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[Gov. Bruce Rauner’s pension reform] proposal would give state employees incentives to move into a cheaper pension system known as Tier 2. Democrats said the move is hypocritical in light of a decision to give Rauner’s newly hired pick for state schools chief a special perk to boost his pension.

“This supplemental perk is a clear admission that Tier II is grossly inadequate as it stands. Thousands of Illinois educators receive this very same, insufficient retirement plan, but rather than make them whole as he is doing for his own executives, Rauner is proposing a plan that cuts them more deeply,” said Illinois Federation of Teachers President Dan Montgomery. “This is illegal, hypocritical, and a stunning display of the Governor’s real priorities.”

* The Tribune editorial board concurs in part and dissents in part…

Employees enrolled in Tier II earn pensions based on a less lucrative formula than those in Tier I. Higher salaries mean higher pensions, but the Tier II formula includes a strict ceiling on the earnings used to calculate retirement benefits.

[State schools superintendent Tony Smith’s] base salary for this year is $225,000. But his contributions to the Teachers Retirement System, or TRS, will be based on a capped salary of just under $112,000.

Smith’s contract requires taxpayers to make both the “member” and “employer” contributions to his pension, a rant for another day. Because of the salary cap, the “member” share is about half what it would have been under Tier I. So the taxpayers will write him a check for the difference.

Because Tier II, a baby step in a desperately needed pension system overhaul, is too onerous for the governor’s guy? We don’t think so.

Moving new employees into a sustainable pension plan was a sound policy decision by the state. Rauner has no business creating exceptions for his chosen aides.

Anybody who calls Tier II a “baby step” - when employees are essentially subsidizing everybody else - isn’t quite clear on the concept.

Even so, give ‘em props for finally speaking up about something.

posted by Rich Miller
Thursday, Jul 16, 15 @ 12:31 pm

Comments

“Less lucrative” or “cheaper pension”. I just love the language that is used to suit their interests. The Supreme Court said plain as day. The pension cannot be diminished or impaired. Period! Once the employee is in the system. He/she is locked in. No Exception!

Comment by ah HA Thursday, Jul 16, 15 @ 12:40 pm
Wonder what happens if the AG’s appeal is approved by the Supreme Court and he doesn’t get paid?

Comment by Thoughts Matter Thursday, Jul 16, 15 @ 12:41 pm
Your caveat is on point, but I also think the editorial board was much more critical of the governor than you give them credit.

The last words:

“Rauner has no business creating exceptions for his chosen aides.”

Comment by Juvenal Thursday, Jul 16, 15 @ 12:43 pm
I see Lance forgot to inform them Smith is a superstar.

Comment by Tournaround Agenda Thursday, Jul 16, 15 @ 12:49 pm
Even a broken clock is right twice a day.

Comment by Precinct Captain Thursday, Jul 16, 15 @ 12:53 pm
All of a sudden the Tribune editorial board is paying attention to the optics? About time they took off their rose-colored glasses and observed Rauner’s hypocritical moves.

Comment by Wensicia Thursday, Jul 16, 15 @ 12:53 pm
Maybe(?)

“@StatehouseChick is on vacation”

I kid.

To the Post,

Having your pick get a sweetener, hard to say with a straight face it’s good for others.

Comment by Oswego Willy Thursday, Jul 16, 15 @ 12:57 pm
@P Captain: I tried that yesterday on the bobcat thingy, but decided “a stuck calendar is right once a year” works better for the Trib. ed. bd.

Comment by X-prof Thursday, Jul 16, 15 @ 12:59 pm
Rauner: “My Superstars™ deserve a separate set of rules and rewards.”

Comment by Wensicia Thursday, Jul 16, 15 @ 1:00 pm
Rauner team apparently believe Tier II is too generous for all but a few.

Comment by walker Thursday, Jul 16, 15 @ 1:02 pm
Memo to Bruce,

Start collecting FICA/Medicaire on your state workers (and of course you, the employer) must match.

Pay 5% to the Employees 401K. You can have a vesting period of 5 years if you like.

Match another 4% or 5% with the employee to their 401K. This is in line with the private sector compension.

It is.

Really, it is. Look it up.

Comment by Rea Pur Grimm Thursday, Jul 16, 15 @ 1:03 pm
==proposal would give state employees incentives to move into a cheaper pension system known as Tier 2==

==Consideration== can not be compelled. This plan provides for an uncompelled choice, but

==Employees enrolled in Tier II earn pensions based on a less lucrative formula than those in Tier I==.

No one is going to make that choice if they understand what they give up by moving from Tier I to Tier II.

Comment by Formerly Known As... Thursday, Jul 16, 15 @ 1:04 pm
@ah HA

I wish it was the way you say it is… but if people voluntarily want to move to tier 2, I do believe they would be legally allowed to. I mean, people can willingly give up their own constitutional rights. Look at “mandatory arbitration.” You can contractually give up your first amendment rights before you will ever know if you need to exercise it.

Comment by Ducky LaMoore Thursday, Jul 16, 15 @ 1:04 pm
But the scariest thing of all is, as I believe, Rauner sees absolutely nothing wrong with this. He is, after all, a superstar. Nothing at all like the dregs that devote their lives to children. They deserve nothing, as apparently what they do, day in, day out, is inconsequential. His chosen one is special and deserving–apart from anyone else.

Comment by AnonymousOne Thursday, Jul 16, 15 @ 1:06 pm
A few of the more right leaning members of the Tribune editorial board must be on vacation this week.

Comment by GA Watcher Thursday, Jul 16, 15 @ 1:06 pm
What part of “pensions shall not be diminished” does Rauner not understand? It is my understanding that an employee is invested in the pension fund the first day they begin their employment.

Comment by Anonymous Thursday, Jul 16, 15 @ 1:14 pm
Business as usual - just a new twist. Props to the Trib, for once.

Comment by Archiesmom Thursday, Jul 16, 15 @ 1:15 pm
I’ll wait patiently for that ‘rant for another day’. If I held my breath waiting for it . . . well, that would be a long time without breathing.

Comment by Not quite a majority Thursday, Jul 16, 15 @ 1:24 pm
Who cares what the ISC says. It’s all interpretation.

Comment by zatoichi Thursday, Jul 16, 15 @ 1:50 pm
Taking a long talk on a short tier.

Comment by A guy Thursday, Jul 16, 15 @ 2:00 pm
DOA…illegal. First it takes all kinds of things away, and then if you choose to go to tier 2 you get some things back. Wow, that is some consideration.

Comment by Facts are Stubborn Things Thursday, Jul 16, 15 @ 2:04 pm
Why did the Tribsters save their rant about the State picking up both the employee and employer contributions for another day? Is there a limit on how much they can criticize the Governor in a week and between this and the bobcat hunting editorial they’ve reached that ceiling?

The optics on this particular issue are particularly bad as Rauner’s proposed pension bill seeks to prohibit CPS’s current collectively bargained practice of partially picking up the employee contribution–a major point of contention in the current CPS-CTU contract negotiations as Rahm also wants to eliminate this contribution.

Comment by Uptown Lawyer Thursday, Jul 16, 15 @ 2:10 pm
consideration must give something of value in exchange and you must be able to keep what you have. The only legal changes, as clearly spelled out in the ISC decision, is for new employees.

You could offer employees additional time off and a bonus in exchange for moving from tier 1 to tier 2 but they must have the right to say no and keep what they have. One large change that has come about is the retirees are no longer in the conversation when it comes to pension reform.

Comment by Facts are Stubborn Things Thursday, Jul 16, 15 @ 2:13 pm
What is constantly forgotten, is that the issue with the pension system is the debt and not intrinsic within the system itself. The pension system, like all pensions systems, must be properly funded. That is by far the largest issue — the underfunding for decades — that has created the large pension debt. It is not the pension system, but the debt created because of underfunding. State services have been provided for years that were not paid for with taxes….the pension system was used. Focus on how to pay off the pension debt and forget about changing the current pension system….it is not legal to diminish or impair pensions. Increase taxes and expand the sales tax to cover services and amortize the debt and move on. The politicians kept saying that if the ISC did rule SB 1 unconstitutional we hope the will provide guidance as to what would be legal. The ISC provided that — pay the pensions as promised at the time of employment, increase revenue, and refinance the pension debt. Oh but that is not what they wanted to hear.

Comment by Facts are Stubborn Things Thursday, Jul 16, 15 @ 2:31 pm
I can’t wait for us to get to Tier 24 in which you pay the State for working as a State Employee unless you are a Super Star or “ck”.

Comment by Anonymous Thursday, Jul 16, 15 @ 3:03 pm
Also forgotten are all of the absent investment returns on money that was never paid in. Over and over again, if pension systems are ever to be criticized, one only need look at IMRF, which has never missed a payment and is funded at well over 90%. We all know how we got to this point and it has nothing whatsoever to do with employees in these pension systems. But now it has everything to do with people who got a free lunch, courtesy of those employees and they don’t want to have to repay.

Comment by AnonymousOne Thursday, Jul 16, 15 @ 3:18 pm
==- X-prof - Thursday, Jul 16, 15 @ 12:59 pm:==

There’s a new millennium once every 1,000 years.

Comment by Precinct Captain Thursday, Jul 16, 15 @ 3:29 pm
For new Tier II employees I have long advocated and specifically stated that they should be on SS and up to a 5% matching 401.

Comment by Federalist Thursday, Jul 16, 15 @ 3:33 pm
The “Rauner pension bill” is just another unconstitutional excuse to avoid making the hard choices that are required … and the claimed “savings” will be the excuse to skip making pension fund payments during Rauner’s term in office.

Comment by RNUG Thursday, Jul 16, 15 @ 3:33 pm
I still can’t figure why there is a state superintendent of schools and an education secretary.

Is that a job-share dealio? You’d think one superstar would be enough.

Comment by Wordslinger Thursday, Jul 16, 15 @ 3:39 pm
Facts are Stubborn Things

You are 100% on target. Tier II is a joke. If you want to see what the other pensions should look like look no further than IMRF. As for the Barons latest proposal on pensions it would be hard to find much there that would pass ISC muster. It too is a joke. Justice Burke alluded to the only real solutions referenced in the ISC ruling……pay what is owed. You nailed it!

Comment by Old and In the Way Thursday, Jul 16, 15 @ 3:43 pm
AnonymousOne @ 3:18 == Also forgotten are all of the absent investment returns on money that was never paid in. ==

This missing investment income is the biggest chunk of the underfunding, and the continuing loss of investment income until we get to full funding is what makes it so hard to catch up. It’s economically the same thing as running up a credit card balance over a couple of decades and then trying to pay it down as the interest on the unpaid balance continues to accrue.

Comment by Anon. Thursday, Jul 16, 15 @ 4:02 pm
Another provision in the “pension” bill is: if you don’t move to Tier 2 from Tier 1, you forgo all future raises.

That’s extortion.

Comment by Rufus Thursday, Jul 16, 15 @ 4:07 pm
To put an even finer point on it, this superstar was hired without a notional search, without a search, in fact without any interviews based solely on the Governor’s recommendation.

Comment by Juvenal Thursday, Jul 16, 15 @ 4:21 pm
Interesting, how in politics its all about framing rather than substance. If the Rauner appointee in question had been offered a base salary of 250K with no pension supplement, instead of 225K with a 25K supplement, this issue would never have arisen.

More broadly and for similar reasons, the savings associated with tier 2 are probably illusory. If participants in the labor market have any semblance of rationality, they will demand higher base salaries to compensate for the substandard pension benefits they receive under tier 2, either before accepting employment or later during their careers, and if the state does not give in most of the good employees will simply find jobs elsewhere.

Comment by Andy S. Thursday, Jul 16, 15 @ 4:21 pm
Perhaps more intriguing: did the Governor think nobody would notice? Shine on, Bruce . . .

Comment by Now What? Thursday, Jul 16, 15 @ 4:44 pm
Has anyone asked if any of the other superstars have been so “subsidized”?

Comment by ? Thursday, Jul 16, 15 @ 4:56 pm
@- Old and In the Way - Thursday, Jul 16, 15 @ 3:43 pm:

=look no further than IMRF=

Yes, exactly the IMRF is about 93% funded primarily because they have always (required by law) made their actuarially required pension payments. The three legged stool — employee contributions, investments, and the critical employer contributions. All well funded pension systems share one common trait…they have made their proper payments on time just like the employees.

thanks

Comment by Facts are Stubborn Things Thursday, Jul 16, 15 @ 5:27 pm
===primarily because they have always (required by law)===

And no compounded colas.

Comment by Rich Miller Thursday, Jul 16, 15 @ 5:28 pm
Rich-

I believe that the annual adjustment of retirement benefits only account for about 20 percent of retirement costs, and even if you dialed those back to the level of the annual social security increase they would only account for 10 percent of total pension costs.

COLAs are clearly not the main driver of our unfunded pension liability. Non payment by the employer is.

To the post: see, I told you not to write the Tribune off. Kudos, McQueary.

Comment by Yellow Dog Democrat Thursday, Jul 16, 15 @ 5:43 pm
The normal cost for IMRF is 13.55% of payroll - the employee pays 5% and the employer pays 8.55% (this is the 2014 average for all employers in 2014).

The normal cost for TRS is 18.4% of payroll. the benefits are better than IMRF - both in the annual increase and the pension formula. The employee pays 9.4% and the employer pays 9% (school districts pay about 1.4% of the employer cost and the State pays about 8%).

IMRF members also pay into Social Security (and receive FICA benefits). TRS do not.

Combined with Social Security, IMRF employees pay 11.2% of pay and employers (on average) pay 14.75% of payroll. The latter figure does not include any unfunded liability for the employer.

So, when you include social security, IMRF costs both the employee and the employer more than TRS. For the employee, 11.2% versus 9.4% for TRS - and for the employer 14.75% for IMRF and 9% for TRS.

Neither TRS nor IMRF include any % relative to the unfunded liability in this example.

Comment by archimedes Thursday, Jul 16, 15 @ 5:52 pm
Employees pay into their AAI (COLA is what people call it but it is not a COLA) with every payment into TRS. It’s not free, bonus money costing someone else.

Isn’t it a shame that such a reasonably priced retirement program as compared to the cost of IMRF and Social Security was put into this position by reckless legislative action?

Comment by AnonymousOne Thursday, Jul 16, 15 @ 6:16 pm
YDD, TRS has published their estimate of the total cost of the 3% compounded annual increase as 23% of the pension benefit - so you are darn close with your 20% figure.

For comparison, a 3% simple annual increase (which is the IMRF increase) would have the same present value as a 2.5% compounded increase for pension purposes. i.e. the total pension contributions are the same for a 2.5% annual increase as they would be for a 3% simple increase.

So - given the TRS 18.5% normal cost - the compounded annual increase costs about 1% of payroll more than if it had been a 3% simple increase (the normal cost would be 17.7% if the annual increase was 3% simple, or non-compounded).

All this to simply say the compounded versus non-compounded on the annual increase is a minor cost influence on the accrued liability for pensions.

Comment by archimedes Thursday, Jul 16, 15 @ 6:18 pm
@EditBoardChick - oh YDD, Thanks. I’ll get back to my shill ways soon enough. ##ThankYouNotes4Groceries

Comment by Oswego Willy Thursday, Jul 16, 15 @ 6:18 pm
IMRF does not have a compounded COLA.) Actually SERS and SURS do not have a COlA either as defined by SS. It is instead a 3% compounded. Good if inflation stays low and a disaster if inflation is as it was in the mid ’70’s through early 80’s.)

But for years (at last ever since I retired in 2006) they have received a 13th payment. This year, as usual it was paid in June and as usual was 34% on one’s monthly payment or about 2.89% of one’s total yearly payment. It is not annualized however.

Comment by Federalist Thursday, Jul 16, 15 @ 6:19 pm
@EditBoardChick - I was told I can go against Rauner once every quarter, I’m still behind one quarter #IllinoisIsStillGreece #WhoHidMyRaunerTalkingPoints

Comment by Oswego Willy Thursday, Jul 16, 15 @ 6:21 pm
Anonymous: thank you for posting regarding the AAI. Archimedes: excellent post regarding statistics of payments, contributions, and no SS for TRS. Most who are just learning about TRS and other pensions are always surprised to see the facts when separated from the politics.

Comment by Now What? Thursday, Jul 16, 15 @ 6:29 pm
From @EditBoardChick;

“Whatever painful cuts emerge from the budget impasse this year, they belong to the party that could have spent taxpayers’ money responsibly or made an honest case for a permanent tax increase.”

That @EditBoardChick! If she even was remotely honest, she would know covering the Stathouse, Governors own. Shills forget what they know for thank you notes to buy groceries.

Further, from @EditBoardChick;

“Madigan and his Democrat-controlled General Assembly would be working on an actual budget right now, not standing by the $4 billion-out-of-balance budget they sent to the governor.”

I guess when you don’t cover the Statehouse anymore and are beholden, you forget about, let’s say, Rauner’s proposed budget, and how out of whack it is. @EditBoardChick is hitting all the Rauner talking points. Kudos.

This is fun from @EditBoardChick;

“Instead, Madigan and his staff are spending precious resources organizing a weekly parade of horribles in the House. They court the state’s most vulnerable and plop them in front of a microphone to talk about the suffering they’ll undergo if state services get cut.”

This is my favorite, directly after that…

“Their stories are real and painful. They are the pawns in this budget impasse.”

It’s not about the budget, it’s about Rauner holding people hostage for the Turnaround Agenda. It’s literally about hurting people, by Rauner, to get his Agenda passed.

But @EditBoardChick has Rauner’s back, with talking points and shill-like examples, missing the whole point that someone who covered the Statehouse would never miss.

“She’s nice, she’s a good one, she’s no shill…”

From @EditBoardChick;

“…Democrat-controlled House…”

Ugh. Yeah, she knows, make sure the dog whistles are in there too.

So “kudos” @EditBoardChick. Your Statehouse experiences are there to be forgotten, because a shill with talking points is just easier. “Simple”.

Comment by Oswego Willy Thursday, Jul 16, 15 @ 6:46 pm
Rea Pur Grimm - Thursday, Jul 16, 15 @ 1:03 pm:

Memo to Bruce,

Start collecting FICA/Medicaire on your state workers (and of course you, the employer) must match.

Pay 5% to the Employees 401K. You can have a vesting period of 5 years if you like.

Match another 4% or 5% with the employee to their 401K. This is in line with the private sector compension.

It is.

Really, it is. Look it up.
_____________________________________________
Hey R.P., you are correct on the first point. State employees would be better off with Social Security and Medicare, because the State wouldn’t be allowed to skip the employer portion of the contribution.

But I’d like to know where you got your information about private sector 401(k)s.

I don’t know of any employer who would make double contributions that you propose to a 401(k) plan.

Many, BUT BY NO MEANS ALL, private sector employers are matching employee contributions, up to the 4-5% of salary/wages you cite. Many companies do have a “vesting period”; for those who haven’t heard of or experienced this, it means that if you terminate your employment for any reason within a certain time period you take the amounts you contributed to the 401(k), but leave behind the amounts the employer contributed on your behalf. You take the investment gains earned on your share of the money, and leave behind the investment gains earned on the employer portion.

But something like this also doesn’t allow for “13th month” payments, so I can see why some employees would fight it. Whether they are fighting for a good principle is another matter entirely…

Comment by Lynn S, Friday, Jul 17, 15 @ 12:38 am
in regards to the post: Not surprised, at all…hypocrisy at its finest.

Comment by Shanks Friday, Jul 17, 15 @ 1:32 am
Perhaps some teachers or state employees don’t pay into SS/Medicare, but I do and have for the entire 20 years I’ve been employed by the state.

Comment by deacon geek Friday, Jul 17, 15 @ 9:31 am
== Perhaps some teachers or state employees don’t pay into SS/Medicare, but I do and have for the entire 20 years I’ve been employed by the state. ==

There are 5 different systems, each with different rules. There are even different rules within some of the systems. And then there are the Tier 1 / Tier 2 differences, which includes moving some titles from one category to another.

To generalize, most members of SERS, like you, also pay SS. Members of TRS normally don’t pay into SS. SURS can go either way, depending. But it would be accurate to say, when you include SERS, TRS and SURS in the mix, that more “state employees” do not pay into SS.

Comment by RNUG Friday, Jul 17, 15 @ 12:48 pm