* I had more details about payment rates for several pension systems for subscribers this morning, but the SJ-R has a story up about what it will cost teachers to stay in the current “Tier One” pension system under the new reform bill. Employees will have an option to pay the new, higher percentage, move to last year’s “Tier Two” system (lower benefits, higher retirement age) or go to a 401(k)…
What’s unclear is how much more employees themselves would have to pay. Lawmakers are waiting to hear from actuaries with the state’s retirement systems and those in the city of Chicago and Cook County before the bill’s language is finalized, said McCarthy said.
“That’s how they’ve (legislators) got to make the decision on the vote,” McCarthy said. “It’s not going to be an easy vote for any member of the General Assembly.”
However, the price of staying in the current system will not be as steep as originally thought. For teachers, the Commission on Government Forecasting and Accountability has estimated their contribution to their own pensions would be 13.77 percent of their salary instead of the current 9.4 percent in order to keep their current benefits going forward, McCarthy said. Some teachers had believed they would have to contribute as much as 20 percent of their salaries.
“I think if we can keep it at 13, 14 percent, a good majority will stay in Tier 1,” he said. “Most of the people that talked to me in my office — they thought a more reasonable thing like that, they could understand that. I think they’re cognizant of what a wonderful benefit they have.”
That 13.77 rate pays the actual cost of the pension system when you factor in the state’s additional contribution. The unions will undoubtedly sue to block this if it becomes law.
Thoughts on this?
* Roundup…
* Madigan: Workers’ comp system ‘ought to be changed’: House Speaker Michael Madigan threatened to move forward with a plan that would gut the 99-year-old workman’s compensation system in Illinois if ongoing negotiations over reforming the system prove fruitless. The alternative plan, sponsored by Rep. John Bradley (D-Marion), would essentially blow up the current workman’s compensation system and require decisions on how much a worker should receive for injuries on the job to be made by the courts as opposed to a state board.
* Editorial: Work comp deja vu
* States go all out with tax incentives, deals to hook firms - Critics say states, in push to attract businesses, often do more harm than good, with few jobs created and money wasted
* Time running out for workers’ comp reform - Key hurdles slow lawmakers’ bid to meet governor’s deadline
* State shift in patient-care programs leaves Chicagoans without coverage: The Quinn administration next month is ending a statewide program touted for its savings for Medicaid patients with chronic diseases. It will be replaced with a larger, more expensive pilot program that covers the Chicago suburbs but excludes thousands of residents in the city and the rest of the state.
* Competing budgets at the Capitol: “I don’t expect that this budget will be the final spending plan. This is a budget that has been adopted by one chamber. This is a two-chamber legislature with the governor,” said Madigan. “(Senate President John) Cullerton and I met with the governor yesterday, and we reiterated our position that is now about 4 months old that we want to work with the governor, with the budget office, and we want them to tell us where there should be changes in these budget bills.”
* Illinois Democrats slice, dice budget
* Editorial: Disabled would be hit hard by proposed cuts
* Pre-School Fights Quinn Budget Plan to Eliminate State Money for HIV/AIDS-Affected Toddlers
* School officials attest to consolidation difficulties
* Quinn’s cuts would hurt cities
* Push to make senior tax break automatic stalls in House - Speaker Michael Madigan opposes benefit for Cook County seniors
* House OKs deep cuts in preliminary budget
* Shorewood sending message to Springfield
- One of Three Puppets - Monday, May 16, 11 @ 2:32 pm:
Why are we being asked to pay more? Is it to make the pension system better funded? I doubt it since the state will simply reduce what they owe by the same amount that we put in. So what happens in 2 or 3 years the state pension payment is still unaffordable (to the legislature) and the funds are not in better shape? Hmmmm.
- Anon - Monday, May 16, 11 @ 2:34 pm:
How in the world does anyone believe that a 401k style retirement system will solve this issue with the state required to put in their 6%. A big part of the current pension issue is the state and legislature didn’t make their payment before. Why would this be any different?
- steve schnorf - Monday, May 16, 11 @ 2:34 pm:
the JR article said the sponsor said the state contribution would be 6%. Is that right-he intends for the employees to contribute twice as much as the employer?
- Rich Miller - Monday, May 16, 11 @ 2:35 pm:
===Is that right-he intends for the employees to contribute twice as much as the employer? ===
Yep.
- Rich Miller - Monday, May 16, 11 @ 2:36 pm:
Anon, the object is to make payments that pay for actual cost. That’s not happening right now.
- Cheryl44 - Monday, May 16, 11 @ 2:39 pm:
If I were a teacher I’d be looking in to that 401k plan. As long as the state actually puts up it’s portion, I don’t think they could take it out again.
- tak1885 - Monday, May 16, 11 @ 2:39 pm:
I would roll my contributions over to a 401k in a heartbeat. I’d trust the market over the legislature any day.
- steve schnorf - Monday, May 16, 11 @ 2:42 pm:
I hope against hope that the employee share is calculated as their share of the normal cost, and doesn’t include any portion of the cost of the unfunded liability, which should be exclusively a state payment, since the state not the employees created the obligation.
Still, if I read this correctly, the sponsor is estimating that the normal cost requires a total contribution of about 20% of payroll. Hum?
- cassiopia - Monday, May 16, 11 @ 2:43 pm:
If paying more into the system makes the system sustainable and if the state is forced to make their contribution then state employees should embrace the plan because it will give them a secure future.
The unions will oppose anything reasonable because they are not honest negotiators. Their recent ad campaign is as full of half truths as is their opponents pronouncements.
- wordslinger - Monday, May 16, 11 @ 2:43 pm:
Pretty remarkable, lowball-revenue, bipartisan budget passed in the House. You might not like it, but it’s as close to real medicine as we’ve seen in a while. We should probably choke it down and make the best of it.
- Desert Dweller - Monday, May 16, 11 @ 2:43 pm:
Any details on what state employees would have to pay to stay in Tier 1? I’ve heard as high as 20% from one legislator.
- Rich Miller - Monday, May 16, 11 @ 2:43 pm:
===the normal cost requires a total contribution of about 20% of payroll. ===
Yes, Steve, that’s correct.
===I’d trust the market over the legislature any day. ===
Famous last words.
- Rich Miller - Monday, May 16, 11 @ 2:44 pm:
DD, take a breath. Legislators thought teachers would have to pay 20 percent as well.
- PublicServant - Monday, May 16, 11 @ 2:45 pm:
And what happens as more and more employees are forced to opt out of the defined benefit plan, as the state makes it more and more onerous to remain in it? Will that mean that the people that do stay, will need to pay more and more to keep the plan solvent. Isn’t this essentially going to assure that retirees eventually won’t receive payments, and, in fact, hastening that event?
- Anon - Monday, May 16, 11 @ 2:46 pm:
Anon, the object is to make payments that pay for actual cost.
—–
Yes, but if the state still doesn’t make it’s payments, the 401k system will be in the same position as the current pension system.
- steve schnorf - Monday, May 16, 11 @ 2:46 pm:
Well, Cheryl and tak1885, unless you are among a rarefied group of very top-performing investors, you would be making a terrible mistake, I fear.
- Ghost - Monday, May 16, 11 @ 2:48 pm:
I think this is a big step in the right direction, i.e. increasing the employee contribtuion portion instead of killing off the program.
The numbrs I have seen in the past is that it actually cost 14% per employee to cover your benefit. Assuming that is correct, I think asking the employees to cover the shortfalls from past employees or prior shortages is not a fair solution.
If my 14% figure is correct, and the State kicks in 6%, then a typical SERS employee would pay closer to 8%.
I would note, the most agregious pensions in terms of small contributions and high pay outs are the fire fighters, police and judges (gasp he doesnt support emergency workers) They earn something like 80% of their last day of pay!after only 20 years under the formulas for police/fire and judges.
The regular SERS system is more like 50% of the average of your highest 4 years salary, after at least 30 years of work to hit that level.
The General Assembly also bases their retirment on the last day paid an dnot an average of earned salary.
They could also shake exclude salaries from positions worked less then 12 months, and overtime.
- He Makes Ryan Look Like a Saint - Monday, May 16, 11 @ 2:50 pm:
This still doesn’t get the state off the hook for the unfunded liability.
It won’t matter, this whole thing is unconstitutional and will be shot down. At least the Legislature can say they tried to fix it, and go after state employees for something else.
- Cheryl44 - Monday, May 16, 11 @ 2:50 pm:
Steve, I’m on a 403b plan through the (private) university where I work. I know very little about 401ks except I assume they work the same way. The university cannot *not* make its match, nor can it reach into my individual account and ‘borrow’ that money back.
If that’s not how a 401k works, then no, I wouldn’t want it.
- Rich Miller - Monday, May 16, 11 @ 2:52 pm:
===Will that mean that the people that do stay, will need to pay more and more to keep the plan solvent.===
No.
Also, the state’s current 6 percent share for SERS is about $180 million, I believe.
- Rich Miller - Monday, May 16, 11 @ 2:54 pm:
===The numbrs I have seen in the past===
I don’t believe that those numbers are operative any longer.
- Not in the know.... - Monday, May 16, 11 @ 2:57 pm:
I pay 12.5% right now, have no problem paying more to make sure it’s sustainable. As long as the legislature doesn’t cut back as someone mentioned AND pays fully each year without borrowing I say this is good.
- tak1885 - Monday, May 16, 11 @ 2:59 pm:
Even if the State did not make the 6% contribution, at least my money would be safe and far removed from the legislature’s grabby hands. As it currently is, the State is not making their contribution and they can take a “loan” from my portion anytime they like. I have no faith that the pension system or social security will be there when I retire (which is a long way off). I’ll take my chances with a 401k, even people who recently took hits to their 401k’s are still in a decent financial standing for retirement, as long as they didn’t panic and pull everything out.
- Rich Miller - Monday, May 16, 11 @ 3:00 pm:
===at least my money would be safe===
LOL
You ever read the papers? Perhaps you missed 2008-10.
- Cincinnatus - Monday, May 16, 11 @ 3:02 pm:
“That 13.77 rate pays the actual cost of the pension system when you factor in the state’s additional contribution. The unions will undoubtedly sue to block this if it becomes law.”
Yes, certainly a lawsuit is in order to make people pay for the actual cost of their retirement program.
Does anyone know that if a true 401k program is instituted, will the employees also be enrolled into Social Security? If so, the State will be obligated by Federal Law to contribute to both Social Security AND the 401k program.
Steve Schnorf and Rich,
So if the employees are not paying the “actual cost” and the market cannot perform as the professional investing folks that administer the pension program(s) say (witnessed by the 401k being unable to perform for private sector retirement), are we not saying that the pensions are actually what everyone who complains about them say they are, an open ended drain on the taxpayer, since the plans cannot sustain themselves?
To all the naysayers on the Social Security/401k approach. One major benefit of the program is that it takes the retirement funds out of the hands of the GA and puts it into the hands of employees. Some people may invest unwisely. But we know for sure what the GA will done with the money.
- Ghost - Monday, May 16, 11 @ 3:03 pm:
I dont disagree that the old numbers may no longer be in play, but it would be nice if they would release the math on how they figure the per person cost. i.e. is the individuals current portion designed to pick up for underfundng for that individual from prior years across a nomlaized budget? I asked one of the fiscal people and the numbers they have are around 15% per employees for current liability (counting today forward, not the years that have already passed for the individual)
Then with the full method on the table I can wait for Schnorf to tell us what it means and if its correct
- wordslinger - Monday, May 16, 11 @ 3:08 pm:
===I’d trust the market over the legislature any day. ===
Anyone ever lose any money on an Illinois pension? Anyone ever not get a payment? Anyone ever get a late payment?
I understand the gloom-and-doom and anger toward the SOI can be cathartic to some, but don’t lose touch with reality.
Until the courts say otherwise, your pensions are untouchable. The state is a going concern whose credit record on pension and bond payments is golden.
- Pat Robertson - Monday, May 16, 11 @ 3:12 pm:
==I think this is a big step in the right direction, i.e. increasing the employee contribtuion portion instead of killing off the program.==
Sorry, you’re wrong and they’re wrong about this. “Increasing the employee portion” just means reducing employees’ take-home pay without actually cutting their pay. The state would be better off actually cutting pay. If you leave an employee’s pay at $30,000 and take $2,000 out to pay for the pension plan, the employee gets $28,000 but will eventually get a pension based on $30,000. If the state cuts his pay to $28,000 and continues to shoulder the contributions itself, he gets $28,000 but the state only pays a pension based on $28,000. Plus, if you want to get really into the nitty-gritty, the State and the employee have to pay FICA tax on $30,000 in the first case but only $28,000 in the second. Why pay more to the feds if you don’t have to?
- Cincinnatus - Monday, May 16, 11 @ 3:14 pm:
Wordslinger said,
“Anyone ever lose any money on an Illinois pension? Anyone ever not get a payment? Anyone ever get a late payment?”
Of course not. As long as the GA can spend the money twice, once on the retiree pension (the real expenditure) and once on other programs (gets you thrown in jail if it were the government doing the accounting), and guarantee a fixed-benefit pension return while raising taxes, there will never be a problem, right?
- Rich Miller - Monday, May 16, 11 @ 3:15 pm:
Cincinnatus, when has a corporate CEO ever gone to prison for shorting pension system contributions?
- steve schnorf - Monday, May 16, 11 @ 3:20 pm:
c et al. I just took a quick look at the latest COGFA stuff on pensions. According to them the normal cost for SERS is about $480m, and employees contributions are right at $240m. What am I missing here that should require significantly higher employee contributions?
- Demoralized - Monday, May 16, 11 @ 3:21 pm:
Cincy,
A lawsuit is in order b/c the Constitution guarantees my pension.
But, I’m withholding judgement on the plan until I see how much more I would have to pay for my pension. If it is reasonable I would not be opposed. But, I can’t afford a double-digit pension percentage coming out of my check. I already get no raises and have to take furlough days. The last thing I need is another defacto pay cut.
- Small Town Liberal - Monday, May 16, 11 @ 3:23 pm:
- Yes, certainly a lawsuit is in order to make people pay for the actual cost of their retirement program. -
The people already paid. The lawsuit is to get what was guaranteed by signed contract and by something called the constitution. But do keep up the one liners, they really make my day.
- Rich Miller - Monday, May 16, 11 @ 3:24 pm:
===What am I missing here that should require significantly higher employee contributions? ===
Could be outdated actuarial data.
Or, it could be the definitions of the term.
- Cincinnatus - Monday, May 16, 11 @ 3:24 pm:
You are too quick to set blame on the private CEO, who always seem the whipping boy here. The accounting method is what I said would get you jail time, Rich. The double dipping into an account is not a GAAP, and will get you rightfully audited for sure. But I wouldn’t mind the Chief Executive of the state, and his enablers in the GA to serve some time for fiduciary irresponsibility. We’ve sent a couple to jail recently, let’s keep it up.
- Demoralized - Monday, May 16, 11 @ 3:25 pm:
-You are too quick to set blame on the private CEO, who always seem the whipping boy here.-
As opposed to your constant whipping boy - public employees.
- Rich Miller - Monday, May 16, 11 @ 3:25 pm:
And many corporate CEOs have gone to prison for using the wrong accounting method on their corporate pension funds? Got any names?
- Rich Miller - Monday, May 16, 11 @ 3:26 pm:
===who always seem the whipping boy here====
I think they can take care of themselves. Also, the criticism of corporate CEOs here is pretty mild compared to most other places.
- Liberty_First - Monday, May 16, 11 @ 3:27 pm:
In other words the non-union employees who have not been getting raises and been furloughed, take it on the chin again because they now get a big take home salary reduction.
- Anon - Monday, May 16, 11 @ 3:27 pm:
I just hope the State has a Plan B if the courts toss it out…
- steve schnorf - Monday, May 16, 11 @ 3:33 pm:
Rich, I have a fear that it may be an attempt to fund some of the interest cost of the unfunded liability. I apologize in advance if I am wrong.
It looks to me the he current employer/employee split on normal cost is right where it should be on SERS. Someone who reads it differently correct me if I’m wrong.
- Farker - Monday, May 16, 11 @ 3:33 pm:
Any idea on what their trying to bump the SURS contribution too? I think we’re already at 8.5 %
- Rich Miller - Monday, May 16, 11 @ 3:35 pm:
Farker, subscribe.
- steve schnorf - Monday, May 16, 11 @ 3:39 pm:
I just took a quick look at COGFA on TRS. I read it that the normal cost for employer is a little under $900m and the current employee contribution is over $900m. I must not be reading the charts right.
- Rich Miller - Monday, May 16, 11 @ 3:40 pm:
===I must not be reading the charts right. ===
I think “normal cost” may just be what’s being paid.
- Bigtwich - Monday, May 16, 11 @ 3:41 pm:
steve schnorf - The IMRF is being excluded because it is stable and ell-funded. I believe the structure for the IMRF and SERS is about the same except the IMRF benefits are a mite better. So, if little need be done to the SERS you may not be missing anything.
- Logic not emotion - Monday, May 16, 11 @ 3:42 pm:
FWIW: The perceived security of a defined benefit plan has been a huge recruitment / retainment tool for many in the public sector. That confidence / perceived value is lessoned now as many now have concerns regarding its security (ditto with social security). On the flip side though, I know several who were pretty well set in their retirement after years of 401K contributions… Until the economic downturn. What seemed a very secure retirement quickly turned into near panic. No one should trust all their retirement eggs in one basket and that awareness may be the only good thing to come out of this whole mess.
- Downstate Commissioner - Monday, May 16, 11 @ 3:43 pm:
Unions (and others) should consider a class-action suit based on age discrimination-the plan, if adopted, will force older persons with several years of credit to either pay more, or be forced to work longer, with a lower pension. Many of us are too old to just go to a new job in the private industry, like younger folks have the option to do.
- Reality is - Monday, May 16, 11 @ 3:44 pm:
This will probably mean most state employees who remain in Tier 1 will retire at the rule of 85, stop paying in and draw pensions even longer.
- Yellow Dog Democrat - Monday, May 16, 11 @ 3:56 pm:
@Schnorf -
This increase in the employee contribution has absolutely nothing to do with the actuarial requirements for earned benefits.
The goal is:
1) Drive the contribution so high that you will force employees into a system with lower benefits;
2) Use employee contributions to back fill the fund for the state’s failure to make its contributions.
It’s a shakedown, plain and simple.
Also, unless I’m missing something, it ain’t legal.
- foster brooks - Monday, May 16, 11 @ 4:05 pm:
The state could offer employees a chance to buy service credits to satisfy the bump in contibution rates.this would pass any legal challenge.
- Jake From Elwood - Monday, May 16, 11 @ 4:07 pm:
This is all too much “fear and loathing in Springfield” for me. More state employees in this forum than I thought.
(Apologies to H.S.T.)
- The Dark Horse - Monday, May 16, 11 @ 4:19 pm:
$100 says that, if passed and signed into law, this will be declared unconstitutional by labor day.
- Retired ISP - Monday, May 16, 11 @ 4:20 pm:
“I would note, the most agregious pensions in terms of small contributions and high pay outs are the fire fighters, police and judges (gasp he doesnt support emergency workers) They earn something like 80% of their last day of pay!after only 20 years under the formulas for police/fire and judges.”
This is not true for the those under the Alternative Pension plan such as the State Police.
It is 80% after 26 years 8 months of credited time with a current 12.5% contribution by the employee since 2001.
Prior to that time it was 75% with 30 years of credited time with a 9.5% contribution by the employee.
http://www.state.il.us/srs/SERS/Whatsnew_sers.htm
- Not in the know.... - Monday, May 16, 11 @ 4:28 pm:
Can’t remember his name….but I believe a former pitcher for the Baltimore Orioles (?) did time for moving pension funds into private accounts.
- The Dark Horse - Monday, May 16, 11 @ 4:31 pm:
The real winner in all this is the first lawyer to file a class-action lawsuit against the state. When the state denied judges their COLA the lawyer they had walked away with over $1MM in fees for obtaining a result that was a foregone conclusion from the beginning.
- Both Sides Now - Monday, May 16, 11 @ 4:33 pm:
Why do some current (but longer term) employees have both a deduction for FICA/social security taxes and a 4% deduction for Retirement? How does this work?
- Helm - Monday, May 16, 11 @ 4:47 pm:
A read of the latest version of the amendment indicates that the amount the employee pays will be re-adjusted every 3 years. As more and more unfunded liabilities come due, this will likely mean even more increases for the employee to keep the Tier 1 pension benefits.
Sounds like the Cadillac style pension system is going to cost more like a Ferrari but with the employee paying in so much to the pension system, all they will be able to afford is a Pinto…
- Cincinnatus - Monday, May 16, 11 @ 5:14 pm:
- Demoralized - Monday, May 16, 11 @ 3:25 pm:
“As opposed to your constant whipping boy - public employees.”
Demoralized,
Obviously your knee jerk reaction is ill-informed. I blame not the employees, who were made promises which could be kept.
- Rich Miller - Monday, May 16, 11 @ 3:25 pm:
“And many corporate CEOs have gone to prison for using the wrong accounting method on their corporate pension funds? Got any names?”
Why limit yourself to pensions when I did not. As I originally said, and reiterated in my follow-up, I was criticizing the faulty accounting methods used by the Governor and the GA, in our instance here concerning the double bookkeeping used in pension funding. Enron violated any number of GAAP rules, and a significant number of people went to prison.
- Frank Booth - Monday, May 16, 11 @ 5:27 pm:
Schnorf, Didn’t the 95 pension funding law include a bump in employee contributions to also help paydown the unfunded liability?
- Desert Dweller - Monday, May 16, 11 @ 6:03 pm:
While I personally could absorb an increase in my rate from 4 to around 16%, I have yet to hear if my health insurance would still be there if I moved from Tier 1 to Self-funded. Has anything been mentioned regarding the insurance upon reaching the magic number 20?
- So Cook Resident - Monday, May 16, 11 @ 6:49 pm:
Just to clarify from a post by Ghost, Firefighters, at the very highest, can retire after 30 years of pay at 75% of their final salary. 80% after 20 isn’t simply wrong, it’s quite off the mark. FF’s make 2.5% for every year with a minimum of 20 years (@50%) and 50 years of age. This since has been changed for anyone hired after Jan 2011…If your gonna throw statements out there as facts, please try and get it right.
- mokenavince - Monday, May 16, 11 @ 7:21 pm:
If we don’t get workers comp right that gaint sucking sound will be jobs leaving Illinois. Pass the Bradley bill and just start all over. My thanks for the above comment go to Ross Perot.
- wordslinger - Monday, May 16, 11 @ 7:50 pm:
Vince, you’re a lot smarter than Ross Perot.
But in this amazing session of the General Assembly, the Doctors, Human Resource folks, Unions and Lawyers, might want to sober up and get on the train.
Things are happening, and have happened, big things. And tossing workers’s comp out the window and leaving it to the courts is on the table. That’s a loser for them all.
Worker’s comp “reform” has been a rallying cry all my life in Illinois, but the big-money, bipartisan players have been satisfied with the status quo. But, for the first time in a while, this is not a time to play chicken.
The excellent journalism by the Belleville News-Democrat (outlining the scandalous abuse in the public sector) the welcome insight of the CAT Man, and the recent warnings of the Speaker, should let those on the gravy train know the last stop is coming, and it’s time to make the best deal.
If they don’t, they can’t say they weren’t warned. Toss it in the courts, and we’ll see you later.
- jimmy james - Monday, May 16, 11 @ 8:38 pm:
as a state employee i don’t really have a problem with 13.5 or something in that range. still think it will be thrown out. Can’t believe the explanation behind leaving the judges out…lol only in illinois.
- Pot calling kettle - Monday, May 16, 11 @ 10:54 pm:
Since the pension earned to date is supposed to be locked in, I’m curious as to how these two-part pensions will work. How will they determine benefits for folks who opt into a lower tier?
Plus, if this ends up passing court muster, they’ll be tempted to do it again in five or ten years. Then, there will be employees in three systems with three sets of benefits.