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Vaught, Cullerton outline some possible pension changes

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* Gov. Pat Quinn’s budget director talked pensions with Doug Finke…

Quinn is also working to convene a work group to discuss ways of controlling soaring pension costs. The state’s pension costs are expected to increase by $1 billion in the next budget.

There is heated disagreement about whether benefits for current employees can be reduced. But, Vaught said, many attorneys believe that annual cost-of-living increases for pensioners could be reduced without violating the state constitution.

He also said more money could be put into the system from someplace other than the state. That could include higher employee contributions or “more from the real employers of our K-12 educators.”

“Three quarters of pension payment is for employees that are not state employees,” Vaught said. “You have a different employer negotiating pay and benefits, but then the state picks up the pension.”

Not including pension bond costs, Illinois will spend over $1.1 billion to fund the State Employees Retirement System next fiscal year. But it will spend $2.7 billion on the Teachers Retirement System and another $1.4 billion on the State Universities Retirement System. Pushing some of those costs down to local school districts and universities would be quite painful for those guys, but could potentially free up a huge amount of cash for Illinois’ budget.

And as far as COLAs and making employees pay more into the system are concerned, let’s go to the Illinois Constitution…

Membership in any pension or retirement system of the State, any unit of local government or school district, or
any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.

* Meanwhile, Senate President John Cullerton said yesterday that he wants to look at different ways of getting pension costs under control…

Cullerton said the sort of reduction in pension benefits for current employees under the House bill is forbidden by the state constitution.

Cullerton, who also is eyeing changes in city of Chicago pensions, said he wants to work closely with unions to negotiate changes to the House plan. Cullerton suggested one path to a constitutional solution would be by following “basic contract law.”

“If there’s a reduction in the benefit, there has to be a corresponding consideration, and there has to be acceptance,” Cullerton said.

The Senate president’s comments come during an election year when runaway pension costs could be an issue used against candidates. It remains uncertain at best whether meaningful pension cost reforms could be negotiated in an election year. Democratic Gov. Pat Quinn has announced he would pull together a task force to look at solutions.

“We’re not going to be relying on the Quinn administration to come up with a pension proposal, but if they do, it’s all the better,” Cullerton said.

* Via BlueRoomStream.com, here’s the Cullerton video…

Thoughts?

posted by Rich Miller
Wednesday, Jan 4, 12 @ 6:14 am

Comments

A COLA elimination certainly arguably violates the constitution. The judges, a few years back, sued for their COLAs and won. Admittedly, they have an extra protection in the constitution that others lack, so it would make sense to go back and review that ruling to see how much of it can be relied upon my non-judge pensioners. I will dig it up and take a look.

Comment by Nice Kid Wednesday, Jan 4, 12 @ 6:41 am
http://www.state.il.us/court/opinions/supremecourt/2004/may/opinions/html/97624.htm

Comment by Michelle Flaherty Wednesday, Jan 4, 12 @ 6:49 am
“You have a different employer negotiating pay and benefits, but then the state picks up the pension.”

THIS is an excellent point. Put the burden for the k-12 pensions right where they belong: on the school districts. Watch local school board election suddenly become very important to citizens.

One thing is for certain. To get out of this mess, we’re going to have to hit farm values hard with big property tax increases. That’s where the money is, in this state. Farmers can hardly plead poverty these days.

Comment by Mary Wednesday, Jan 4, 12 @ 7:09 am
He’s hoping those on the Republican side will join him with pension reform…..seriously? I understand his point when he mentions making up bills to look good during campaign season/ads, but Cullerton would be barking up the wrong tree with SB2498. What a great way to tackle pension reform than wihtin your own house and setting an example. Many of us will be interested with what “reform” means to Sen. Cullerton in the coming year.

Comment by Not in the know Wednesday, Jan 4, 12 @ 7:33 am
Mary: “To get out of this mess, we’re going to have to hit farm values hard with big property tax increases. That’s where the money is, in this state.”

and that is where it and the power it buys will stay

Comment by vole Wednesday, Jan 4, 12 @ 7:34 am
Vole, I know, I know….hope springs eternal, though.

Comment by Mary Wednesday, Jan 4, 12 @ 7:40 am
“You have a different employer negotiating pay and benefits, but then the state picks up the pension.”

I’m sorry Mr. Vaught, but if the pension is designed properly, it shouldn’t matter. It’s the poorly designed plan that is the problem.

The insanity of his statement is that the STATE has 100% control over the design of the plan, setting the contribution amounts, and investment return. He just wants someone else to pay for a poorly designed and managed system.

Comment by DuPage 14th Wednesday, Jan 4, 12 @ 8:37 am
Mary: “To get out of this mess, we’re going to –have to hit farm values hard with big property tax increases. That’s where the money is, in this state.”

and that is where it and the power it buys will stay –

Wait a minute. Chicago Democrats are farmers?

And as an old farm boy, I’ve never known a farmer who wouldn’t tell you that he was on the brink of poverty… as he drove his new F-150 to deposit his government subsidy check.

Comment by wordslinger Wednesday, Jan 4, 12 @ 8:40 am
School systems have thousands of contracts, but who does the public see? The teachers, front office, & those taking care of the buildings. The negotiation process with teachers unions and public workers is somewhat open to those with an interest.

Now think about the Pagano or Cellini, or how CME or Sears gets its way. What’s the tip and what is the iceberg? That’s a lot of lettuce.

There are thousands of contracts between school boards and vendors. I don’t know if it is possible to confront the textbook sales teams, utilities, multiple educational software sellers, computer network sellers, or ISP providers with the same intensity currently directed at teacher unions because the unions negotiated to keep decent defined benefit plans while the corporate model squeezed it out for the rest of the country.

Comment by Kasich Walker, Jr. Wednesday, Jan 4, 12 @ 8:50 am
‘He also said more money could be put into the system from someplace other than the state. That could include higher employee contributions or “more from the real employers of our K-12 educators.”’

This implies that people who pay taxes to the state and people who taxes to school districts were two totally different groups of people. I wish that this was true but in fact most people pay taxes to both units of government. If I pay for pensions one way or another way it all adds up to the same thing, money out of my pocket, in the end.

Comment by Left Out Wednesday, Jan 4, 12 @ 9:14 am
–If I pay for pensions one way or another way it all adds up to the same thing, money out of my pocket, in the end.–

Not quite. If New Trier, Hinsdale Central and OPRF school boards want to have $110,000 a year teachers, maybe the citizens in those communities should pay the freight for the pensions derived from those salaries, and not the folks in Chicago, Rock Island, Cairo, etc.

Comment by wordslinger Wednesday, Jan 4, 12 @ 9:25 am
How about applying a multiplier against student aid for impact on the state pension system? If the State places the impetus on the local school boards, many of them will pass the buck onto future generations. Get the actuaries to work on this.

Comment by Jake From Elwood Wednesday, Jan 4, 12 @ 10:14 am
Once again political rhetoric, partisan politics and the ultimate goal of getting re-elected is driving our budget decisions more than any fiscal knowledge or planning.

As a state employee nearing retirement I am very reluctant to give up anything until;

Any forfeit by the rank and file is met with an exact and equal forfeiture by the GA. As I have said before on this post I would be willing to give up the benefits I have earned in my 36 years with the state if I can have a benefit package equal to the GA membership. I believe Iowa and Wisconsin both have ONE pension fund that all employees and elected officials draw from under the same exact plan. Why do we have several? Because the GA wants to get a bigger piece of the pie than anyone else.

A regular employee with a salary of $57,619 after 20 years of service would receive $19,244.75 per year as a pension.

A GA member with an salary of $57,619 after 20 years of service would receive $48,976 or 85% of their salary a year as a pension. *85% is the maximum they can receive.( Regular employees cannot get more than 75% of their annual salary no matter how long they work. 45 years is required to get to the 75%)

GA members an annual 3% increase in their pension each year after their 1st year of retirement. If they continue to work after age 55 with 20 years of service they also accrue 3% each January after they turn 60. So if a member turns 55 w/20 years and continues to work until age 60, /w 25 years, two years after his retirement he gets an 18% bump to his pension or $57,791.85 or 103% of his salary when he was working at a part time job. *the 85% rule does not pertain to bumps after retirement.

The regular employee would get $24,777.61 for the same 25 years + one 3% COLA increase for a full time job

Comment by Irish Wednesday, Jan 4, 12 @ 11:22 am
As the law currently stands, shifting the employer portion of the pension payments from the state to the school districts would result in some dramatics cuts in the classroom. Payments from the retirement fund (which are not limited) are restricted to payments for social security and IMRF; so those employer payments to TRS would have to come out of the ed fund. Most districts would need to pass a referendum to increase revenue in the ed fund, an unlikely proposition in most districts. Therefore, most districts would have to cut other items in the ed fund to make the TRS payments to the State. The alternative would be to change state law to allow TRS payments to be made from the retirement fund, but even that would cause issues with property tax cap limits.

It might be easier (and cheaper) to pour some money into Fermi Lab and have them create a time machine so we could have a do over.

Comment by Pot calling kettle Wednesday, Jan 4, 12 @ 1:20 pm
The sad thing is that all of this could of been prevent with a foresight years ago.

Comment by RMWStanford Wednesday, Jan 4, 12 @ 1:24 pm
>pour some money into Fermi Lab and have them create a time machine

Comment by Y2D Wednesday, Jan 4, 12 @ 1:39 pm
… I’m back… and just fixed it. We just needed to solve for x.

Comment by Y2D Wednesday, Jan 4, 12 @ 1:40 pm
Again, much of the state employees pension crisis was caused the the GA failing to pay their share of the annual payment to the pension systems. Don’t blame the retirees, current and former (not yet drawing a pension) employees. Don’t make them (me included) suffer for the sins of the GA.

Comment by Huh? Wednesday, Jan 4, 12 @ 2:52 pm
===was caused the the GA failing to pay their share of the annual payment to the pension systems===

That’s not much of an argument. Legislators represent Illinois, so we are all responsible.

Comment by Rich Miller Wednesday, Jan 4, 12 @ 2:59 pm
“Three quarters of pension payment is for employees that are not state employees,” Vaught said. “You have a different employer negotiating pay and benefits, but then the state picks up the pension.”

-Meanwhile, the State is setting pension benefits and contributions for police, fire and IMRF and leaving local governments to pick up the tab. No sympathy here.

Comment by Shemp Wednesday, Jan 4, 12 @ 3:38 pm
===Meanwhile, the State is setting pension benefits and contributions for police, fire and IMRF and leaving local governments to pick up the tab.===

The locals have a lot of control over how much those pensions are because they do the payroll.

Comment by Rich Miller Wednesday, Jan 4, 12 @ 3:41 pm
==The locals have a lot of control over how much those pensions are because they do the payroll.==

I must fervently disagree as locals have minimal control over payroll for police and fire given the interest arbitration climate in this state. A city with 15 or 20 officers on the street can hardly “afford” to layoff a handful of officers to offset the costs of interest arb pay pay raises (or raises influenced because of standing interest arb decisions) plus increasing pension costs.

Comment by Shemp Wednesday, Jan 4, 12 @ 4:03 pm
Local EAV’s are mostly flat if not falling in the downstate, sales taxes are close to flat yet arbitrators are handing out 2-3% increases per year over 3 year contracts and expecting everyone to magically get paid. That’s before paying for 8% health ins increases and increased pension costs that are NOT associated with past underfunding. People seriously underestimate the strain on local governments caused by inaction at the State and the seemingly blind eye the GA keeps turning to it.

Comment by Shemp Wednesday, Jan 4, 12 @ 4:09 pm
Cities often avoid arbitration as there is not only the risk of losing, but there is also a hefty price in legal bills to have a decent chance at winning. And by winning, that often means presenting an unaffordable contract to the arbitrator, but at least one that’s more palatable than the one the police or fire union put forth (ask Naperville). There are 3 large police unions in the State, and all 3 are competing for membership, so they’re all out promising to take cities to arbitration if they don’t get what they want. And if your current union won’t pay to arbitrate, the next one wil to win your membership. That costs cities. As of this past September, the average of the last 20 arbitration decisions was 2.46% increases per year. Arbitrators are willing to go after cities reserve accounts even if it means increased annual deficit spending just because there is some cash there now. That’s just setting up disaster in 3-5 years. But hey, we’re good at that in Illinois.

Comment by Shemp Wednesday, Jan 4, 12 @ 4:18 pm
To Rich’s point, the state may set those local pension benefits, but the legislation itself was subject to the Agreed Bill process, and I never saw a pension bill move that wasnt supported by the lobbyists for local govt.

Comment by Yellow Dog Democrat Wednesday, Jan 4, 12 @ 4:48 pm
I like Cullerton more-and-more every day.

He’s earnest about improving the fiscal health of the state, but he refuses to spew talking points about passing some unconstitutional measure or gutting the core services of state government to get there.

I’m waiting for some GOP yahoo to argue we should get rid of the Secretary of State’s driver’s licensing and just let folks who wanna drive drive until a court says otherwise.

I mean, honestly, what percentage of folks fail the test? Is it really worth the red tape?

Comment by Yellow Dog Democrat Wednesday, Jan 4, 12 @ 7:30 pm
Any reform without some assurance of the state honoring it’s future payments and getting the second tier to at least equal a social security benefit is a sham. Keep in mind this is not about the benefits it is about the contribution that the state owes.

Comment by Obamas Puppy Wednesday, Jan 4, 12 @ 8:30 pm
==I never saw a pension bill move that wasnt supported by the lobbyists for local govt==

Did you type that with a straight face? It’s just like local government and the interest arbitration process, IML ends up “supporting” the least worst bills to prevent even further damage.

Comment by Shemp Wednesday, Jan 4, 12 @ 8:59 pm