But will it work?
Saturday, May 26, 2012 - Posted by Rich Miller
* We talked about this yesterday and subscribers have known about it for several days, but the Tribune now has a story up about upcoming changes to public pension plans..
There’s a lack of consensus at the Capitol on raising the retirement age from 65 to 67 for many government workers, so that’s out. And there’s no agreement on requiring current workers to take more out of their paychecks. […]
Instead of a compound-interest formula that more quickly escalates pension checks, one plan gaining traction would see the state switch to a simple-interest-style system installed a few years ago for new hires. Cost-of-living adjustments would be equal to half the consumer price index or 3 percent, whichever is less. […]
Under one plan being considered, a retired worker could keep collecting 3 percent annual cost-of-living increases based on compound interest but would have to give up access to a retiree health care plan. At the same time, a retired worker willing to take the lower cost-of-living adjustment would have the opportunity to stay in the state’s health insurance plan, said Rep. Elaine Nekritz, D-Northbrook, a key pension negotiator. […]
Current workers also would have choices. Workers willing to accept a lower pension cost-of-living increase would be eligible for whatever health care plan is in place when they retire. In addition, future salary increases would be calculated into the size of their pensions, Nekritz said.
But current employees who want to keep the 3 percent compound interest in their pensions would be unable to count any more pay raises into the salary that their retirement checks are based upon. They’d also lose any state health care when they retire.
Nekritz said another change being considered would delay the start of giving cost-of-living adjustments to retirees. Under that scenario, cost-of-living increases would start at either age 67 or five years after retirement, whichever is earlier.
I’m not so sure that this is going to save all that much money. How do you force people into the lower-benefit retirement package? Giving up access to government health insurance in order to keep compounded cost of living increases would be a no-brainer for a whole lot of people. The magic of compounded interest adds so much more income over time that it’s probably worth it to find private insurance until a retiree reaches Medicare age.
Thoughts?
- Cindy Lou - Saturday, May 26, 12 @ 9:13 am:
–”adds so much more income over time that it’s probably worth it to find private insurance until a retiree reaches Medicare age.”–
It won’t be so easy for those retirees to make a decision if the member himself (and/or dependents) has pre-existing conditions ect. Some of these would either no not insurable or cost way more than what their pension can afford. Keeping in mind that not everyone is getting $50,000 plus in pension income, this ‘choice’ stands to really hurt lower pension members.
- cassandra - Saturday, May 26, 12 @ 9:24 am:
I agree. I also wonder about the impact of ACA, if it stands. Would lower-income retirees have access to subsidized health insurance starting in 2014. They definitely would have access to health insurance, even if they had pre-existing conditions. What would be the comparative costs. The ACA is going to change so many aspects of US health care, too bad this isn’t all happening after its implementation, retirees could make better choices.
The other question that nobody can answer is how inflation will look over the next few decades. Despite current problems in the global economy, some believe it will rise significantly as a recovery takes hold. That could really eat into pensions. Of course, health care costs will rise too, but that may be mitigated by ACA, at least for those with lower incomes.
- JustSayNo - Saturday, May 26, 12 @ 9:28 am:
There really is no choice here at all. If you opt for the lower benefit package, you are not guaranteed the state subsidized health care upon retirement anyway. A very bad trade. Don’t be bullied into this - if you voluntarily give this away, the powers that be can say it’s constitutional because you chose to do so.
- Raising Kane - Saturday, May 26, 12 @ 9:33 am:
The other aspect of the “reform” is that future raises will not be calculated into your pension if you don’t take their “deal”. Though that is the most likely part of this plan to be ruled unconstitutional. Also, if they delay the COLA for 5 years, it will send people running for the door. On a $30,000 pension, that change alone will cost $400 a month and ultimately rise to as much as $600 per month.
- Nieva - Saturday, May 26, 12 @ 9:37 am:
I figured all these things in when I retired a couple of years ago. If the state takes them from me I will as for my job back and work till I die. or become disabled and then I can draw my SS and Medicare.
- JustSayNo - Saturday, May 26, 12 @ 9:46 am:
What raises? Keep your COLA. Like Rich said, a no-brainer.
- western illinois - Saturday, May 26, 12 @ 9:46 am:
Also SURS has a separte agreement to pay for teh COLA and has had it for 24 years
The lawyers will do well here!
- Inactive - Saturday, May 26, 12 @ 9:50 am:
3% compounded COLA sounds like such a gold mine now in these economic times, but if we should return to double digit inflation, you will be lagging behind badly. People asked to choose have to think down the road—as has been said, there’s no assurance about a stable state health
plan in the future.
- Cassiopeia - Saturday, May 26, 12 @ 9:55 am:
I wouldn’t make any decisions until the details are final, but then there is the inevitable court challenge.
Some how I think they cannot avoid the constitutional challenge if they make it effect current retirees. The only hope in this regard is if they have it apply to current workers and make it “voluntary”.
- whatnext - Saturday, May 26, 12 @ 10:02 am:
For sure a no- brainer, the COLA. Wbo in their right mind will hedge tbeir bets on State subsidized health insurance? Not me.
- PublicServant - Saturday, May 26, 12 @ 10:06 am:
Whatever they come up with is going to be challenged in court. I don’t think much will stick, but whatever does I’ll adapt to. What your future healthcare premiums will be, what’s covered, what your co-pays and deductibles will be are all unknowns, or you can have a 3% guarenteed compounded cola…you decide. If you can retire, then retire. If not, start looking for another job, and get out when you can. They’ve destroyed whatever trust that they had with employees. See ya in November Reps!
- east central - Saturday, May 26, 12 @ 10:16 am:
The legislature needs to carefully think through their proposals in terms of persons such as a secretary or a clerk who retires after 35 years of work at a state university making modest wages.
Should not health insurance and existing COLAs be kept intact for modest-income retirees?
Many persons in SURS, those hired before 1986 I think, are not eligible for subsidized Medicare coverage. No Social Security unless the person worked outside SURS/TRS for enough years. Some of these folks can be totally dependent upon State retiree health insurance, their base pension and an annual COLA sufficient to keep up with their expenses.
The proposals being floating will hurt them. The longer they live, the poorer they will become. Does the legislature really want these persons to spend their later golden years on food stamps and Medicaid?
- anon - Saturday, May 26, 12 @ 10:19 am:
Once again, PQ’s word means nothing. In his budget address he specifically stated that the pension changes would not impact current retirees.
- PublicServant - Saturday, May 26, 12 @ 10:20 am:
Especially for retirees. I retired in February at a full SURS pension at 55 after accepting years of little or no raises for years, and furloughs to boot. I’m 55. To continue working after reachiing a full pension was a foolish choice, since you’d only be making slightly more working full time. Now they think it’s legal to change the rules right after I surrendered my portable plan full payout for an annuity based on the rules in effect at the time? Good luck with that in court. As I said, I, and everyone else has options for whatever sticks, but I earned my benefits after working for 32.5 years for the state, and I’m not letting them steal those earnings without a fight. See ya in court and the ballot booth, boys and girls. I’ve got an S-Corp now, and I’ll be available to keep the IT hinges from falling off the state doors when everyone with half-a-brain leaves.
- whatnext - Saturday, May 26, 12 @ 10:23 am:
East - no, no tbey fixed medicaid first so tbey can’t get those benefits.
- Inactive - Saturday, May 26, 12 @ 10:36 am:
===Does the legislature really want people living their golden years on food stamps and Medicaid?===
They’re hedging their bets that you’ll die before you get to that point….then the state won’t have to worry about you. That’s the reality of it. Why do you think they’ve floated info about delaying the COLA for 5 years after retirement? Stats show there is a significant number of retirees that never make it! Thanks for your service……..hope you die.
- maddem - Saturday, May 26, 12 @ 10:39 am:
In the 21 years up to 1989, the CPI increased an average annual 6%, compounded, with 4 years over 10% peaking at nearly 14% in 1980. 3% compounded certainly didn’t seem all that radical at the time. The pension funds were also making huge returns on their investments in the 80’s with the stock market soaring (except for the 1987 crash that was quickly recovered) and double digit interest rates. I was throwing away some old records last month and came across a $35,ooo 1 year CD that we had that was collecting 13.8% 1n 1980. The Tribune doesn’t mention that in today’s story. Might give it a little context. It was only after Clinton (one of those fiscally irresponsible Democrats) became president, that annual CPI increases calmed down to 3% or less.
- Anon - Saturday, May 26, 12 @ 10:43 am:
Seems like they are just re-arranging deck chairs on the Titantic. Where are the real cost-saving reforms?
- Choice? - Saturday, May 26, 12 @ 10:43 am:
So what happens if people choose to switch to tier 2 and then something involved in their decision is changed by the courts?
- Retired Non-Union Guy - Saturday, May 26, 12 @ 11:06 am:
I’ve watched the Madigan video a couple of times and read the articles based on it. It’s still not clear if these changes will affect existing retirees. Guess we won’t know what the bill says until after it is passed …
Since those kinds of pension choices are generally irrevokable under Federal law, will there be an immediate court case and stay until the issue is resolved by the courts? Or will there be language delaying the effective date until any court cases are resolved?
I can just see a scenario where this is eventually ruled unconstitutional under IL law and a State court ordering it undone, but it can’t be undone because of Federal law. Then it would have to go to Federal court (probably all the way to SCOTUS) to (maybe) get it undone.
At least 5 years of uncertainity … and maybe an even bigger hole in the IL budget then. Just a different version of kick the can down the road.
- AC - Saturday, May 26, 12 @ 11:09 am:
Why aren’t the legislators willing to sit down with the unions and work out a deal? The unconstitutional goung for broke strategy seems like such a waste for everyone involved. Legal issues aside, forcing lower to moderate income retirees into such a choice seems cruel.
- DuPage Dave - Saturday, May 26, 12 @ 11:26 am:
It will be interesting to see how the courts interpret the “choice” being offered state workers. It seems to me it is rather like the “offer you can’t refuse” from the Godfather- not a real choice at all.
My mind remains boggled by the overwhelming desire of the elected officials of both parties and the media in our state to screw over long-term state workers.
- Retired Non-Union Guy - Saturday, May 26, 12 @ 11:30 am:
AC @ 11:09 am:
The uniion contract is being negoiated … but almost nobody knows what is being talked about.
- whatnext - Saturday, May 26, 12 @ 11:31 am:
Well said Dupage.
- Rich Miller - Saturday, May 26, 12 @ 11:32 am:
===Why aren’t the legislators willing to sit down with the unions and work out a deal?===
They are sitting down with the unions.
- Cindy Lou - Saturday, May 26, 12 @ 11:42 am:
Out of curiosity, any one have a ballpark figure as to how many retirees there are that never were union members? Pre Blago days and the race to unionize positions (and create even more positions that were nonexisting) that had not previously been in unions is what I’m refering to?
- Inactive - Saturday, May 26, 12 @ 11:58 am:
=screw over public employees=
Looking backwards, pre-economic meltdown, many people looked at public employees as poor schleps–fools who settled for so little (as compared to their salaries/benefit packages). Fast forward to post economic meltdown—-suddenly the public employees are the envy of these folks! WOW! Just think of those $40/50/60 K salaries that were laughed at a few years ago. Public pensions have become the target, since, obviously, public salaries aren’t much to talk about slashing, are they? Did these folks ever think that with these paltry salaries, the pension was a necessity in order to keep public retirees off of the public dole? Seems there is a race to create a new underclass here. Taxpayers will end up paying one way or another.
- Inactive - Saturday, May 26, 12 @ 11:58 am:
=screw over public employees=
Looking backwards, pre-economic meltdown, many people looked at public employees as poor schleps–fools who settled for so little (as compared to their salaries/benefit packages). Fast forward to post economic meltdown—-suddenly the public employees are the envy of these folks! WOW! Just think of those $40/50/60 K salaries that were laughed at a few years ago. Public pensions have become the target, since, obviously, public salaries aren’t much to talk about slashing, are they? Did these folks ever think that with these paltry salaries, the pension was a necessity in order to keep public retirees off of the public dole? Seems there is a race to create a new underclass here. Taxpayers will end up paying one way or another.
- Jechislo - Saturday, May 26, 12 @ 12:15 pm:
I wonder if Governor Quinn talked to Governor Madigan before Governor Madigan completely usurped Governor Quinn’s announced plans for changing the pension system?
Anyone know if Cullerton is still sticking by his “we won’t vote for any pension plan that’s not constitutional” stance?
What part of unconstitutional does the Illinois Democrat party not understand?
- Wensicia - Saturday, May 26, 12 @ 12:21 pm:
This sounds pretty murky; I’ll wait for the final version. As a current worker about 5 to 7 years from retirement, I’m in a completely different situation from workers just beginning their careers. This would affect my choice.
- PublicServant - Saturday, May 26, 12 @ 12:22 pm:
This was the latest accoring to the SJ-R, that “This just in Subscribers Only’ from Rich has got me worried…:
===Madigan’s office refused to confirm that retiree COLAs will be affected.
“The rest of it’s still being finalized. There’s still meetings going on,” said Madigan spokesman Steve Brown.===
- PublicServant - Saturday, May 26, 12 @ 12:31 pm:
Don’t worry John. We’ll see’em in court in June AND at the ballot box in November.
- Rich Miller - Saturday, May 26, 12 @ 12:54 pm:
PublicServant, you’ll just have to subscribe to find out.
- Retired Non-Union Guy - Monday, May 28, 12 @ 12:11 pm:
re comment @ 5:45 pm,
I typed it quickly and misstated the one 5% item. What it really says is that the employer can’t lower their group health insurance contribution by more than 5%. If you read the link supplied, you already knew that.