suspect a bill has a good chance of becoming law and some possibility of surviving in the courts.
I was also bothered by the AAI/COLA sloppiness. JSM is correct that the AAI is a contributor to the growth in the unfunded; our contributions are insufficient to cover the cost.
Comment by Arthur Andersen Monday, Jul 11, 16 @ 11:49 am
With all respect to Eric Madiar, I believe he gives short shrift to the notion that Senator Cullerton’s plan coerces people into choosing between two options that each would diminish or impair their pensions.
Adhesion contracts-those that are involuntary-have been illegal for centuries.
The only right way to have pension ‘reform’ is for one of the employee’s options to be ‘no change.’
The only way for the state to improve its pensions situation is to spend its time waiting for Tier 1s to leave the system is to pony up the money to make up for the past pension holidays.
Comment by IRLJ Monday, Jul 11, 16 @ 11:50 am
The fatal flaw in the consideration argument is the assumption that public employees and their representatives will leap to agree to a deal which swaps a greater benefit for a lesser. Theoretically, that may be constitutional but why would anyone be foolish enough to take it?
Comment by Anonymous Monday, Jul 11, 16 @ 11:59 am
When Tier One employees signed up for work, the terms of their pension said every raise they got would be pensionable and they would get a COLA when retired. Madiar proposes to change those terms.
A raise in pay is not guaranteed by the constitution. But the pension benefit that comes along with any increase in pay is protected. I think Madiar’s approach is only constitutional if you stop giving raises to employees who refuse to take a reduced COLA. That creates a whole bunch of other legal problems.
Comment by Luke Monday, Jul 11, 16 @ 11:59 am
Anonymous One:
Cullerton’s plan shouldn’t affect entry-level hiring at all; those folks were always going to be subject to Tier 2. His plan really hits the 30-50 year olds that were hired under Tier 1; those folks are going to have a very tough decision to make if the plan in fact passes the legislature and is in fact held constitutional. If you are over 50, then you just say “no thanks” and keep your 3% AAI on your earned benefits, because that is likely to be much more valuable than any pensionable raises over the balance of your career, given the state’s financial condition.
I don’t know if the adoption of Tier 2 has had a negative effect on hiring in labor markets where employees have little negotiating power. In theory, lower pay (whether in the form of salary, health care benefits, pension benefits or whatever) should lead to lower-quality labor. And I’d hope that people understand that “you get what you pay for” on the labor front just as much as when shopping for produce. But labor markets are very complex and the connection between rate of pay, labor quality and the average voter is very attenuated. Plus, you might not see the effects of labor quality decline for many years - current voters may not care that the state can’t hire good middle-managers for road construction projects until the roads start falling apart. Teaching is the same way. Quantifying “good teaching” is extraordinarily difficult; we as a society may not understand the damage we are causing by underpaying educators until 50 years down the road, when the US suddenly is behind in invention, science and everything else because we wanted to save a buck on elementary teachers.
It would be nice if we recognized that teachers are more important to society than LeBron James. But we don’t. One day that likely will haunt us.
Comment by jdcolombo Monday, Jul 11, 16 @ 12:10 pm
Pay enough in salary, and the pension benefit (or health care plan) isn’t an issue. I guarantee you that anyone being considered for a faculty position at UIUC understands this completely and negotiates a salary accordingly.
@jdcolombo,
“It’s not hiring faculty that will be the issue; it’s not even the potential loss of mid-career faculty, who also can negotiate for higher compensation to offset the pension issue. ”
You are living in a fantasy land if you think that can happen with the state funding Rauner (and probably Madigan) as well have in mind.
Your ‘let them eat cake’ dismissal is beyond ludicrous.
Comment by Federalist Monday, Jul 11, 16 @ 12:16 pm
This has been one of the most interesting and informative posts we’ve had in a long time. A lot of thoughtful debate discussing the legal issues.
However, we’ve got some folks who still fall back on personal attacks rather than reasoned comments.
While I don’t like Madiar’s conclusion on Cullerton’s consideration proposal, he puts forward good arguments. That doesn’t mean I reject or accept his arguments, but as Professor Colombo I now see how this may pass constitutional muster.
Once again, RNUG and AA have provided a enormous benefit through their comments. I’d like to thank Professor Colombo for adding his analysis and thoughts as well.
Comment by Norseman Monday, Jul 11, 16 @ 1:15 pm
Abolish pensions.
Comment by Ron Monday, Jul 11, 16 @ 1:15 pm
Eliminating the AAI would have this effect:
A worker retiring in the year 2000 with a $30,000 a year pension would need to receive $42,710.31 a year just to keep pace with inflation.
So, how is paying the worker only $30,000 in 2016 not a diminishment?
Surely, the private equity/venture capital folks trying to run things in this state understand the concept of “value of money?”
Comment by TinyDancer(FKA Sue) Monday, Jul 11, 16 @ 1:25 pm
== Abolish pensions. ==
If you can get it passed, that would be legal for new hires … but you’re going to have to start paying Social Security for all the teachers (and some others) that are not in SS now. Plus Tier 2 reform already made the State’s cost for current Tier 2 employees are less than zero, so any change will cost the State more than today.
Comment by RNUG Monday, Jul 11, 16 @ 1:28 pm
@Ron,
So I assume you would abolish SS? it is just a pension no matter how certain people try to split hairs.
If you would abolish SS then I give you credit that is your opinion. If not?
Comment by Federalist Monday, Jul 11, 16 @ 1:34 pm
So if higher salary or equivalent consideration is needed to make up for low pensions, why cut the pensions? Seems like this whole debate is not being driven by a rational assessment of the cheapest way for the State to hire and retain good employees but by a kneejerk compulsion to demonize/punish public employees for political gain.
Comment by Anonymous Monday, Jul 11, 16 @ 2:06 pm
^^^^^and there you go^^^^^^
Comment by BumblesBounce Monday, Jul 11, 16 @ 2:24 pm
I’m just another retiree, you know, but if I were affected by Tier 2 or represented Tier 2 active members, I would think about writing the IRS to start the ball rolling on the inevitable findings on Tier 2 Safe Harbor violations. One could argue, I suppose, that the failure by the managing fiduciaries of the funds to do so benefits the funds because they are receiving some incremental normal cost contributions that otherwise would not be paid. On the other hand, Tier 2 members that “should be” receiving SS but are not are suffering, well, a benefit impairment.
Anybody agree? Disagree?
Comment by Arthur Andersen Monday, Jul 11, 16 @ 2:42 pm
-AA-,
I would disagree because Tier 2 is currently in compliance. Yes, it is likely to be out of compliance at some point in the future … unless the State makes a couple of technical changes, primarily the pensionable salary cap. Don’t think the IRS (or the courts) would do anything at this time other than observe there might be cause for action at some point in the future.
But you do trigger an interesting idea; let each school district, on a district by district basis, offer teachers a chance to participate in SS in exchange for some reduction in their “state” pension. The devil will be in the details, specifically if it will be the State or the school district that has to make the employer SS payments.
Comment by RNUG Monday, Jul 11, 16 @ 3:26 pm
Rich,
I think I just accidentally ran afoul of one of your banned words with my simile in my reply to -AA- and the post got caught. Feel free to clean up that post and delete this one.
Comment by RNUG Monday, Jul 11, 16 @ 3:30 pm
Arthur, you are absolutely correct, in 2021 we will see the first eligible members under the Tier 2 system become eligible to retire. Unless wages stay completely stagnant for the next 20+ years the state of Illinois retirement system will be in violation of Federal law.
Comment by JJ Monday, Jul 11, 16 @ 3:32 pm
If, as outlined in section V.A.1a, the State presents these two options as part of its perogative “to exercise its legal right[s] as an employer,” how would the model apply to school teachers, for whom the State is not the employer?
Comment by Math(Usually)Doesn'tLie Monday, Jul 11, 16 @ 3:59 pm
Anonymous @2:06
Whether the folks in Springfield know it or not (I suspect some do, and some simply haven’t thought it through), essentially what they are doing with pension “reform” is pushing the economic cost of pensions down to the employer level. Like I said before, for as long as it can do so, UIUC will simply end up paying higher salaries to make competitive offers to top-line faculty. In effect, what the state is doing is pushing the cost of hiring to the University, which will pay the salaries, instead of absorbing some of that cost via a state-funded pension.
Madigan, of course, would make this shift completely by pushing pension costs entirely on the employer. At least that strategy is transparent (and in my own view, sensible - the entities that do the hiring should have “skin in the game” in terms of setting the overall economic cost of labor). But make no mistake: what is happening is a shift of economic cost from the state to the employing entity one way or another. The taxpayer ends up paying either way, either in state income taxes or local property taxes or in reduced/inferior services from cutbacks. I’m constantly amazed at how many people don’t understand that government services are not free. If you want great roads, then pay an increased gas tax, for cryin’ out loud. If you want a great university system, you’re going to have to pay for it. Choose your path: California (relatively high taxes but relatively strong state services) or Mississippi (low taxes and . . . well, I won’t go there, both literally and figuratively).
Comment by jdcolombo Monday, Jul 11, 16 @ 4:11 pm
The main goal of most grad students planning to entire academia is to get a position, preferably tenure track somewhere, even if it means a Teir II pension plan. This is because the key is to get “into the system. ” Once you are in, it is easier to move laterally. So, you take the lousy pension plan because you don’t plan on staying. A colleague of mine did just that, he accepted a position at WIU and moved on to an out of state university. That’s my concern about Teir II, a constant turn over of faculty.
Comment by G'Kar Monday, Jul 11, 16 @ 4:23 pm
Is it true that Tier 2 cannot be challenged as not meeting the test for no Social Security until someone in that plan actually retires?
Comment by kimocat Monday, Jul 11, 16 @ 4:39 pm
RNUG, point well made, point well taken.
Interesting idea on the SS opt-in, but I think that once the election to be covered or noncovered is made, the decision is pretty much irrevocable.
Another real problem with any integration of SS into Tier 2 is that those members will have an issue with WEP/GPO.
Comment by Arthur Andersen Monday, Jul 11, 16 @ 4:43 pm
== Another real problem with any integration of SS into Tier 2 is that those members will have an issue with WEP/GPO. ==
Good point I hadn’t included in the thought process this time.
Not quite so sure about the other part. I think the IRS may allow it if you are more than x years (my guess would be at least 40 quarters / 10 years) away from retirement. On pensions, I think the irrevocable part applies when you actually make the layout method decision.
Comment by RNUG Monday, Jul 11, 16 @ 5:48 pm
Payout, not layout
Comment by RNUG Monday, Jul 11, 16 @ 5:49 pm
Why not just apply the income tax to this pension income and thereby recover some of it. Perfectly Constitutional.
Comment by Curmudgeon Monday, Jul 11, 16 @ 5:58 pm
I think you right kimocat and Gkar I think mangement at WIU would not mind the higher turnover…
Comment by illinois manufacturer Monday, Jul 11, 16 @ 6:14 pm
== Why not just apply the income tax to this pension income and thereby recover some of it. Perfectly Constitutional. ==
Yes, but you would have to apply it to all pensions, and most likely include Social Security (it’s just a government sponsored pension) since it would be unfair to just tax people, like teachers, who were not allowed to pay into SS.
Politics dictate it is unlikely a retirement tax will be passed any time soon … since old folks vote more consistently than any other group.
Comment by RNUG Monday, Jul 11, 16 @ 6:14 pm
All retirement income would need to be taxed. Social Security is as much a “public” pension as is a state public pension.
Comment by AnonymousOne Monday, Jul 11, 16 @ 6:39 pm