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Kicking the can

Friday, May 31, 2013

* We talked yesterday about the We Are One report on the Teachers Retirement System actuarial analysis of SB 1, the House’s pension reform plan. The union report claimed that Speaker Madigan’s reform plan would force teachers into Social Security, which would greatly drive up costs. The reason is that benefits would be less than the teachers would actually be paying into the system.

Rep. Elaine Nekritz, Madigan’s pension point-person, didn’t deny this and issued a statement

Simple answer is it’s an issue that’s not immediate — probably 10-12 years down the road — and could be addressed later. It shouldn’t stand in the way of a real solution like SB 1.

* I checked with TRS this morning and they said SB1 is short $6-7 billion in payments between now and 2045. But that cost estimate is based only on the assumption that the money would be baked into the 32-year plan right away.

So, delaying this for 10-12 (or even 15, according to TRS) years from now will increase that $6-7 billion cost considerably. The more they delay, the higher the cost. Just like we got into this mess in the first place.

* And the TRS estimate doesn’t include the cost of fixing the exact same problem with the “Tier 2″ plan that passed in 2010. I asked TRS for those numbers, but they don’t have them yet.

Now, $6-7 billion is pretty small compared to the $100 billion unfunded liability problem, even with the added interest of waiting at least a decade. But if the House bill passes, the state would be essentially saving money now that it’ll have to pay in the future by slashing estimates of the benefits it will need to pay.

* Related…

* Cost-shift pension plan clears House

* Pension cost-shift for higher education clears Illinois House

* Madigan’s pension-reform package goes down in flames

* Illinois Senate rejects House pension reform plan

* Illinois Senate defeats sweeping pension reform bill

* Editorial: Senators, hold your tantrums and pass SB1

- Posted by Rich Miller        

26 Comments
  1. - Handsome Pete - Friday, May 31, 13 @ 10:34 am:

    It is clearer by the day that Rep. Nekritz does not have a real grasp of these issues and she continues down this road just for more press pops that keep coming back and bite her.


  2. - RNUG - Friday, May 31, 13 @ 10:35 am:

    Isn’t back-end loading the payments how we got in this mess in the first place?


  3. - Ed Observer - Friday, May 31, 13 @ 10:35 am:

    Madigan should call the Senate bill to a vote today. Period. If they vote it down, fine, but how could he not let it come to a vote, while accusing Cullerton of not providing leadership?


  4. - 47th Ward - Friday, May 31, 13 @ 10:36 am:

    ===But if the House bill passes, the state would be essentially saving money now that it’ll have to pay in the future by slashing estimates of the benefits it will need to pay.===

    Which is sort of how we got into the pension mess in the first place, right?


  5. - RNUG - Friday, May 31, 13 @ 10:43 am:

    I posted this in yesterday’s thread but it probably bears re-posting. If I end up with egg on my face, oh well.

    Since these bills were moved to 3rd Reading in the Senate yesterday, I’m assuming the focus will now shift to trying to get the 3 individual bills Madigan passed out of the House through the Senate.

    For those of you trying to keep score, here are the numbers and very short description:

    HB 1154 - pensionable salary cap

    HB 1165 - COLA lesser of 3% or $600/$750 cap plus 5 yr delay or age 67

    HB 1166 — raises retirement age for those under 45

    Even though they all violate previous court rulings, if they aren’t further amended, I’ll predict HB1154 and HB1166 will be easily passed and HB1165 might or might not pass. I base these guesses on how the House vote went on these bills:

    HB 1154 - 101 / 15

    HB 1165 - 66 / 50

    HB 1166 — 76 / 41


  6. - dupage dan - Friday, May 31, 13 @ 10:43 am:

    “Y’know, my python boot is too tight
    I couldn’t get it off last night
    A week went by, an’ now it’s July
    I finally got it off
    An’ my girl-friend cry
    “You got STINK FOOT!
    STINK FOOT, darlin’
    Your STINK FOOT puts a hurt on my nose!

    ……Ain’t this boogie a mess?”

    (Frank Zappa)


  7. - Bill White - Friday, May 31, 13 @ 10:46 am:

    @RNUG

    Would some combination of HB1154, HB1165 and HB1166 also force teachers into the Social Security system?


  8. - Just a guy - Friday, May 31, 13 @ 10:53 am:

    No. HB1154 would be the only potential problem but it doesn’t cause a problem because the salary cap is set to the social security wage base and would increase as the feds increase it. The problem with SB1 is that the pensionable salary cap is indexed to half of CPI.


  9. - T.O. - Friday, May 31, 13 @ 10:54 am:

    @RNUG
    Were those three provisions all included in SB1? If so, why would Senators vote for them individually when they rejected them en masse in SB1?


  10. - JohnTwig - Friday, May 31, 13 @ 11:03 am:

    Another thought on the whole teacher – Social Security thing.

    Most teachers are relatively proficient in basic arithmetic and, once they realize they are paying more for their reduced, mandatory Illinois pensions than they would be eligible for under Social Security, they just might decide to vote themselves into Social Security. They have the option of doing this under the state’s Section 218 Agreement – and the Legislature wouldn’t even need to be involved.

    Just a thought.


  11. - Boat Captain - Friday, May 31, 13 @ 11:04 am:

    @RNUG-Could you explain how exactly 1165 would work? Thanks in advance.


  12. - Harry - Friday, May 31, 13 @ 11:04 am:

    The way Rich describes what he got from TRS sounds correct—at some point the defective CPI adjustment in Tier 2 salary cap (and Tier 1 if such a bill passes) will have to be fixed, and that would increase the apparent pension liability to be amortized over the remaining years before the target year.


  13. - RNUG - Friday, May 31, 13 @ 11:06 am:

    Bill White @ 10:46 am:

    I don’t know.

    My gut says probably not on 1154 since the pensionable salary cap is set the same as the SS salary cap.

    Ditto on 1166 since it just delays the retirement age.

    Maybe on 1165. The COLA cap primarily hits the high income pensions, but it would take a lot of years to erode the value of those pensions, most likely longer than life expectancy. It will be the lower income pensions, when they hit the $20K (coordinated) / $25K (uncoordinated) level, that would be in the most danger. I may not be understanding it right, but I think that whole issue only applies to the uncoordinated pensions (the people who don’t get SS). But since TRS members are 62% of “state employees”, it is a big group. And SURS is 23%, part of which are also uncoordinated.


  14. - RNUG - Friday, May 31, 13 @ 11:08 am:

    T.O. @ 10:54 am:

    Those, and a number of other individual items that were voted down, plus some items that were not voted on individually, were in SB0001.


  15. - RNUG - Friday, May 31, 13 @ 11:19 am:

    Boat Captain @ 11:04 am:

    I’ll try. It kind of depends on whether you are coordinated (pay into SS) or if you are uncoordinated (not pay into SS).

    First off, you won’t get a AAI (the official name since it really isn’t a COLA) at all until you have already been retired for 5 years or when you reach age 67, whichever comes first. I slightly oversimplified this because it has the same January logic as the current AAI.

    Second when your AAI does start, you will get 3% compounded IF your pension is under either $20K (coordinated) or $25K (uncoordinated). Once you hit those pension levels, your AAI will be a annual flat dollar amount of either $600 (coordinated) or $750 (uncoordinated).


  16. - RNUG - Friday, May 31, 13 @ 11:22 am:

    The rest of you have fun watching the slow motion train wreck. I’ve got other things to do until about 11 PM tonight, when I’ll find out what happened.


  17. - Boat Captain - Friday, May 31, 13 @ 11:25 am:

    @RNUG-Thanks-I am in SS and have been retired 4 years. I understand it now with your explanation.


  18. - Cassiopeia - Friday, May 31, 13 @ 11:27 am:

    I think that everyone needs to keep in mind that there are several hundred thousand retirees that have been watching in absolute angst about the news concerning pension “reform”. Many of them are living on the financial edge right now and they all know too well that all of the savings that everyone is talking about will come directly from them in the form of reduced monthly checks.

    They played by the rules as laid down to them, paid in what was required of them and believed in the assurances that were given to them.

    They feel a deep moral outrage at all the loose talk about snatching away from them what they feel is rightly what they deserve.

    I can’t help but think that few of them will forget what political figures are trying to do to them.

    They also can’t help but notice how people like Rep. Nekritz get all worked up over helping poor people with all manner of programs to alleviate their plight but take a callous disregard for the financial well being of retired public workers.


  19. - archimedes - Friday, May 31, 13 @ 11:28 am:

    On the whole social security thing. The State would need to “fix” the Tier 2, and Tier 1 if SB1 had passed, to avoid the additional cost of social security.

    On the other hand - they could ignore the problem and just let the teachers and the local districts pay the social security tab. that wouldn;t cost the State - but the increased cost to teh local school districts and teachers would be way more than fixing the problem.


  20. - archimedes - Friday, May 31, 13 @ 11:29 am:

    On the whole social security thing. The State would need to “fix” the Tier 2, and Tier 1 if SB1 had passed, to avoid the additional cost of social security.

    On the other hand - they could ignore the problem and just let the teachers and the local districts pay the social security tab. That wouldn’t cost the State - but the increased cost to teh local school districts and teachers would be way more than fixing the problem.


  21. - archimedes - Friday, May 31, 13 @ 11:29 am:

    On the whole social security thing. The State would need to “fix” the Tier 2, and Tier 1 if SB1 had passed, to avoid the additional cost of social security.

    On the other hand - they could ignore the problem and just let the teachers and the local districts pay the social security tab. That wouldn’t cost the State - but the increased cost to teh local school districts and teachers would be way more than fixing the problem.


  22. - Unknowntoo - Friday, May 31, 13 @ 11:37 am:

    On a side note, now that Madigan wouldn’t allow HB0212 to be called, is there anything that can be done to pay those state employees what’s been owed them begining back in July 2011?

    Thank you.


  23. - Anonymous 1 - Friday, May 31, 13 @ 12:00 pm:

    Cassiopeia ===few of them will forget==

    Hah. NONE of them will forget unless they’re dead next election. The deep moral outrage comes from being fooled (possible) twice. Nice that everyone can become the beneficiaries of their hard earned dollars twice. Shared sacrifice? Nice try at that mantra. Sacrificed once already. Time to share now.


  24. - Mama - Friday, May 31, 13 @ 12:05 pm:

    Trust me when I say the teachers, public employees/retires, ISP, etc. will not forget what the current political figures did to their pocketbooks.


  25. - sk hicks - Friday, May 31, 13 @ 12:35 pm:

    From the SJR - “The leading reform plan still on the table is a Senate plan that gives workers a variety of choices for changing their pension benefits.” Shouldn’t that read “gives workers a variety of choices for ‘diminishing’ their pension benefits”?


  26. - Anonymous - Friday, May 31, 13 @ 1:05 pm:

    Blah…Blah…Blah

    See you in court for the next several years!!!


Sorry, comments for this post are now closed.


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