Tier II roundup
Wednesday, Apr 15, 2015 - Posted by Rich Miller
* Illinois Radio Network…
A couple of state lawmakers who are leaders on pension restructuring are cautioning against doing anything further without considering the consequences. “The road to pension hell is paved with rash actions. It’s paved with hast actions. It’s paved with actions that aren’t thought out carefully,” State Sen. Daniel Biss (D-Evanston) said at a news conference today (Tuesday) at ther state Capitol.
* Illinois Public Radio…
Rauner, who took office in January, wants to freeze benefits accrued by state workers starting July 1. After that date, the workers would be moved into a less generous, tier 2 pension plan in place for new workers hired since Jan. 1, 2011, or would have the option to buy out their pensions and move into a retirement plan similar to the popular 401(k) plan in the private sector. […]
“Illinois’ current pension system is unaffordable and choking the state’s budget, and the governor’s plan enacts true pension reform for the financial future of Illinois,” Rauner’s office said in a statement, adding there was enough time to review and pass the proposal.
If they plan to run it through actuaries as every previous pension plan has done, then that takes time.
* From the Illinois Policy Institute’s news network…
In short, they say Rauner needs to get his specifics into a bill and before legislators. They say a realistic proposal will need:
Detailed analysis by professional actuaries retained by the state’s major pension systems.
A ruling from the Internal Revenue Service on whether it complies with federal law.
Discussion and consideration by legislators and give and take with the governor’s office.
All of that takes time, the lawmakers said, and there are about seven weeks left in the scheduled legislative session.
“This is a very, very complicated and difficult arena to move through and if we are to do something quickly … this is something that should have been started two months ago,” Nekritz said.
Exactly.
* More on that point from the AP…
Nekritz said analyzing pension-plan change requires as long as three weeks for investment agencies such as the Teachers Retirement System to determine monetary impact. Rauner, a first-time office holder, needs to understand that “there’s a long lead time to actually getting the data and the information you need.”
Yep. And every time you tweak the thing, it takes that much more time all over again.
* On to a very good analysis by the Tribune…
Central to questions about Tier 2 is a federal tax provision sometimes referred to as the Safe Harbor rule. In short, it requires public pension plans to offer retirement benefits at least as good as the minimum workers would get if they were covered by Social Security.
Failing that, federal law requires public workers to join Social Security and pay a 6.2 percent tax to the national retirement system. Their employers would also have to kick in another 6.2 percent, costing taxpayers more money. Most public employees and employers in Illinois currently do not pay Social Security taxes.
Teacher retirement system experts say Tier 2 benefits currently meet the Safe Harbor test but will begin to fall out of compliance by 2027. The reason, they say, is that Tier 2 includes both a limit on benefits and inflation adjustments much tighter than those adopted by Social Security — leaving retirement benefits for some workers at risk of falling below what they could qualify for under the federal system.
A fix for the problem would be to increase cost-of-living adjustments for Tier 2 workers to keep them in line with what Social Security offers. That, however, would cut into the cost savings counted on by Rauner and state leaders who approved the 2010 law.
Larry Langer, a principle at Buck Consultants which conducted the actuarial analysis for TRS, predicted only higher-paid employees would initially bump up against the Safe Harbor threshold. If Tier 2 were confined to newer hires — who tend to earn less — Langer predicted the ranks of affected workers would be modest for many years beyond 2027.
That dynamic would change, however, if tens of thousands of additional workers are put into the Tier 2 retirement system as Rauner proposes, Langer said. “These are people who are higher paid just because of where they are at in their career and higher pay is a potential driver of non-compliance,” Langer explained.
Not to mention the dubious constitutionality of moving current workers from one system to another and thereby diminishing their benefits.
- Oswego Willy - Wednesday, Apr 15, 15 @ 1:37 pm:
===…the dubious constitutionality of moving current workers from one system to another and thereby diminishing their benefits.===
This is what shoukd make Rauner take pause and think of the Constitutionality of his “simple” move, come July 1.
The diminishing of the protected benefits, in the middle of someone’s employ with the state is risky.
- SkeptiCal - Wednesday, Apr 15, 15 @ 1:47 pm:
In some IL Supreme Court decisions, the court ruled that the pension clause protects the benefit structure that a state employee gets on the first day of employment. That probably will mean that Rauner still cannot force such an employee into a new Tier II retirement. So this plan will not work on anyone other than a person who is getting an initial hire after new legislation. He needs his lawyers to study more carefully.
He is proving that he is not being smart on how he is analyzing things. And he is talking to the press without understanding the real issues. His initial thought of waiting until May for the Supreme Court decision was wise and he may not be helping himself by making such public comments. My assumption is that the Justices read the paper and already saw them characterized as part of a corrupt system and now this.
My advice: Be patient and do the due diligence called for by some legislators.
- Jake From Elwood - Wednesday, Apr 15, 15 @ 1:54 pm:
I am expecting adoption of a New Tier Three that will apply to all new hires and that will be 401(K) with SS safeguards or weaker defined benefit plan. If it only applies to new hires, it will be constitutional. Real financial impact is not felt for two decades or more.
- Rich Miller - Wednesday, Apr 15, 15 @ 1:55 pm:
===or weaker defined benefit plan===
I’m not sure you could legally concoct a weaker DB plan than Tier 2.
- dupage dan - Wednesday, Apr 15, 15 @ 2:00 pm:
So, to be clear, can Rauner do this unilaterally on 6/1? Does he have to have legislation passed and a bill ready for signature on his desk?
Other than the GOP minority members who may be swayed by the $20 million, who would vote for such a thing? If Rauner signed an executive order, we could assume that court orders would freeze it (see fair share executive order, etc) for some time to come.
All the while Rauner is already on the warpath what with union contract negotiations, budget cuts and claims he can solve the budget woes by assuming massive relief from his pension crunch scheme.
Maybe OW is right about “Sonny”. I still call it the populist rantings of “The Body” or Governor “I’ll be back”. Hey Rauner - look where their act got them. sheesh.
- Jack - Wednesday, Apr 15, 15 @ 2:02 pm:
So I take it current retirees continue to get their benefits including compounded 3% increase yearly.
- Juvenal - Wednesday, Apr 15, 15 @ 2:03 pm:
…on the other hand, Rauner continually claims you can’t really hire anyone decent for less than $250,000 a year.
I am confused: are public employees overcompensated or undercompensated?
- Wow - Wednesday, Apr 15, 15 @ 2:05 pm:
Having voted for this gov I have only one thought
Gov enough with the pie in the sky ideas start governing
Start proposing real solutions to the very real problems this state faces
If you are incapable of governing step aside the citizens of this state deserve better
- RNUG - Wednesday, Apr 15, 15 @ 2:07 pm:
Aside from the whole Tier 2 IRS safe harbor issue, I don’t see the IL SC allowing the forced movement of all government employees to Tier 2.
The Kanerva decision was a real game changer. I always believed that the premium free health insurance was protected … but I figured it would end up being Contract Law, not the Pension Clause, that protected it. The remarks in Kanerva were the equivalent of a baseball bat up the side of the head of the Legislative and Executive branches. At least the Legislature seems to have gotten part, but only part, of the message. As for the new guy, he doesn’t seem to have gotten the message yet.
- Wordslinger - Wednesday, Apr 15, 15 @ 2:07 pm:
It’s not in the governor’s interest to release specifics for analysis.
- RNUG - Wednesday, Apr 15, 15 @ 2:09 pm:
== So I take it current retirees continue to get their benefits including compounded 3% increase yearly. ==
Unless / until the IL SC says different.
- anonymous - Wednesday, Apr 15, 15 @ 2:14 pm:
let’s stop the silliness stop and stop calling Illinois Policy Institute network “news.” They don’t even behave like a 501c3
- Arthur Andersen - Wednesday, Apr 15, 15 @ 2:15 pm:
DD, I suppose Rauner could try an EO, but it wouldn’t be worth the paper it’s printed on. Pension laws are almost eternal and shouldn’t be changed willy-nilly. (No slight intended OW)
The excerpts above are all good stuff, especially from TRS.
Their actuaries have always been top-notch. I don’t think the
IRS will opine on proposed legislation, as the IPI suggests.
If only Nekritz and Biss had insisted their SB1 be equally “scrootened”, we might not have wasted a lot of time, effort, and lawyer money on a lousy bill.
- Ghost - Wednesday, Apr 15, 15 @ 2:15 pm:
Somone should call rauner on his rehtoirc. The pension is not bankrupting the state.
The lack of a tax increase, tax credits and tax deductions for companies and individuals who earn over 250k are leaving the state without money. The state has accessnto all the money it needs. It just needs to raise taxes and eliminate tax loopholes and credits for the welathy.
The supreme court said it best when they asked how thebstate could have a fiscal emergency if itnallowed its tax increase to expire. In the legal world the concept is mitigation. You cant make your own harm, or take steps or fail to take steps to mitigate the harm.
- RNUG - Wednesday, Apr 15, 15 @ 2:15 pm:
== can Rauner do this unilaterally on 6/1? ==
IMO, not legally.
- Countryboy - Wednesday, Apr 15, 15 @ 2:16 pm:
BR knows what he’s doing.
Illinois public DB plan participants and public union members are largely the same group.
The reckless public bashing on both fronts is designed to focus the public against his hated subgroup while getting national attaboy crap for himself.
He knows exactly what he’s doing.
- archimedes - Wednesday, Apr 15, 15 @ 2:18 pm:
Rauner is relying on the opinion from Sidley that the Pension Clause has the word “earned” in it - i.e. the benefits “earned” are protected from diminishment.
Or maybe he isn’t. Didn’t he just say he wants to amend the Pension Clause? Never did say how he wants it amended.
- Archiesmom - Wednesday, Apr 15, 15 @ 2:20 pm:
Oh, that pesky constitution! Until it is amended - which would not be a quick process itself — all they can do is groundwork for what might be possible in the future. The ISC should be weighing in in a month or so, and I am in agreement with RNUG as to what that decision is likely to look like.
Sometimes I dream of a permanent tax increase and funding of existing pension obligations. Then I wake up to this cluster.
- Liberty - Wednesday, Apr 15, 15 @ 2:22 pm:
“An employee’s rights in the system vest, either at the time he enters the system, e.g., making contributions, or in 1971 when the 1970 Constitution became effective, whichever is later.” See https://casetext.com/case/schroeder-v-morton-grove-police-pension-bd
- Archiesmom - Wednesday, Apr 15, 15 @ 2:22 pm:
== can Rauner do this unilaterally on 6/1? ==
= IMO, not legally. =.
RNUG, that will not stop him from trying!
- Qui Tam - Wednesday, Apr 15, 15 @ 2:23 pm:
While analysis to determine the soundness and viability of any proposal seems like a good idea, the press clearly missed the irony that it comes from Nekritz and Bliss.
- Former Merit Comp Slave - Wednesday, Apr 15, 15 @ 2:24 pm:
Not. Gonna. Happen. In related news the judge just ruled on lawyer fees for health insurance lawsuit. Less than half of what they asked for. Basically out of every $100 you are due to receive $2.37 will be deducted for lawyer fees.
- Liberty - Wednesday, Apr 15, 15 @ 2:31 pm:
Con Con Delegate Kinney: ” diminished refers to this situation: If a police officer… was entitled to retire at 2/3rd of his salary after twenty years of service, that could not subsequently be changed to say he was entitled to only 1/3rd of his salary after thirty years of service, or perhaps entitled to nothing.” http://www.appellatestrategist.com/wp-content/uploads/sites/498/2015/02/Brief-of-ISEA-RSEA-Heaton-and-Harrison-Plaintiffs.pdf
- Dirt Diver - Wednesday, Apr 15, 15 @ 2:41 pm:
=Basically out of every $100 you are due to receive $2.37 will be deducted for lawyer fees.=
Quite a good deal for those in the plaintiff class if you ask me.
- Six Degrees of Separation - Wednesday, Apr 15, 15 @ 3:06 pm:
If only Nekritz and Biss had insisted their SB1 be equally “scrootened”, we might not have wasted a lot of time, effort, and lawyer money on a lousy bill.
A few years ago, much ado was made of the “we’re adding $17 million of liability every day the crisis is not solved”, legislators’ pay was being withheld, and there seemed to be an urgency on all parts to stop the bleeding. Especially since the Kanerva decision came down, the urgency of solving the “crisis” seems to have slowed to a snail’s pace, even though we have had several years to craft solutions that would have passed constitutional muster. And no one seems to have any urgency for passing a Plan B. The constitutional amendment wish will take another 2 years to enact, and that’s an iffy, and probably 2 or 3 more years of litigation if laws are enacted that meet the new pension clause but run afoul of state and federal constitutional contract law.
- Johnny Q. Suburban - Wednesday, Apr 15, 15 @ 3:13 pm:
I can’t bear Biss’s or Nekritz’s crocodile tears. Their sudden pearl clutching concern for the sanctity of pensioners is cynical politics at its worst.
- NewWestSuburbanGOP'er - Wednesday, Apr 15, 15 @ 3:16 pm:
Wow - Wednesday, Apr 15, 15 @ 2:05 pm:
Having voted for this gov I have only one thought
Gov enough with the pie in the sky ideas start governing
Start proposing real solutions to the very real problems this state faces
If you are incapable of governing step aside the citizens of this state deserve better
Bite you tongue…. Can you imagine Governor Sanguinetti? Even worse than Rauner.
- RNUG - Wednesday, Apr 15, 15 @ 3:21 pm:
== the urgency of solving the “crisis” seems to have slowed to a snail’s pace ==
If you just keep following the existing ramp, everything will be fine for the pension funds. The urgency came about because everyone was staring at the end of the temporary tax increase and they realized something had to be done. Now the tax sunset has happened, there isn’t enough money to pay the bills and fund the pensions, but they’ve got the new guy in town to blame.
I suspect the urgency will ramp back up (pun intended) once the IL SC rules on SB-1. But by that point is should be obvious that new or shifted revenue will be required. I have a feeling everyone is resigned to it … and it will be a bi-partisan deal before it is all over with.
The only question I have is whether the increase passed with Rauner’s help or if it gets done in spite of him.
- RNUG - Wednesday, Apr 15, 15 @ 3:23 pm:
== Can you imagine Governor Sanguinetti? ==
We survived Blago & Quinn. Admittedly the bar is set low, but we’ll survive her.
- facts are stubborn things - Wednesday, Apr 15, 15 @ 3:25 pm:
Plain reading of the pension clause along with original intent of the drafters in addition to many years of case law to include this courts ruling as recent as kanerva makes this whole Rauner plan almost a certainty of being ruled unconstitutional. I think from a strictly moral fairness issue, the idea of keep what you earned to date and changes going forward will resonate with many people. Having said that, this state in 1970 decided to make pensions a contractual right with constitutional protections instead of a gratuity. I believe benefits are protected upon hire or soon thereafter. Hard to imagine the GA willing to pass any pension plan until the ISC rules. Nothing will get passed, but if it did it would be completely absurd to count the savings in the budget…would go to court and be stopped. That is one good thing the GA did on SB1 — did not count savings because they knew it would be stopped and likely overturned.
The bottom line is if the ISC rules the State can use police powers then the pension clause means nothing — the state can just continue to underfund the system and come back 10 years from now and yell police powers again and again and again. The pension clause was put in to protect pensions from this exact situation and moment.
- Wow - Wednesday, Apr 15, 15 @ 3:31 pm:
New west sub GOP
Agreed
- facts are stubborn things - Wednesday, Apr 15, 15 @ 3:34 pm:
We do not have a pension problem we have a debt problem. There is nothing intrinsic within the pension system that is a problem. The key ingredient for all pension systems is that they are properly funded. The reason our pension system is so poorly funded is that we have a structural deficit caused by a tax system that does not capture increased revenue to keep up with increased costs. For many years we have dealt with this issue by spending pensions dollars on state services instead of making cuts or increasing revenue. That has created a huge pension debt that needs to be refinanced to a fixed dollar amount that will be become easier to manage do to inflation. The pensions ramp is the issue because it is the wrong way to address the debt. It is not politically popular to say to Illinois citizens that we spent the pension fund so we could give you the candy you want without paying for it to get elected. WE have now racked up a huge debt that we must all pay back and we must honor the pension obligations just like we honor bond debts etc.
This is a legal and moral issue having to play out in a political framework. The ISC ruling will help shape that political context and help move us closer to a true solution.
- Blago's Luxurious Grey Mane - Wednesday, Apr 15, 15 @ 3:34 pm:
The pension situation really isn’t a “crisis,” and people really aren’t that interested. It’s not like many people will have their financial future impacted.
So much better to waste time and travel the state thundering about “right to work” zones going nowhere and pontificating about how the financial situation has single-handedly been caused by Office Assistants making $35,000/yr.
Meanwhile, conservative Republicans who bray about “personal responsibility” are busy trying to take Grandpa Firefighter’s pension through enacting bankruptcy for municipalities.
Yes, it seems as if everyone’s priorities are right where they need to be for another successful Spring session.
- dupage dan - Wednesday, Apr 15, 15 @ 3:39 pm:
Thank you AA and RNUG. I kinda knew it but with all the bluster and the certainty with which Rauner declared 6/1/15 as his unilateral independence day I wondered what his move will be. Does he expect the legislation to rise up like mushrooms after a spring rain? Who is his legislative leader? Did he just decide to keep the one Quinn used? (snicker)
- A guy - Wednesday, Apr 15, 15 @ 3:41 pm:
===* On to a very good analysis by the Tribune…===
Feeling woozy all the sudden.
- gopower - Wednesday, Apr 15, 15 @ 3:46 pm:
Any comparisons to what Social Security might pay in 12 years are pretty silly. Even Barack Obama (on his good days) wants to cut the cost-of-living adjustments to Social Security by about -½% (by changing from CPI to chain-CPI, a concept that typically rises more slowly). It absolutely will happen under the next president, whether it’s HIllary or someone else.
- RNUG - Wednesday, Apr 15, 15 @ 4:01 pm:
- dupage dan -
I expect Rauner will try to do a bunch of stuff, either by EO or just ordering his agency heads to do it. And he may even be dumb enough to try a lockout on July 1 after the contract expires.
There will be a lot of Sturm und Drang for a while until the courts step in. Even then, it will continue at a lower level like the current daily attacks.
- RNUG - Wednesday, Apr 15, 15 @ 4:10 pm:
It just occurred to me what was in the back of my mind when I wrote the comment at 4:01.
We’re watching a really bad German opera without a decent soundtrack …
- Lucky Pierre - Wednesday, Apr 15, 15 @ 4:25 pm:
I would guess the leverage for pension concessions will be salary reductions or freezes for current employees.
As Senator Cullerton has said, salary increases are not constitutionally protected but pension reductions are.
- AnonymousOne - Wednesday, Apr 15, 15 @ 4:40 pm:
==salary reductions==
And a young professional on yesterday’s blog was asking if working for the state is something (s)he should consider. Who’d want to step into this hornet’s nest unless you had no other options? Those without better options are who will be working in publicly paid positions. I hope. We deserve what we pay for.
- suddenlyconcerned - Wednesday, Apr 15, 15 @ 4:40 pm:
RNUG et al.: Isn’t Rauner hoping to do this as a two-step sequence: (1) negate the pension clause via an IL constitutional amendment, then (2) apply Tier II provisions to existing employees’ contracts henceforth, in accordance with the the newly amended constitution? Would a legal appeal of this post-facto upending of employees’ “contracts” be adjudicated via the ISC or the Federal courts — and what legal precepts would guide them? I thought I remember reading on these pages that US legal prohibitions against post-facto contract changes apply only to “punitive” changes, or something like that, but I could be wrong. Isn’t this what Rhode Island or New Jersey is currently trying to pull off?
- Lucky Pierre - Wednesday, Apr 15, 15 @ 4:49 pm:
Illinois and Chicago are exhibit A why politicians cannot be trusted to run a defined benefit pension plan.
They have proven to be terrible stewards of the employees and taxpayers money. They were slow to react to the reality that defined benefit plans have mostly been discontinued by businesses because they are too expensive. The GM bankruptcy was more about pensions and retiree healthcare than about the quality of their vehicles. Unfortunately I don’t think the Federal Government will be there to bail out Illinois and Chicago.
- Andy S. - Wednesday, Apr 15, 15 @ 5:01 pm:
If Chris Christie has his way, higher income seniors will be means-tested out of receiving any SS benefits. At least then we wouldn’t have to worry about how Tier 2 interacts with the safe harbor provision for higher income folks, as they will get no SS at all.
- AnonymousOne - Wednesday, Apr 15, 15 @ 5:14 pm:
Time and again I have read on this blog that defined benefit plans for public employees are the absolute cheapest route for the state IF and only IF the state makes it’s contributions. That is the problem. IMRF. Read about it. 90+% funded because nobody shorted the contributions. If the state would like to go Tier2 for everyone and also pay it’s share of Social Security, then sure—have at it. More expense for taxpayers.
- dupage dan - Wednesday, Apr 15, 15 @ 5:23 pm:
=== - RNUG - Wednesday, Apr 15, 15 @ 4:10 pm:
It just occurred to me what was in the back of my mind when I wrote the comment at 4:01.
We’re watching a really bad German opera without a decent soundtrack ===
Sturn und Drang, indeed. Franz Kafka could have written this.
- Excessively Rabid - Wednesday, Apr 15, 15 @ 5:25 pm:
One thing about Social Security, there’s no skipping the contributions.
- RNUG - Wednesday, Apr 15, 15 @ 5:27 pm:
Illinois and Chicago are exhibit A why politicians cannot be trusted to PROPERLY FUND a defined benefit pension plan.
- Lucky Pierre - there, I fixed it for you.
The truth is that the State having it’s own DB plan was once hailed (accurately) as a cost savings for the state compared to having to provide both a pension benefit and paying into SS.
- Michelle Flaherty - Wednesday, Apr 15, 15 @ 5:32 pm:
I’ll be former SJR staffer Chris Wetterich is pleased to see that someone’s finally paying attention to the issue he wrote about more than four years ago.
http://www.sj-r.com/x1682034552/Pension-reforms-likely-to-have-unintended-and-unpleasant-consequences-study-finds
- Anonymous - Wednesday, Apr 15, 15 @ 5:39 pm:
- RNUG - Wednesday, Apr 15, 15 @ 3:23 pm:
== Can you imagine Governor Sanguinetti? ==
We survived Blago & Quinn. Admittedly the bar is set low, but we’ll survive her.
RNUG
Who do you prefer?
I know that they are both bad but which one do you think is the least insane?
- Anonymous - Wednesday, Apr 15, 15 @ 5:56 pm:
I like RNUG but I would call It a bad North Korean Opera unless it is an Opera from the 1930s but I want to be careful not to be mistaken in my insult to Rauner.
- Old Timer - Wednesday, Apr 15, 15 @ 6:47 pm:
How about another early out.
- RNUG - Wednesday, Apr 15, 15 @ 6:48 pm:
== Who do you prefer? ==
At this point, I honestly don’t know … but I didn’t vote for Rauner.
- JoanP - Wednesday, Apr 15, 15 @ 7:05 pm:
@ RNUG: “We’re watching a really bad German opera without a decent soundtrack … ”
Would that be “GOPerdämmerung”?
- Anonymous - Wednesday, Apr 15, 15 @ 7:14 pm:
Thanks RNUG
I did not vote for Rauner either.
I wish that I could vote for RNUG
- Anonymous - Wednesday, Apr 15, 15 @ 7:22 pm:
RNUG for Govenor
Arthur Andersen for Lt. Governor
2018
- Anonymous - Wednesday, Apr 15, 15 @ 7:27 pm:
I think that RNUG’s long lost Brother is RUG.
- Oswego Willy - Wednesday, Apr 15, 15 @ 8:12 pm:
===RNUG for Govenor
Arthur Andersen for Lt. Governor===
That’s a ticket I like!
- MAL - Wednesday, Apr 15, 15 @ 8:54 pm:
@- Anonymous_ regarding potential state workers, the same holds true for educators in this state. Just ask teachers if they would guide their own children down such a path in this state.
- RNUG - Wednesday, Apr 15, 15 @ 9:17 pm:
LOL.
No way would I want the job, even with the CapFax crew as the kitchen cabinet.
- Excessively Rabid - Wednesday, Apr 15, 15 @ 9:41 pm:
Proposed QOTD: which character in Wagner’s ring cycle is Rauner? Go from there. You get the idea.
- nixit71 - Wednesday, Apr 15, 15 @ 9:48 pm:
== we must honor the pension obligations just like we honor bond debts etc. ==
You might want to check with the GM bondholders about how our government honors bond debt. Hint…not well.
- Arthur Andersen - Wednesday, Apr 15, 15 @ 9:52 pm:
If RNUG is out, AA is out.
Besides, we are probably too truthful to be electable.
- Wordslinger - Wednesday, Apr 15, 15 @ 10:04 pm:
Nixit, what you’re talking about? Hint: you have no clue.
- Peoria democrat - Wednesday, Apr 15, 15 @ 10:06 pm:
And wordslinger can take Jesse’s place!! LOL
- Peoria democrat - Wednesday, Apr 15, 15 @ 10:09 pm:
And you could ask Rich to lead the Tumblers!!
- Arthur Andersen - Wednesday, Apr 15, 15 @ 10:26 pm:
word, don’t even bother with that one. A wasted mind is indeed a terrible thing.
- nixit71 - Wednesday, Apr 15, 15 @ 10:28 pm:
All this finagling over converting Tier 1 employees to Tier 2 when there is a middle ground to be considered: upping the Tier 1 employee contributions to 15% across the board in all future contracts.
Folks continually mention that IL has probably had an artificially low state income tax for decades (no money for pensions, right?). Then, for example, what about the TRS employee contribution rate? It remained at 8% for almost 30 years! Heck, even when COLA was switched from simple to compounded interest in 1989, that 8% rate remained the same for 9 more years! Have these rates kept in line with increasing salaries and the impact of a compounded COLA on those ever increasing pension payments? I highly doubt it.
Raising the employee contribution rate does not diminish or impair benefits. The pension remains a generous benefit, albeit more balanced. Bigger pre-tax contributions means a lower income tax liability.
Please pass this note to Rauner for his AFSCME negotiations.
- RNUG - Wednesday, Apr 15, 15 @ 11:04 pm:
- nixit71 -
Unions don’t represent employees for pensions. They would have no legal authority to agree to such a change. Plus paying more for a benefit you already have would be a diminishment. That would be like your agreeing to buy a new car for 5 years of $300 payments and the bank, in year 3, saying now you have to pay $1,000 a month for the rest of the loan period. If the State tried it, it would just be one more losing court case.
Now if the State wanted to offer some additional enhancement, such as retiring at age 40 or changing the maximum pension from 75% to 100%, then there might be a basis for increasing the employee contribution. But the minute you do that, most the savings would go out the window. Plus each INDIVIDUAL employee would have to choose to opt in to the new plan; it could not be forced down their throat.
Further, when the 3% AAI was implemented, the various groups upped their pension contributions by either 0.5% or 1.0% (SERS I believe went from 3% to 4%) to specifically pay for the AAI benefit. That was an actuarially calculated contribution amount so, assuming the number crunchers knew what they were doing (and looking backward it seems they did), the 3% AAI benefit is fully funded by the additional contribution.
The problem is not the employee contribution rate; the problem is the failure of the State to pay their share in a timely and actuarially based manner. If that had been done, the fund would be around 85% - 90% today. Heck, for that matter, if the State had just stuck to paying the 1995 ramp scheduled payments without pension holidays and borrowing games, the funds would be OK today at around 75%. Most of the payments today by the State are to make up for the shorting of the funds and make up for the missed investment returns from the original money not being in the funds to earn the returns.
If people wanted to solve this pension funding problem, it’s simple math. The debt is X, how long do you want to take to pay it off? There have been multiple methods proposed to make the payments. But nobody wants to pay the debt, all they want to deny and negate it.
- nixit71 - Wednesday, Apr 15, 15 @ 11:28 pm:
== Unions don’t represent employees for pensions. They would have no legal authority to agree to such a change. Plus paying more for a benefit you already have would be a diminishment. ==
So the change would have to be legislative then? Because I remember one of the unions offering to up their employee contribution rate in their contract negotiation (Cook County?). Either way, contribution rates have increased in the past. So I think you’re implying that each rate increase coincided with an additional benefit. Interesting…I’d have to research that.
== Further, when the 3% AAI was implemented, the various groups upped their pension contributions by either 0.5% or 1.0% (SERS I believe went from 3% to 4%) to specifically pay for the AAI benefit. ==
Is that simple or compounded? My understanding is that compounded was introduced in 1989. And my research shows TRS did not up their rates to coincide with that change.
- illinoised - Thursday, Apr 16, 15 @ 7:32 am:
Rauner, Quinn, Blagojevich, Ryan are starting to look alike to me.
- RNUG - Thursday, Apr 16, 15 @ 8:08 am:
- nixit71 -
On the AAI, you are correct, the rate did not change when it was changed from simple to compound. I will again point out that, prior to then, the AAI benefit was fully funded by the employee and with that change the State had a responsibility to partially fund it.
On other changes, yes, it usually coincided with a benefit change. Also, in one instance, the State started making the employee portion of the payment in lieu of giving the employees a couple of years of cost of living raises; the employee went from 4% to 0% but the State was making the 4% payment. Later the State reneged on that deal.
Unions can propose things, but whatever is proposed must be enacted by the legislature AND agreed to be each individual member. The following is an example of how that worked on the biggest change to the SERS system.
To go way back, in the 1968 - 1972 time frame (I may be a year or so off doing this from memory), the State changed the SERS pension system from an uncoordinated system (no SS) to a coordinated one (both state pension and SS) for most job titles. It was immediately effective for new hires, and the employee contribution rate was lower that for the uncoordinated system, since the payout would also be less plus the employee would also now be paying into SS. Existing employees initially continued under the non-coordinated plan but were offered a choice to convert to the coordinated plan. It was an individual choice that each employee could make and there was no penalty for picking “keep what you have”. I should also note that, due to IRS pension rules, it was a one-time
irrevocable choice.
Any change to existing Tier 1 employees would have to be implemented the same way, voluntarily.