86 Comments - walker - Wednesday, Sep 9, 15 @ 12:16 pm: Good thing to consider. Not clear how much money, if any, this might save, or if it’s a minor gesture. If entirely “voluntary” as described, not sure who would participate. If it is also fairly calculated, it wouldn’t come close to “solving” the pension “debt” problem overall. Look forward to some detailed analysis. - Former Merit Comp Slave - Wednesday, Sep 9, 15 @ 12:19 pm: I personally there have been some excellent ideas and information offered in the past including our own RNUG. No one who has the power to effect these changes has been interested. - Norseman - Wednesday, Sep 9, 15 @ 12:20 pm: I don’t like it, but I respect Eric Madiar’s opinion. The only thing is that this is not a solution that will be have any significant effect for years to come. Does anyone expect significant raises in the next few years? MC’s have been going without raises for 9 years now. I’m not seeing significant raises in AFSCME’s future either. More wasted time, more legal battles and more stress for people who deserve their pension benefits. - UIC Guy - Wednesday, Sep 9, 15 @ 12:22 pm: About the second idea: much depends on how good people are at estimating their life-expectancy. If someone takes the lump-sum and dies shortly thereafter, that will be a big net loss for the state. (I take it the lump-sum would have to be big to entice any significant number of people into the program.) - Enviro - Wednesday, Sep 9, 15 @ 12:22 pm: Until we hear what the US Supreme Court has to say about SB 1 there is really nothing to negotiate or discuss about Illinois State Pensions. - No Raise - Wednesday, Sep 9, 15 @ 12:25 pm: I have been proposing this to fellow workers and reps for years. It’s akin to a present value of future pension with a discount for lump sum payment. Very difficult to formulate, though, taking account of age, salary, etc…. Not to mention health care, if that even fits in. Still, current employees and even retirees will carefully consider this as an option for lump sum payment and then to be rid of the pension system forever. I know I would take less just for the peace of mind. Plus, with interest rates at their lowest level, this option can be financed long-term and the pensions are then wiped from the books. I urge legislators again to consider these creative options. - john doe - Wednesday, Sep 9, 15 @ 12:26 pm: On the second idea: Good idea-Corporations have been doing this a lot. - Formerly Known As... - Wednesday, Sep 9, 15 @ 12:28 pm: Requiring a state employee to remove their raise from their pension formula in order to receive the raise is coercive. ==You only get this if you do that== is not acceptable ==consideration== for current employees, as the ISC has explained. The state could hire someone on these terms or even stop offering raises that are not contractually required, but it could not force this change in terms on current employees. - Mason born - Wednesday, Sep 9, 15 @ 12:30 pm: As for the second idea. To me in order for it to be attractive it would almost have to be a wash. While I know people who would take it they are going to want every penny they contributed and the money the state put in as well plus reasonable interest. Since the state never put the money aside aren’t they just choosing to pay more now. I don’t think enough state employees are stupod enough to walk away with only what they put in. As for the first something like this is coming just a matter of what they decide the stick and carrot will be. I almost expect it to be healthcare go to tier 2 going forward get platinum instead of bronze. - PublicServant - Wednesday, Sep 9, 15 @ 12:31 pm: I’m sure the state can decide not give a salary increase, but I’m not so sure about giving a salary increase contingent on an individual employee agreeing to its not counting against the salary for pension purposes, if the constitution says otherwise. As for the lump sum distribution, You might get a few to agree to assuming the risk, but not many. No savings there. - walker - Wednesday, Sep 9, 15 @ 12:32 pm: Comment above was about lump sum buyout idea. Madiar’s plan would have major fiscal impact, and would really bring out the teams of lawyers on both sides. SB1 was slammed and dunked. Wouldn’t bet on any different outcome for this one. - The Dude Abides - Wednesday, Sep 9, 15 @ 12:34 pm: @Enviro, I would be very surprised if the SCOTUS agrees to take the case. As Walker stated, it would have to be voluntary. My advice to all retirees is keep what you have now. - Name/Nickname/Anon - Wednesday, Sep 9, 15 @ 12:36 pm: Don’t underestimate the willingness of people to take a big pile of money offered to them as opposed to a more valuable annuity. - Formerly Known As... - Wednesday, Sep 9, 15 @ 12:37 pm: 12:28 was poorly said. imho, this is moot after such clear verdicts and opinions from the ISC. - markg8 - Wednesday, Sep 9, 15 @ 12:38 pm: “Illinois courts have made it clear that coercion does not exist when the party making the offer has the legal right to impose the condition the other party does not like.” That sounds like the very definition of coercion to me. What am I missing? I agree that the lump sum payment would have to be a wash except in cases where the recipient just finds out they have incurable cancer that will kill him or her in a few months/years. - Starship - Wednesday, Sep 9, 15 @ 12:39 pm: So Batinick takes the Governor’s idea and calls it his own? Interesting move. - Lincoln Lad - Wednesday, Sep 9, 15 @ 12:41 pm: Where does the money come for lump sum payouts? We’re not timely in paying lottery winners. - Anonymous - Wednesday, Sep 9, 15 @ 12:42 pm: It still goes against what the state supreme court said. As we discussed in Kanerva v. Weems, 2014 IL 115811, ¶¶ 46-47, Delegate Green explained that the pension protection clause does this in two ways: “[i]t first mandates a contractual relationship between the employer and the employee; and secondly, it mandates the General Assembly not to impair or diminish these rights.” 4 Record of Proceedings 2925 (statements of Delegate Green). Subsequent comments by other delegates reaffirmed that the provision was designed to confer contractual protection on the benefits of membership in public retirement systems and afford beneficiaries, pensioners or their dependents “ ‘a basic protection against abolishing their rights completely or changing the terms of their rights after they have embarked upon the employment—to lessen them.’ ” Kanerva v. Weems, 2014 IL 115811, ¶ 46 (quoting 4 Record of Proceedings 2929 (statements of Delegate Kinney))….. Felt v. Board of Trustees of the Judges Retirement System, 107 Ill. 2d 158, 162-63 (1985) (amendment to Pension Code adversely affecting base salary used to compute annuity impermissibly reduced retirement benefits of existing retirement system members in violation of pension protection clause); Kraus v. Board of Trustees of the Police Pension Fund, 72 Ill. App. 3d 833, 844-48 (1979) (change in Pension Code’s method of computing a police officer’s pensionable salary in a way that would reduce the amount of the pension could not, under the pension protection clause, be applied to persons who were members of the retirement system prior to the amendment’s effective date); Miller v. Retirement Board of Policemen’s Annuity & Benefit Fund, 329 Ill. App. 3d 589 (2001) Under the plain language of article XIII, section 5, not only may the benefits not be impaired, they also may not be “diminished.” That is same term used in article VI, section 14 (Ill. Const. 1970, art. VI, § 14), which protects the salaries of judges against reduction during their terms of office and which was enforced by this court in Jorgensen v. Blagojevich, 211 Ill. 2d 286 (2004), discussed earlier in this opinion, notwithstanding the State’s claims of economic hardship. - TROOPER - Wednesday, Sep 9, 15 @ 12:42 pm: –Salary is a key component of the formula used to determine the pension benefit, and clearly, altering the formula in order to diminish the benefit is unconstitutional,” — FINAL AVERAGE COMPENSATION For regular formula employees, final average compensation is the 48 highest consecutive months of service within the last 120 months of service. That formula above is what current employees are entitled to. THAT is what’s protected. You cannot change that now!! It was what was in place upon hire!! Secondly, not offering a raise has to bring up unfair labor practice rules, Labor relations board will balk at that for sure. RNUG, You Hear This??? Here’s an idea…..Keep your word and stop thinking of cockamamie schemes to steal the money you already stole….. - Anonyrick - Wednesday, Sep 9, 15 @ 12:45 pm: For the first option, if legal, there does seem to be some potential savings, but it may not be as much as people think. I believe they can not collect pension contributions on the raises that won’t count towards the pension. In the short term this will cost the state a little more as they will be collecting less but still paying out the same. Over time, the payments out will definitely go down, as there will eventually have to be raises. I don’t like it because I’m mid career. Assuming average 2% (non-compounded for simplicity) raises over the next 15 years, my pension will be reduced approximately 30%. Not paying into the pension on the part of my salary that doesn’t count for pensions won’t nearly make up for that. The way contract negotiations are going, I’m not expecting any raises for the next 3-4 years, but at some point the state will have to increase salaries or they will fail to attract new employees or keep any Tier 2 employees. I can make more in the private sector, but the promise of a good pension will likely keep me with the state until I can retire. The second option seems more budget neutral to me. Most people are smart enough to figure future value and decide which is worth more. - Draco - Wednesday, Sep 9, 15 @ 12:46 pm: Stop with the draconian takings. Give me some reasonable options. – The one thing I can’t buy it time. Let me retire early and I might take simple interest vs compound interest. – Pay for my healthcare premiums and deductibles for life and I might take simple vs compound interest. – Let younger members in tier 1 (with social security) cash out with 3x their current cash value. Some will take a 4% raise (if you are SERS) and a lump sum. Let them roll it to a 401k style with matching. Stop trying to take it all and just manage the situation. - nixit71 - Wednesday, Sep 9, 15 @ 12:46 pm: So the state will offer someone a raise this year and not have it count towards their pension, but that same employee can still count unused sick days from 1982 towards their pension? - Johnnie F. - Wednesday, Sep 9, 15 @ 12:48 pm: …and what would my guaranteed annual raise be for freezing my pensionable salary? - nixit71 - Wednesday, Sep 9, 15 @ 12:48 pm: Isn’t this lump sum pension payment being offered by the same state that can’t payout lottery winnings?! Beware, retirees… - Enviro - Wednesday, Sep 9, 15 @ 12:51 pm: == giving participants a lump sum payment for their annuity or a portion of their annuity, as a viable olution to addressing short and long-term savings== This is a idea that should be filed under “senior citizen scams” . - Enviro - Wednesday, Sep 9, 15 @ 12:51 pm: == giving participants a lump sum payment for their annuity or a portion of their annuity, as a viable olution to addressing short and long-term savings== This is a idea that should be filed under “senior citizen scams” . - Name/Nickname/Anon - Wednesday, Sep 9, 15 @ 12:51 pm: ==Where does the money come for lump sum payouts? We’re not timely in paying lottery winners. == The pension systems are separate legal entities. They have billions of dollars of assets. - Draco - Wednesday, Sep 9, 15 @ 12:52 pm: – Guarantee me a 3% raise in my currently salary until I retire and I might freeze my pension amount today. - DuPage - Wednesday, Sep 9, 15 @ 12:57 pm: The pensions are federally taxable, and would be taxed at a higher rate if taken out all at once and not rolled over. - Draco - Wednesday, Sep 9, 15 @ 12:58 pm: – Give me to option of passing my pension to my spouse when I die and I might freeze my pension at it’s current salary and take simple interest. - JS Mill - Wednesday, Sep 9, 15 @ 12:58 pm: Madair is basing much of his opinion on New York’s pension case law. Whether that is relevant to Illinois, I do not know. Madiar is very sharp and, although he worked for Cullerton, not particularly partisan. He comes at this with a clear head in that regard. I listened to him explain, at length, his position. It is essentially a choice between a “Tier 2 COLA” and keeping your current COLA (Tier 1) without future salary increases included in the calculation. Salary increases are not guaranteed and (Madair’s point) since that is true, not applying current COLA (added in 1982 and signed off on by Jim Thompson) to any future increases would not be considered a diminishment of the benefit. If you take the Tier 2 deal your COLA will be based on your full pension number but be less than the current COLA. I see his point, I am not sure it would stand. But it does make some sense. It is alleged to save $30 billion over 30 years. - Skirmisher - Wednesday, Sep 9, 15 @ 1:05 pm: There is are always some people who would take a deal like that, although it would go over better if the market was not so volatile as it is at this time. - Stuff Happens - Wednesday, Sep 9, 15 @ 1:06 pm: I will never understand the State’s ‘dine and dash’ mentality toward pensions. - pool boy - Wednesday, Sep 9, 15 @ 1:07 pm: First idea will drive more people out and create more tier 2. Second idea has been done before. Very few took it except part time and OOT because it doubled their payout. No one in their right mind will opt for this. - BeenThereB4 - Wednesday, Sep 9, 15 @ 1:08 pm: or maybe this resolution: WHEREAS, The General Assembly has thoroughly breached its responsibility of funding the state employee’s pension fund; and WHEREAS, The state of Illinois’ employees have fully met their obligations in funding said retirement fund; and WHEREAS, Each year the state of Illinois falls further and further behind because The Governor and General Assembly continue to spend projected savings from Pension Reform schemes that are inevitably found to be unconstitutional; therefore, be it RESOLVED, BY THE HOUSE OF REPRESENTATIVES OF THE NINETY-NINTH GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that we urge the Speaker of the House of Representatives and the Chairperson of the House Personnel and Pensions Committee to finally stop this nonsense; and fashion a balanced budget that meets all of the state’s obligations either with existing funds or so increase the state’s revenues to where such obligations can be met. - A Jack - Wednesday, Sep 9, 15 @ 1:09 pm: I doubt this is going anywhere in the current state government climate. Does anyone know where to find how much of the ramp is contribution and how much is for making up the lost interest? I suspect that back interest is a large chunk of it and is exacerbated by spreading the ramp over a number of years. - Not quite a majority - Wednesday, Sep 9, 15 @ 1:10 pm: Option two looks great on paper, but in practice all it does is make some investment adviser or broker salesperson a slew of cash up front. I know of a few cases where people have done this, invested in and ended up having to go BACK to work at minimum wage at the age of 70. People just aren’t that good at handling large sums of money. Ask any lottery winner 21 years out. - Anonymous - Wednesday, Sep 9, 15 @ 1:12 pm: Plan seems to be based on the premise that public employees are indentured servants who have no choice but to continue working no matter how much their pay and benefits are cut. And punishing the employees seems to be the goal. Public employment already lags far behind the private sector in pay. So what work force do you think you will attract down the road with all of your schemes? - Hit or Miss - Wednesday, Sep 9, 15 @ 1:12 pm: ===I take it the lump-sum would have to be big to entice any significant number of people into the program.=== My experience is the reverse. I think that many people would be ‘blinded’ by almost any lump sum amount. They would not know what their life expectancy is and do the calculation to find the total benefits of their defined benefit pension. In the corporate world, about half of the people with a defined benefit pension who are offered a lump sum rather than a defined benefit pension take the lump sum. In addition, many people think that they are better money managers than they actually are. With average life expectancy increasing those who take a lump sum payment risk running out of money before they die. This could be costly for the State of Illinois if a significant number of the lump sum takers become dependent on the state very late in life. - Archimedes - Wednesday, Sep 9, 15 @ 1:16 pm: Would Madiar have the same opinion now, after ILSC decision on SB1? That decision specifically found that capping the salary to limit pension was a diminishment. Madiar might change his 2013 opinion today - too obvious - Wednesday, Sep 9, 15 @ 1:19 pm: In order to “save” money from a lump sum payment, seems to me you’re assuming the state is going to apply a discount rate to the future cash stream which is going to screw the employee in some way, in other words something other than the proper discount rate so that the lump sum is less than it should be. Also, seems like state loses the savings if person dies early. - Robert the Bruce - Wednesday, Sep 9, 15 @ 1:21 pm: A lump sum payout offer seems worth considering. State retirees get less than they are legally entitled to, but some might still choose the option, figuring that there’s a chance that, by hook or by crook, they’ll eventually lose more of it anyway. - The Glittering Eye - Wednesday, Sep 9, 15 @ 1:28 pm: If the lump sum payment is paid out by the retirement funds, what will the actuarial impact be on the retirement funds? The reason there’s a problem is that underfunding and low interest rates have resulted in their being actuarially unsound. - Person 8 - Wednesday, Sep 9, 15 @ 1:32 pm: If the state is so worried about how much is made at the end of a career, they should limit how much each unit can give out. I know for TRS 7% is the max, but what’s stopping the state from saying “If a district pays a teacher more than x, the district must pay the state x?” District punishment does not equal pension diminishment, does it? - UIC Guy - Wednesday, Sep 9, 15 @ 1:33 pm: @Hit or Miss: Yes, you’re probably right. I know I wouldn’t take it unless the doctors had just handed me a death sentence, but I suspect I’m abnormally risk averse in financial matters. Not having to worry about running out of money in my old age has far more value for me than a big chunk of money now. But I suppose that’s not typical. - OldIllini - Wednesday, Sep 9, 15 @ 1:53 pm: Suppose there are 200,000 current retirees, with an average pension of $40,000, and half (100,000) take the lump sum. Financial advisors typical recommend a pension withdrawal rate of 4%, so the average lump sum would then be $1 million. So the 100,000 taking the lump sum would receive a total of $100 billion. I don’t see that working too well. - Union Man - Wednesday, Sep 9, 15 @ 2:02 pm: Pension of $35,000 not including 3% raises…. Offer me $750,000 and see how soon I sign! - nixit71 - Wednesday, Sep 9, 15 @ 2:02 pm: So if a state pensioner takes the lump sum, transfers that lump sum into his own mutual fund/IRA, the takes payouts from that personal account as his “retirement income”, would that pensioner still be subject to Social Security WEP? Maybe the lump sum payout would be a way to get around the Feds. - Hawkeye - Wednesday, Sep 9, 15 @ 2:02 pm: Madiar’s opinion is still the same on this matter. I recently heard him speak on it. His point is that this approach worked in New York where they have the same constitutional guarantee. Will it be the same result in IL? That is unknown but there is precedent and that is always important to the Supreme Court. - Norseman - Wednesday, Sep 9, 15 @ 2:03 pm: === ==Where does the money come for lump sum payouts? We’re not timely in paying lottery winners. == The pension systems are separate legal entities. They have billions of dollars of assets. === Yes, that’s why there’s no crisis, right? The funds don’t have enough money to cover the liabilities due to state underfunding. To correct the underfunding, the state is now having to catch up on those payments. So we are now proposing to have these funds pay out lump sums from today’s asset levels so the state can reduce it’s payment levels? Somehow I question the efficacy of the approach. I see greater up front costs to the funds with less savings to them. The state will grab the savings for other purposes. In any event, there better be a lot of careful analysis before buying into another pig in a poke solution. - Anonymous - Wednesday, Sep 9, 15 @ 2:47 pm: nixit 71…Here are the SSA WEP rules on withdrawals: 2. Withdrawals Withdrawals of the employee’s own contributions and interest made before the employee is eligible to receive a pension are not pensions for WEP purposes if the employee forfeits all rights to the pension. This rule applies even if the employer paid the employee contributions. 2. Withdrawals of the employee’s own contributions and interest made after the employee is eligible to receive a pension are considered a lump-sum pension for WEP purposes. 3. Any separation payment, withdrawal, or refund consisting of both employer and employee contributions is a pension; for WEP purposes whether made before or after the employee is eligible to receive a pension. - SAP - Wednesday, Sep 9, 15 @ 2:53 pm: I think Mr. Madair is probably right. A cleaner solution, however, would be for the state to pick up employee pension contributions. That would have the effect of increasing employee paychecks without increasing salary used to calculate pensions. At some point you would run into the cap on employee contributions, but it is a stop-gap way to bump pay without harming the pension funds. - Name/Nickname/Anon - Wednesday, Sep 9, 15 @ 3:04 pm: ==Yes, that’s why there’s no crisis, right?== Money is there to pay benefits (no immediate crisis), if you can reduce assets by $3B while reducing liabilities by $10B, then it is probably a good idea from the perspective of the State. - Red eft - Wednesday, Sep 9, 15 @ 3:28 pm: Do the NY State employees covered in the opinion Madair references participate in social security? Would Illinois have to pay social security on the part of the compensation for which there is no pension under Madiar’s plan? Would that help the state out any? - Norseman - Wednesday, Sep 9, 15 @ 3:30 pm: === Money is there to pay benefits (no immediate crisis), if you can reduce assets by $3B while reducing liabilities by $10B, then it is probably a good idea from the perspective of the State. === I can’t say for sure this will not work, but I have a concern that you’re taking a larger sum from the pension funds NOW and the state will pay the funds less money from GRF later citing savings. You have to make sure system payouts will actually decrease to the levels needed to make up for the early withdrawals. In other words are we going to create a cash flow crisis for the funds? This would have to be studied by the systems in great detail. - PublicServant - Wednesday, Sep 9, 15 @ 3:48 pm: I wonder if the salary not subject to the pension would be subject to FICA? Not sure the state is willing to stomach that possibility either. Essentially, Stop It Already! You took it because revenues were too low to pay the bills. Raise taxes, pay it back and adequately fund whatever programs are left. - Anonymous - Wednesday, Sep 9, 15 @ 3:54 pm: A lump sum payout is not practical. Anyone who chooses that will get crushed by federal taxes if it’s sizeable. If the lump sum is minimal (a la Blago), it will be either eaten up by inflation if you try to make it last or it wouldn’t last very long based on most people’s spending habits. - JS Mill - Wednesday, Sep 9, 15 @ 3:58 pm: =Would Illinois have to pay social security on the part of the compensation for which there is no pension under Madiar’s plan?= This exact question was asked of Madair, if his response is correct the answer is no. He indicated that those paying into the pension would still meet safe harbor standards and would not pay into SSI. He said the intent was that IF the safe harbor was not met the state would pick up the difference so you will still be exempt from SSI. I listened to him speak on the topic two weeks ago, so this is his current thinking not 2013 thinking (although little has changed). - Sue - Wednesday, Sep 9, 15 @ 4:03 pm: Don’t think the proposal survives impairment clause. If you want to reduce future pension costs without violating constitution for Tier One people, only wanton do it is cap salaries. Don’t see the Dems doing that but if the legislature told districts that you can only pay administrators up to X and teachers up to Y there is absolutely nothing the employees could do to challenge the impact on pension credits. It would be totally lawful but probably not politically palatable to tell districts they had to honor salary caps across the board. On the other hand the taxpayers would think it was a grand idea. The caps cpould be subject to cost of living increases to make it more acceptable - JS Mill - Wednesday, Sep 9, 15 @ 4:03 pm: @ Morseman- The overall pension system ( all five combined ) are funded at roughly 43% of liabilities. That said, I believe your point is correct, they do not have the funds needed to pay out a large number of lump sum payments. So long as they continue current practice there is no immediate crisis because there is more money going in to the pension systems than going out on an annual basis. But lump sum buyouts could change that quickly. This is not a sensible solution. - Enviro - Wednesday, Sep 9, 15 @ 4:13 pm: Sue @4:03 pm ==if the legislature told districts that you can only pay administrators up to X and teachers up to Y there is absolutely nothing the employees could do to challenge the impact on pension credits. It would be totally lawful but probably not politically palatable to tell districts they had to honor salary caps across the board. == The state does not and cannot set teacher or administrator pay. Local elected school boards set pay for teachers and administrators. - Anonymous - Wednesday, Sep 9, 15 @ 4:28 pm: == giving participants a lump sum payment for their annuity or a portion of their annuity== And the participants can then watch Wall Street eat it up - Sue - Wednesday, Sep 9, 15 @ 4:29 pm: Enviro- you are wrong. There is absolutely nothing wrong with the State dictating that no superintendent north of I- 80 shall make more then Xand south of I-80 more then Y. You could do that for every job category. Is drastic times you need to do drastic things. Saying North Shore. Sups could make more then 250 would drive down pension costs very quickly. And don’t start saying you would not get good candidates. - Demoralized - Wednesday, Sep 9, 15 @ 4:45 pm: Sue: If you don’t like the salaries that are being paid then take it up with your local school board. Don’t come whine to the state about it. - Enviro - Wednesday, Sep 9, 15 @ 4:46 pm: Sue you are just completely wrong on all of this concerning the state dictating the pay for employees of school districts - Ret Prof - Wednesday, Sep 9, 15 @ 4:46 pm: Maybe they should just give us cash instead of suffering through the mismanagement of CMS. I’m in an open access plan and pay an $80 copay for $400 worth of medical supplies. If can buy those same supplies on line for $120 why can’t the state? - JS Mill - Wednesday, Sep 9, 15 @ 4:57 pm: @NORSEMAN- Apologies for poor typing! - Norseman - Wednesday, Sep 9, 15 @ 4:59 pm: JS Mill, No worries. - JS Mill - Wednesday, Sep 9, 15 @ 5:01 pm: =Is drastic times you need to do drastic things. Saying North Shore. Sups could make more then 250 would drive down pension costs very quickly. And don’t start saying you would not get good candidates.= Nope, you are right. The state can put those salary caps into law. What harm could that do? Right? Politicians intervening with political solutions has made Illinois a national example of good governance. I guess you are also not a proponent of market economics either. It would impact the number of quality candidates available. Across the state the number of students enrolled in teaching prep programs is crashing. Same with admin programs. But, everybody has been to a school so they know how to run them. carry on, you are doing a bang up job. /s - RNUG - Wednesday, Sep 9, 15 @ 5:05 pm: == Madiar disagreed. “Folks may not like this choice and feel it is unfair, but that does not make it coercive under Illinois law,” he said. “Life, after all, is not fair. Illinois courts have made it clear that coercion does not exist when the party making the offer has the legal right to impose the condition the other party does not like. Hard bargaining is not coercion.” == Without reading any comments, I’m going to go out on a limb here and disagree with Eric on this one, based on memory of what I read. In some of the cases that Eric cited in his Welching paper, the IL SC did rule on the ability of municipalities / government entities to limit salaries or terms of service and came down on the side of the employee / retiree. So I don’t think, in this case, Eric is on as solid a ground as he thinks because in the past Illinois has come to a somewhat different conclusion than New York. - RNUG - Wednesday, Sep 9, 15 @ 5:13 pm: == As for the second idea. To me in order for it to be attractive it would almost have to be a wash. While I know people who would take it they are going to want every penny they contributed and the money the state put in as well plus reasonable interest. Since the state never put the money aside aren’t they just choosing to pay more now. I don’t think enough state employees are stupod enough to walk away with only what they put in. == Under the current pension system, you can always choose to just quit and withdraw all your contributions without interest instead of actually filing for retirement. It would be stupid, but you can do it. The truth of the matter is that just the employee contributions only equal a few of years of what the payout would be under the Tier 1 rules … so it would be a super bad deal. Even if the State threw in an honest present value calculation, it would still be a bad deal for the employee because it would shift the investment risk from the state to the individual … and the average individual doesn’t have the training and experience to properly invest and diversify. - RNUG - Wednesday, Sep 9, 15 @ 5:18 pm: == Give me to option of passing my pension to my spouse when I die and I might freeze my pension at it’s current salary and take simple interest. == Your spouse is already entitled to 1/2 of your state pension including 3% AAI (minus a minor Social Security offset in most cases and skipping one year’s AAI). - Liberty - Wednesday, Sep 9, 15 @ 5:20 pm: Enviro, School authority comes from the state: “SECTION 2. POWERS OF GOVERNMENT The enumeration in this Constitution of specified powers and functions shall not be construed as a limitation of powers of state government. (Source: Illinois Constitution.)” - RNUG - Wednesday, Sep 9, 15 @ 5:20 pm: == Does anyone know where to find how much of the ramp is contribution and how much is for making up the lost interest? I suspect that back interest is a large chunk of it and is exacerbated by spreading the ramp over a number of years. == That’s been documented here many times. If you want a dated version, look at Madiar’s Welching document. - Arthur Andersen - Wednesday, Sep 9, 15 @ 6:34 pm: Sorry I’m late to the party, but I’m with RNUG in respectful disagreement here. I’m told the New York cases Eric cites are wage and price claim cases from the 1940s which seem distantly related to pensions. The lump sum option being proposed here, though a lousy deal in its own right, is better than the one under Blago that almost nobody took because it was even lousier. I would for one like to see some “reform” that included “pay the bill.” - Sue - Wednesday, Sep 9, 15 @ 6:44 pm: Anyone notice the TRS announcement - investment returns for fiscal year ending 6/30/15 was 4.1 percent. Guess what that does in terms of next years actuarial contribution requirement. After reducing the annual hurdle, the states biggest fund still missed by a significant number. And let’s not hear how the 10 year numbers look. - Pelonski - Wednesday, Sep 9, 15 @ 7:54 pm: As a general rule, you will never make a huge impact on the pension debt with a voluntary program, and the ILSC has already said any changes have to be voluntary. Some people will take a slightly lower total benefit in exchange for more options, but they will never take a deal that is in large part financially unbalanced. That means if you want to buy people out of the retirement system, you basically have to pay the majority of the pension debt upfront. Does anyone have an extra $50 billion or so laying around that they would like to contribute to this? If not, that is a non-starter. Also, allowing Tier II members to buyout would put the State in a bigger hole since actuarialy, they put in more than they will ever get out. You can threaten to not include wage increases in future pension calculations, but for the most part, Tier I employees are already high earners in their classifications, so you aren’t going to make a huge difference there for years. By the time that effect kicks in, most of the pension problem will be gone due to Tier II employees making up a majority of the workforce. The short answer is that there is no constitutional solution that allows the State to avoid a significant amount of the pension debt. - Arthur Andersen - Wednesday, Sep 9, 15 @ 9:26 pm: Sue, you should be interested in the 5 year return, since that “smoothed” figure is the basis for calculating the State contribution. I believe that number is around 11 percent. Anything else to whine about? - Cubs Win - Wednesday, Sep 9, 15 @ 9:59 pm: SURS already offers something similar with their Portable pension option. Employees can choose a lump sum (including employer/State contributions) or a defined benefit with lower pension payments than those in the Traditional plan if they also request a survivor annuity for a spouse. The third option offered is the Self-Managed plan which is a 401k with the employee making all of the investment decisions. I don’t know if anyone has researched the savings associated with these but it would be interesting to see the numbers. - Yellow Dog Democrat - Wednesday, Sep 9, 15 @ 11:18 pm: RNUG: I suspect that people are also risk averse, more so when they get closer to retirement, so that the people you would most likely entice into giving up the COLA in exchange for the raise are the younger people further from retirement who are likely in Tier 2. It is hard to see someone at age 55 or even age 50 giving up either their COLA or taking a buyout, unless it was mathematically oversized. Besides, a guarantee of a three percent pay raise this year is not a guarantee of a three percent pay raise every year for the next 25 years. But the constitutionally guaranteed pension right is. Moving the funding goal from 100% to a more realistic 70-80 percent will save taxpayers much more than $1 billion a year. - Tom K. - Thursday, Sep 10, 15 @ 12:42 am: Even if the present value was calculated fairly (say, by compounding the employee + state contributions per year by a mutually-agreed upon factor (say, 75% S&P 500 and 25% corporate bond index performance by year), and then paid as a lump sum, the state would make out like a bandit - because the “discount rate” used to calculate future pension payments is much higher than current rates used to calculate annuities in the “private” world. As I stated in an earlier post, my friend’s “present value” of his pension at time of retirement was $800K (per IMRF, and verified by our own calculations). However, his pension started at $48K per year, plus earns a non-compounding 3% increase per year. The “13th check” may be in addition to that, I cannot remember. No private annuity company in the world will offer you a deal like that - I believe Fidelity would charge you something like a million-four to reproduce his pension in today’s low-rate environment. So, I believe most financial advisors would counsel annuitants to “run away” from a lump-sum payment, unless they were sure of an abbreviated life expectency, or default of the annuity provider (not possible under current law). - Late to the Party - Thursday, Sep 10, 15 @ 5:26 am: Why not just stop raises? When I worked for the State of IL, I went almost 6 years without a raise during the early 2000s. Those non-raises added zero dollars to pension calculations. - Foster brooks - Thursday, Sep 10, 15 @ 7:46 am: Everyone should grab a SERS booklet and read it. Any changes to it would be ruled unconstitutional. - Person 8 - Thursday, Sep 10, 15 @ 8:31 am: So I ran some numbers for the whole lump some argument. Using TRS, with an average ending salary of 100K. Here are the “break even” numbers. Retire at 55 with full pension (34/35 YOS). Pick the age you think you will live to and that is what you’ll receive over the lifetime of the annuity. 55-70: $1.44 Million 55-75: $2.07 Million 55-80: $2.80 Million 55-85: $3.65 Million 55-90: $4.62 Million That’s a lot of $$ they’d have to offer up to someone to get rid of their pension. - Tone - Thursday, Sep 10, 15 @ 8:51 am: Why does the state pay for local teacher pensions in the first place? If the salaries are set by local governments, why don’t local taxes pay for the local pensions. I as a resident of Chicago have no say in the salaries of teachers in Barrington, but I get the privilege of paying for that teachers pension? - RNUG - Thursday, Sep 10, 15 @ 10:30 am: == Why does the state pay for local teacher pensions in the first place? == I’m not defending it (actually think it is screwy), but I think the thought process on the part of the State was something like why send State money to the local districts to just have it sent back to the State to put in the pension fund(s), so they decided to cut out the middle-man. In the case of Chicago specifically, CPS asked (or was asked depending on who is speaking) to take over the pensions for their members and agreed in exchange for an increase in the amount of money sent to CPS via a revised school funding formula that was (more or less) supposed to equal the obligation CPS was taking on. But then CPS made the same mistake the State did of not putting the money in the pension fund and taking even bigger pension holidays than the State did. Sorry, comments for this post are now closed.