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Lawsuit threat could hurt momentum

Wednesday, May 8, 2013 - Posted by Rich Miller

* This is not good news for Cullerton

Senate President John Cullerton says one good reason to support his pension reform plan is that the unions won’t sue because they’re in on the deal, but already a group of retired teachers is prepared to go to court if the proposal becomes law.

The Illinois Retired Teachers Association, a group of 35,000 former public school teachers and educators, has fired off 5,000 emails expressing its opposition as the Cullerton plan comes up for votes in the Senate this week amid questions about whether it would save enough money.

* This really undermines Cullerton’s argument in favor of his plan

IRTA Executive Director Jim Bachman called the changes “clearly unconstitutional.”

“The legislation may be less draconian than the bill sent over last week by the House of Representatives, but it still fails the test of constitutionality,” Bachman said in Tuesday’s statement. “If our organization sits back without a fight and allows changes to the spirit of our state’s laws governing enforceable contracts, then no agreement will ever again be safe from arbitrary dissolution under the law.”

Bachman noted the IRTA created a legal defense fund last year to be used to challenge pension legislation it believed to be unconstitutional.

The IRTA represents about 35,000 people. The state Teachers Retirement System said it has about 95,000 retired members.

* Cullerton’s proposal is attracting some support in the House, however

Should the union-backed plan make it through the Senate, House lawmakers who voted just last week on a different idea to raise the retirement age, cut retirees’ benefits and make them pay more toward retirement would have to change their minds to approve it. Some suburban lawmakers who voted against Madigan’s plan said they might vote for Cullerton’s.

“It looks like it passes constitutional muster and I would potentially support it if it came to the House,” said state Rep. Dennis Reboletti, an Elmhurst Republican.

But state Rep. Elaine Nekritz, a Northbrook Democrat and pension expert, said offering teachers bad choices isn’t any more constitutional than the House’s proposal.

“For them to say that the legislature is giving people two choices, neither of which they have today, both of which are less than what they have today, I don’t know how that’s different from what we’re saying,” Nekritz said.

* But

Madigan spokesman Steve Brown said the issue of the pension overhaul is “pretty well done,” since the House voted on it last week.

“Now we need to work on the cost shift,” said Brown, who contended that, based on the “fact sheet” Cullerton has passed around, the Senate plan “doesn’t appear to save any money.”


  1. - AFSCME Steward - Wednesday, May 8, 13 @ 10:17 am:

    That’s right. When MJM declares an issue done, it’s done. The king has spoken. There will be no desent.

    “Madigan spokesman Steve Brown said the issue of the pension overhaul is “pretty well done,” since the House voted on it last week.”

  2. - Chi - Wednesday, May 8, 13 @ 10:21 am:

    Any pension bill signed into law will be challenged in court. Jeez, if a threat to sue over legislation was enough to stop the legislation, we’d be in big trouble. The point about the Cullerton/Union plan is that when it is challenged, it has a much better likelihood of being held constitutional.

  3. - Midwest Retired Instructor - Wednesday, May 8, 13 @ 10:29 am:

    The IRTA does not speak for this retired teacher and thousands of others. Competent legal authorities have studied the Cullerton-We Are One bill and feel it will pass constitutional muster–unlike Madigan’s SB 1. I sympathize with my fellow retirees in IRTA, but SB 2404 is the best realistic hope we have for saving our pensions.

  4. - RNUG - Wednesday, May 8, 13 @ 10:29 am:

    – “Now we need to work on the cost shift,” said Brown, –

    Translation: we’ve stuck it to the state employees and retirees; it’s time to go after the home owners outside Cook County …

  5. - walkinfool - Wednesday, May 8, 13 @ 10:30 am:

    Does the fact that Cullerton’s plan is an “agreed bill” with some of the unions, have any bearing on what a court might find? Or is that wishful thinking?

  6. - Abe the Babe - Wednesday, May 8, 13 @ 10:30 am:

    “The point about the Cullerton/Union plan is that when it is challenged, it has a much better likelihood of being held constitutional”

    Im not so sure. The supremes might not view a straight dminishment of benefits (madicrossitz bill) much differently than a false choice of which benefits to diminish (cullerton bill). Either way you are cutting benefits, one proposal is simply more politically papable than the other. But it is not much more legally paplable if you read Article XIII section V strictly.

  7. - foster brooks - Wednesday, May 8, 13 @ 10:31 am:

    So rep.nekritz you are saying your plan is clearly unconstitutional?

  8. - cassandra - Wednesday, May 8, 13 @ 10:31 am:

    If they feel that way, they should challenge it. Somebody will, and this group may be able to fund a competent appeal more easily than a few scattered non-union retirees here and there.

    A retired teachers’ group may have more popular support as well. Many people may not have kind feelings towards state bureaucrats, but the teachers are preparing their kids for the future.
    In the eternal who pays game, many voters may see an attack on teacher benefits in a personal way, as in an attack on Mrs. Smith, their kids’ great second grade teacher, and so on.

  9. - soccermom - Wednesday, May 8, 13 @ 10:32 am:

    I heard President Cullerton talk about this on WBEZ this morning. He sounded good.

  10. - RNUG - Wednesday, May 8, 13 @ 10:35 am:

    SB2404 as it was introduced (and with A1) will probably pass constitutional muster, depending on the value the courts assign to the funding guarantee.

    But add in the COLA / insurance choice and it probably won’t, especially for those groups like the teachers who have been pre-paying for their health insurance in retirement.

    I hope Cullerton puts a severability clause in SB4202 so the legal part can survive.

  11. - Anonymour - Wednesday, May 8, 13 @ 10:36 am:

    That’s exactly what Rep. Nekirtz was saying.

    We’re still where we’ve been. Either Speaker Madigan has reason to be confident that the Supreme Court won’t follow the law, or this is all a setup for the Court to take the heat for the tax increase that will follow.

  12. - cover - Wednesday, May 8, 13 @ 10:37 am:

    If the Cullerton plan were to be found unconstitutional, then there is no pension reform plan of any kind that could survive. That would leave the General Assembly with only one option, the one it doesn’t want to face: pay for the sins of the past.

  13. - Norseman - Wednesday, May 8, 13 @ 10:40 am:

    The 2013 battle of the leaders begins.

  14. - SO IL M - Wednesday, May 8, 13 @ 10:41 am:

    Would removing changes to existing Retirees improve the chances of either bill standing up to constitutional challenges? I believe it would, but Im not a lawyer.
    Would a plan that recognizes existing retiree benefits as constitutionaly protected, but benefits for current and future retirees as subject to change work?

  15. - RNUG - Wednesday, May 8, 13 @ 10:46 am:

    SO IL M @ 10:41 am:

    I think it would give the bill a better chance but it would still require the IL SC to soften their previous stance on “.. rules at time of hire plus enhancements …”

  16. - sam - Wednesday, May 8, 13 @ 10:58 am:

    From what I have seen, particularly with what just happened in Florida, the retirees were excluded from changes and the changes that were made to the retirement system were to be applied prospectively. The Supreme court was ok with that. I suppose, in implementation, that would mean that the current employee’s retirement calculation would have two parts…one including benefits accrued until changes were enacted and the other from the time changes were enacted to retirement date. I am sure that is clear as mud. Anyway, my point is that I think if the current retirees are excluded and changes are made to be applied prospectively…that bill may survive a court challenge (all IMHO).

  17. - Joe M - Wednesday, May 8, 13 @ 11:09 am:

    ==the retirees were excluded from changes and the changes that were made to the retirement system were to be applied prospectively==

    Most interpretations of the Illinois Constitution’s public pension protection clause (including Sen. Cullertons’s chief legal counsel) say that it covers current employees also.

  18. - Palos Park Bob - Wednesday, May 8, 13 @ 11:09 am:

    The only solution to this will be a change to the constitution to eliminate that “shall not be reduced or diminished” clause.

    I wonder if Madigan is using that as his sledge hammer on the unions and courts.

    One could surmise if the first court challenge is unfavorable to the bill, he could pass the constitutional change in the legislature pretty quickly.

    I can practically guarantee passage from the voters.

    It will be a simple message that wins the election; do you want to take $140 billion from your family budget and police, fire and educational services for your children to pay teachers not to teach at age 55, pay state police to stop “serving and protecting” at age 50 and double dippers to get multiple pensions, or will you empower the state legislature to end the abuses and excesses in the public employee pension programs?

    That would be a pretty powerful message to work against.

  19. - Anonymour - Wednesday, May 8, 13 @ 11:19 am:

    Uh, Bob, that might work for new employees, but it ain’t gonna work for the retired, and probably for existing employees, either as a matter of contract law, or under the federal constitution’s Contracts Clause.

  20. - vitaman - Wednesday, May 8, 13 @ 11:22 am:

    - Palos Park Bob - Wednesday, May 8, 13 @ 11:09 am:
    The only solution to this will be a change to the constitution to eliminate that “shall not be reduced or diminished” clause.

    If I recall earlier discussions changing the constitution will not change what is alread owed. Ex post facto and all……….

  21. - Jechislo - Wednesday, May 8, 13 @ 11:23 am:

    Changing the Constitution would not affect those already retired.

  22. - biased observer - Wednesday, May 8, 13 @ 11:41 am:

    something needs to be done which will actually make a difference. anything passed which actually makes a difference will be called “unconstitutional” by the anti pension reform folks. those items suggested thus far considered “constitutional” by the anti pension reform folks, don’t make a significant difference, with the exception of tax increases.

    best option: pass Madigan plan and see what the courts say. knowing that Madigan plan is only a start to the solution to this crisis, and tax increases are likely to follow.

  23. - foster brooks - Wednesday, May 8, 13 @ 11:46 am:

    Cullertons plan gets teeth if the state wins the health insurance lawsuit. If someone with a $30000 pension gives up $1800 in cola for $14000 a year worth of insurance sounds like not a deminshment there.

  24. - Soccertease - Wednesday, May 8, 13 @ 11:53 am:

    “But state Rep. Elaine Nekritz, a Northbrook Democrat and pension expert, said offering teachers bad choices isn’t any more constitutional than the House’s proposal.” Should read:”self-proclaimed pension expert.”

    Any expert would see her bill is unconstitutional. She’s just a pawn playing the political game instead of doing the right thing.

  25. - Skirmisher - Wednesday, May 8, 13 @ 11:55 am:

    A lot of folks predicted that this would get down to a face-off betwixt “My Way or the Highway” Madigan and “I Am a Leader Also” Cullerton. This is where this gets really interesting. Will Cullerton have the political backbone to stand up to Madigan, or will he end up cringing at his feet like everyone else?

  26. - Tim Snopes - Wednesday, May 8, 13 @ 12:09 pm:

    Does Cullerton say what the cost of retiree health insurance is? How will anyone be able to make a judgement? Does anyone know?

  27. - RNUG - Wednesday, May 8, 13 @ 12:12 pm:

    foster brooks @ 11:46 am:

    All that SB0001 and supposedly SB2404 grant is the right to BUY the health insurance at WHATEVER LEVEL the State wants to charge. It doesn’t GIVE $14,000 worth of insurance.

    Yes, for the next two years the cost, at 1%/2% or 2%/4% of gross pension, is reasonable and well worth it, thanks to the union contract (pending final signatures). But what will the cost be a few years down the road?

    You want me to pick that option, give me a contractually protected lock on a percentage or fixed amount.

  28. - RNUG - Wednesday, May 8, 13 @ 12:12 pm:

    foster brooks @ 11:46 am:

    And if the State losses, which is likely, Cullerton has nothing to trade.

  29. - RNUG Fan - Wednesday, May 8, 13 @ 12:19 pm:

    The suit threat is from a private group not a Union. I said when this first came out somebody would sue. The Unions only entered Maag late . This time they sit out
    I will also say its to Cullertons and the Unions credit to lessen political pressure on the judges. They can sit back and decide if the contract can be altered for consideration or not.
    I am guessing not but we shall see.

  30. - RNUG - Wednesday, May 8, 13 @ 12:21 pm:

    There are plenty of constitutional proposals out there that will stabilize the pension systems and save money in the long run.

    Those bills haven’t been allowed to move forward because none of those proposals:

    a) immediately save money for the current budgets (and in some cases actually cost more short term)

    b) reduce or eliminate the need to pass another tax hike

    c) don’t demonize the state employees / retirees as the cause of all the State’s budget woes

    As long as one man dominates the pension discussion, all we seem to see are unconstitutional solutions designed to minimize any future tax hike.

  31. - Jeff Trigg - Wednesday, May 8, 13 @ 12:23 pm:

    It’ll be interesting to see what Lisa Madigan does with the lawsuits. Will she defend the “state” and whatever pension reform is passed even though it might be ruled unconstitutional, or will she refuse to defend the legislation in court? Tough spot for her, imo.

  32. - PAprofessor - Wednesday, May 8, 13 @ 12:38 pm:

    Let me raise this question. We are assuming that SB2404 and SB1 are mutually exclusive and either or. The general assumption on this board is that both plans are unconstitutional - due to diminishment. Yet, a majority of this Board seems to realize that some meaningful reform is necessary. This likely means both increases in new pension revenue (tax increases) and decreases in some benefits. So, what in your estimation would be a fair compromise between the 2 plans. To argue that no change is acceptable other than increasing taxes will likely not work. So what is the minimally acceptable level of diminishment that people could live with? To me, this is the real bottom line issue. I think it is somewhere between SB1 and SB2404.

  33. - RNUG Fan - Wednesday, May 8, 13 @ 12:43 pm:

    As long as one man dominates the pension discussion, all we seem to see are unconstitutional solutions designed to minimize any future tax hike

    Yes that needs to stop

  34. - retired and fed up - Wednesday, May 8, 13 @ 12:44 pm:

    can anyone find a section in Amendment 2 that talks about compounding interest on the COLA. All I can find is it’s based on the original payment and therefore simple interest.

  35. - retired and fed up - Wednesday, May 8, 13 @ 12:46 pm:

    Simple interest on the original payment will be a big diminishment over the years.

  36. - foster brooks - Wednesday, May 8, 13 @ 12:58 pm:

    I believe the first consideration for state pension plans was in the early seventies when they gave you a choice between opting out of SS or taking SS and a reduced pension.

  37. - Tsavo - Wednesday, May 8, 13 @ 1:10 pm:

    Tim Snopes,

    This is from page 16 of SB 2404. As a retiree, I will definitely give up healthcare and keep the COLA, as there is no way of knowing what the State will be charging in three years.

    The Department
    4 shall make information available to Tier I employees and Tier I
    5 retirees through video materials, group presentations,
    6 consultation by telephone or other electronic means, or any
    7 combination of these methods. The information in the election
    8 packet shall include a notice that states: “YOU ARE HEREBY

  38. - wert - Wednesday, May 8, 13 @ 1:19 pm:

    Actually, Nekritz succinctly articulated the reasons why Cullerton’s plan is completely unconstitutional. Contract modification requires an offer, acceptance and consideration. No option to refuse the modification and stay with the current structure means there is no offer/acceptance. And choices under which you will be worse off no matter what lack adequate consideration.

    “For them to say that the legislature is giving people two choices, neither of which they have today, both of which are less than what they have today, I don’t know how that’s different from what we’re saying,” Nekritz said.

  39. - Frenchie Mendoza - Wednesday, May 8, 13 @ 1:20 pm:

    So what is the minimally acceptable level of diminishment that people could live with?

    Well, since the constitution says that benefits cannot be “impaired or diminished” I would assume the answer is zero — zero reduction. Besides, why would the actives or retirees say anything else?

    This is much like my (apparent — although I disagree) silly theoretical question about where the “fairness” line falls on the diminishment continuum — and why the line won’t keep sliding to “zero pensions at all”. I’m told that the law is not a Pandora’s Box — that once the door is opened it won’t keep being forced open even more. But I don’t believe that’s so in this particular case.

    I do believe (silly troll and all) that in this case it *is* a Pandora’s Box because what’s at stake here isn’t fairness it’s cover for the politicians to win elections. It’s not a debate about pensions — it’s about a steadfast refusal to raise taxes. It’s also about reaping the services of public employees and then refusing to compensate the employees fairly.


  40. - Tim Snopes - Wednesday, May 8, 13 @ 1:27 pm:

    Thanks for that info. So it appears the diminishment of benefits to retires could actually be greater under the Cullerton plan for many retirees. That is, if the courts rule that health insurance was a benefit. Seems like the Cullerton plan is a huge crapshoot.

  41. - PublicServant - Wednesday, May 8, 13 @ 1:28 pm:

    RNUG, since CMS has an Open Enrollment period from 5/1-5/31, but we don’t know whether they will be paying anything for a decision to opt out, doesn’t that make that opt out decision impossible to make during May?

  42. - PublicServant - Wednesday, May 8, 13 @ 1:33 pm:

    And, you’re right Frenchie. You’re not a troll. I have no idea why Rich thinks you are. If a unilateral diminishment of any percentage is ruled constitutional by the Supremes, the legislature has received the green light to employ that option again and again in the future. Not sure also, why some commenters don’t get that either except that there are none so blind as those who will not see.

  43. - wert - Wednesday, May 8, 13 @ 1:34 pm:

    @Frenchie, the public employees are castigated for being “unreasonable” and “greedy” for standing firm on no diminishment while everyone seems to find it acceptable and eminently appropriate that raising taxes is unthinkable and completely impossible. I don’t think your argument is trollish at all.

  44. - RNUG Fan - Wednesday, May 8, 13 @ 1:42 pm:

    Frenchie is using something called Sarcasm and I think hes right.
    The Cullerton /Union plan hangs on the health Inurance issue. Right now as RNUG posted you would get the AFSCME contract. The law doesn’t say it but its highly likely that will continue to be the venue and its not a permanent COLA cut its either 2 or 3 years so if this took effect this year you could plan it out……
    Nekrtiz on the constitution…that is sarcasm too ,right?

  45. - wert - Wednesday, May 8, 13 @ 1:53 pm:

    And a funding guarantee is not legally adequate consideration. Courts have held time and time again that promising to live up to your previous promise is not adequate consideration to support a contract modification. Providing an additional vehicle for enforcement does not change the fact that the State has not promised to do anything more. Besides, that purported creation of a cause of action for a lawsuit to have a court enter an order compelling the State to appropriate money for pensions could well violate the separation of powers doctrine.

  46. - Anon. - Wednesday, May 8, 13 @ 1:53 pm:

    ==All that SB0001 and supposedly SB2404 grant is the right to BUY the health insurance at WHATEVER LEVEL the State wants to charge. It doesn’t GIVE $14,000 worth of insurance.==

    Also, assuming that the state wins in Maag, you’ve already got the right to buy health insurance at whatever rate the state wants to charge, plus the right to COLA. So this bill is still saying, “Which benefit do you want do give up?” Consideration necessary to support a contract would be something along the lines of “You can give up COLA in exchange for us paying X% (or $Y) of your insurance.”

    And, after the Supreme Court gets it right in Maag, even that would be a sham.

  47. - Harry - Wednesday, May 8, 13 @ 1:58 pm:

    Don’t assume Cullerton’s bill is “more constitutional” than Madigan’s. Cullerton argues that the State can impose a coercive choice on a party to a contract because that’s how Illinois contracts are; Madigan at least argues that it takes extraordinary circumstances and a balancing of State interests–that’s what his 9 pages of Findings are all about.

    If IRTA is right, SB2404 goes all the way to the US Supreme Court and gets thrown out as violating the contracts clause of the US constitution.

    And, to Frenchie Mendoza’s point, at least for Madigan’s bill the State has to show a crisis, there’s nothing in Cullerton’s approach to stop them coming back every year for another slice, if they have the votes.

  48. - Abe the Babe - Wednesday, May 8, 13 @ 2:08 pm:

    One aspect that needs to be considered is what the bond houses think of the Cullerton proposal. Im assuming they are satisfied with the Madigan plan because i think they realize there is not much else you can politically add to it (except cost shift maybe - but that doesnt save too much).

    Cullerton keeps touting that the madigan plan could save zero dollars and waste 2 years. One thing the Madigan plan will do is get the bond houses off the State’s back. They would probably even upgrade us which could save real moneyn in borrowing costs.

    Im not so sure they are going to feel the same way about the Cullerton plan which cuts a mere 10% out of the unfunded liability and is less than 1/3 of SB1 savings.

    The bond houses are one of the main reasons the GA is still going at this. If they feel like the Cullerton plan is only marginally better than kicking the can, they may react negatively and we could be right back here talking about SB1 or something like it.

  49. - RNUG - Wednesday, May 8, 13 @ 2:26 pm:

    PublicServant @ 1:28 pm:

    CMS is already planning for a choice period in the late fall / early winter to implement the proposed Medicare plan changes.

    What’s another choice period? Lately we seem to be doing at least 2 a year anyway.

  50. - mokenavince - Wednesday, May 8, 13 @ 2:33 pm:

    Cullerton sounds like its just more kick the can.
    He’s saved face now it’s time to move, his plan is not that good. The bonding companies would just lower our ratings with the Cullerton plan.

    Madigan has got the wind at as back. He will win this battle.

  51. - RNUG - Wednesday, May 8, 13 @ 2:50 pm:

    Haven’t had time to read all of the Sb2404 changes. But I’m picking up some interesting little bits. I’ve wrote about some of this before in the original Cullerton SB0001.

    About p31-32 on the optional cash balance plan, it is “notational” (read no real money in individual accounts) and on the interest credit it has a floor of 4% and a cap of 10% annual earnings regardless of what the calculation may be, plus a refund is limited to just the employee’s contributions.

    Also some bit confusing language on exactly when and how the COLA “vacations” occur. In one case it’s back to back for two years, in another case it’s 3 years, and another case it’s the scenario presented in the summary sheet.

    I’ve got somewhere to go now and probably won’t finish reading the bill until late tonight or tomorrow. But this does has some language I haven’t seen before …

  52. - Ruby - Wednesday, May 8, 13 @ 3:09 pm:

    @ 2:33 pm: Madigan has got the wind at as back. He will win this battle.

    …except that SB1 won in the IL House by 2 votes.

  53. - titan - Wednesday, May 8, 13 @ 3:13 pm:

    @ Abe the Babe - don’t be so sure about anything passed helping the Bond Rating situation (until after the courts have finished with it).

    Passing something (either) will likely avoid a further downgrade, but we probably won’t see any upgrade until the courts are signed off on constitutionality.

  54. - Michelle Flaherty - Wednesday, May 8, 13 @ 3:21 pm:

    Of note, when the bond houses and rating agencies have weighed in on Illinios’ plethora of problems they have been careful to say they want to see a constitutional pension reform plan before they do any upgrading of Illinios’ status.

  55. - Where will it end - Wednesday, May 8, 13 @ 4:18 pm:

    SB 2404 passes Senate Committee 10 – 5, could go to Senate floor as early as Thursday (tomorrow).

  56. - Huggybunny - Wednesday, May 8, 13 @ 4:44 pm:

    someone clue me in, what is the “shared sacrifice” the legislators keep talking about,what did I miss? Did they raise a tax somewhere, or close a loophole somewhere, that we didn’t hear/read about? Or does that just mean “shared” amongst the State workers/retirees, what are they referring to?

  57. - vitaman - Wednesday, May 8, 13 @ 5:05 pm:

    I just took a look at the Amendment 2. It may interest everyone that the bill says the following: The election required under this subsection (a-5) shall be made by each Tier I retiree no earlier than February 1, 2014 and no later than May 31, 2014. Therefore if I am guessing correctly the CMS package during the current benefit choice period will stay the same. This will not come up until next February. The $500 opt out may be in effect this year then gone the next. Just a guess.

  58. - Two cents - Wednesday, May 8, 13 @ 8:04 pm:

    This is off topic yet I think important. The union called for a re-vote on the contract. I voted yes before and didn’t expect to get a raise for four years but the contract as voted on was more than I had hoped. That being said I am abstaining from the re-vote. It APPEARS I will get back pay. I am not in the agencies in the lawsuit. I would have voted yes anyway. So this isn’t a got mine so whatever argument. I don’t think that way. The union has suggested we vote yes. The reason I am abstaining is that the people at the agencies in the lawsuit have to make that decision. Again if I were them I would vote yes but I am not them. I feel like all union members should get it or none. So I urge union members who are not in the lawsuit to abstain. Just my two cents.

  59. - PublicServant - Wednesday, May 8, 13 @ 8:42 pm:

    And I know I risk being called a troll having said the above. But, hey, truth will out.

  60. - Soccertease - Wednesday, May 8, 13 @ 8:54 pm:

    The courts will rule that the sovereign power of the state to raise revenue to fund pensions (the temporary we srewed up pension tax) makes the state’s dire financial condition argument irrelevant. Yes, the politicians in office will be voted out because they implemented this court imposed temporary we screwed up tax. That’s how the system is supposed to work.

  61. - RNUG Fan - Wednesday, May 8, 13 @ 8:56 pm:

    PS you are no troll I was called one once for just suggesting our highway plans needed to be more realistic like Missouri
    Anyway I await all the details from RNUG and the margin tomorrow and Maag

  62. - PublicServant - Wednesday, May 8, 13 @ 9:12 pm:

    I expect no response due to the argument that the trolls should not be fed. The truth, however is “I got nuthin.”

  63. - JohnTwig - Wednesday, May 8, 13 @ 10:17 pm:

    Concerning state employees and Social Security. Illinois employees were never given the option of being covered by Social Security or not. (All state employees first hired after April, 1986 are includied in Medicare. persons hired befor that date ARE NOT included in Medicare.) Illinois has opted out of the Federal Social Security plan by means of a “Section 218 agreement” between the state and Social Security and IRS. This section 218 agreement allows Illinois to set up alternative retirement plans that are supposed to offer benefits somewhat similar to what is offered by SS. Take a look at: http: //

    This arrangement has been a big financial bonanza for the state since, while the state’s alternative plans must must meet a minimum level of benefits, there is not requirement that the plans by financially solvent. So what has happened is that the state has been relieved of making the 6.2% employer share of payroll into SS and at the same time has stiffed state employees in the alternative plans. A pretty good deal for Illinois taxpayers – at the expense of state employees/retirees.

  64. - RNUG - Wednesday, May 8, 13 @ 11:07 pm:

    JohnTwig @ 10:17 pm:

    You can’t generalize like that. As I’ve learned over the years of following this, you have to get down to the individual plans and then the sub-groups within the plans.

    For example, a lot of the SERS members (except the law enforcement group) do participate in SS. For people in the system at the time (1970-72 ish w/o looking up the exact date), SERS employees had to make an irrevocable choice on whether or not to be in SS. When I was hired full time by a SERS agency in 1972, I was defaulted into the SS group.

    This is also true of other groups. Some SURS members also participate in SS.

    I have a spreadsheet showing all the combinations and even though I created it, it is a mess to follow due to all the footnotes about this or that special situation for a given group.

  65. - RNUG - Wednesday, May 8, 13 @ 11:10 pm:

    vitaman @ 5:05 pm:

    Thanks for that bit. I hadn’t caught it yet. I concur it looks like they are targeting a July 1, 2014 implementation on the health insurance “choice”.

    Time to finish reading the bill now that I’m back home.

  66. - RNUG - Thursday, May 9, 13 @ 1:06 am:

    More SB2404 observations …

    before getting to the details, a few key observations:

    1) the choice period defined in this bill SHOULD be after any IL SC decision on the consolidated Maag case … which will tell us a lot about the constitutionality of this choice approach

    2) other than slightly delaying the choice deadline, there doesn’t seem to be any advantage for current employees to a specific retirement date between now and next summer.

    3) the COLA “holiday” is not necessarily exactly as specified in the summary sheets we’ve been reading

    specific details:

    pg 28-29 is some interesting language about a Tier 2 Task Force to make sure that plan retains it’s IRS/SS exemption. Seems they recognize some pension experts’ contention the State may have gone too far in Tier 2 reductions and want to review that.

    Definitely targeted at July 1, 2014 (as noted by -vitaman-). There is some more language about raises after June 20, 2014, depending on the choice made, not being salary.

    p43 (and probably other places I haven’t read yet since I’m commenting as I read), the “no choice made” default is keep the existing 3% compounded COLA and lose health insurance access plus future raises for employees are not counted in the pension calculations … so employees also lose some future pension value.

    p47 - The State will send you the forms to make a choice but if you want more information, you have to ask for it. Also, you can’t blame the State if you later decide you made the wrong choice.

    p49 - provides severability language between retiree choices and employee choices, should the “choice” be found invalid for one group but not the other group. This language is repeated for each of the retirement systems, so there is actually ten (I think) “groups” that could be severed from each other.

    p50 - I’m going to try to sort out the AAI changes. (a-1) for employees and retirees, COLA changes if you opt for health insurance access and future raises are counted for pension calculations. The COLA is 3% on the ORIGINAL amount of the pension. (a-2) for retirees (I think), receive 1st increase you are eligible for, skip 2 years in a row, and then resume increases (a-3) for current employees (I think), pay the extra 1%/2% pension contribution, future raises are calculated for pension purposes and upon retirement get the 1st increase you are eligible for, skip 3 years in a row, and then resume increases

    If you retire after Feb 1, 2014 you only have 60 days to make a choice. Be retired before that date, and you have until May 31, 2014 to make a choice.

    p55 - just caught an insider bit; under the guarantee, the individual right to sue if the retirement systems fail to act as specified only applies to Tier 1 members. I can’t remember exactly what, if anything, about individual right was in the bill creating Tier 2.

    p56 - If the system or individual sues for pension fund payment, as previously noted, those pension payments are subordinated to all current and future State bonded debt. Obviously keeping the bond companies happy. If I was into conspiracy theories, it seems to me it would theoretically be possible to load the State up in the future with so much bonded debt the “guarantee” could become worthless. Maybe I’m misconstruing this; bond finance is not my expertise … -Word- or someone else, care to share an opinion?

    p59 - employees only make pension contributions on whatever amount is considered salary for pension purposes

    p63 - more insider stuff - nothing in this bill is considered a “new benefit increase”, so there is no need to identify a funding source for any of the changes

    seems to be the end of the changes and does repeat for the other systems. I’ve noted a couple of system specific specific differences below.

    p104-105 - as I speculated earlier to -huggybunny-, the “intent to retire submitted by Jan 1, 2013″ language is for teachers who have already made their irrevocable notification of future retirement date under that system’s rules.

    p165-197 - the teacher ERO is still there but possibly under some different terms; someone who knows that system better than I will have to say if there are significant differences

    I won’t promise this is the definite word on SB2404; I had to have three copies of the bill open just to chase some of the references back and forth. It would have been easy to miss or misread something.

    Time to rest the eyeballs …

  67. - Harry - Thursday, May 9, 13 @ 5:50 am:

    Re Social Security—as I understand it, you had the choice to keep your current pension situation or go into Social with a smaller SERS pension and smaller SERS contributions. Since you could “stand pat” that is not analagous to what Cuillerton is proposing, which requires a diminishment. You could stay where you were, or choose something different that included real consideration.

    IRTA is not really the one to make the argument, the problem is with actives who have to trade COLA against their future raises counting for pension. The argument that health care is part of the pension “contract” is a tough one, good chance that it loses. But Cullerton has to significantly amend the pension code to create a whole new definition and set of rules covering “future increases in income.” Can’t see how THAT isn’t an impairment of a pension contract. But, it’s not relevant to retirees unless they set aside their pension and are re-hired and want to earn more pension credits. I could see a court finding no (contractual) harm to the retirees and therefore never getting into the real problem.

    If no employees sue, maybe he gets away with it.

    But you will still have this law that establishes how one party to a contract can unilaterally diminish the other party so long as they follow a certain form, and that will in the end be very pernicious.

  68. - KurtInSpringfield - Thursday, May 9, 13 @ 8:14 am:

    I am surprised no one else has mentioned this, but there is a better more constitutional option. No it does not save the state money, but the state owes the debt and should pay its own debt.

    According to an article written by Charles Wheeler, the normal cost for pensions are actually going down. (He referenced COGFA reports when making these claims.) As mentioned previously on this blog, it is only because of the pension ramp and the huge balloon payments created by the ramp that we have a crisis. Ralph Martire of the Center for Budget and Tax Accountability has said several times in articles, the solution to this problem is to reamoritize the debt by creating fixed level payments from year to year, and extending the time to pay. This is constitutional, does not diminish or impair employee benefits, eliminates the need to raise taxes to help pay the debt, and removes the pressure on the budget from year to year. This is by far the best solution.

  69. - RNUG - Thursday, May 9, 13 @ 8:26 am:

    KurtInSpringfield @ 8:14 am:

    I alluded to it at 12:21 pm yesterday and also some reasons why it’s not getting consideration.

    Because of the back-end loading of the 1995 ramp plan, a level payment plan actually costs the same or more in the budget the first few years. It’s only after a few years that the Martire plan payments become less than the currently scheduled ramp payments. Any level payment plan also requires, at minimum, that the temp 2% income tax increase be made permanent … that’s just the math.

  70. - DirtNap - Thursday, May 9, 13 @ 9:18 am:

    - KurtInSpringfield - Thursday, May 9, 13 @ 8:14 am:
    Please see RNUG - Wednesday, May 8, 13 @ 12:21 pm:

  71. - facts are stubborn things - Thursday, May 9, 13 @ 9:27 am:

    MJM knows it is not likely the house bill will get pass the SC — but not for sure. The unions know it is likely the SC will strike down the MJM house bill — but not for sure. The Cullerton/union plan they both beleive is probably going to get past the SC — but not for sure. The MJM house figures why not go for the big reduction in pensions and if you win (great) and if you loose (great, you tried) you have political cover. Quite a game of cat and mouse, all playing out under the uncertainty of whether the SC will uphold the literal reading of the const. and their previous rulings or give in to some kind of situational determination of law. This should be simple: the law is clear — live wiht the results. Once you say we will follow the law, then you have a set of options. Raise taxes, tax pensions, lay off workers, grow the economy, change the payment structure, change yet to be hired workers and tweek or not tier II, negotiate higher contribution levels with current workers. The problem with this approach is it puts the spotlight on the GA as the responsible party and they don’t like that.

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