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Could this be a possible template for the future?

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Illinois

* My weekly syndicated newspaper column…

One of the provisions of the sweeping state pension reform law passed in 2010 has always stuck in the craw of first responders.

Police and (especially) firefighter unions fought the local government lobby for decades to increase survivor benefits, and then they watched many of those hard-fought wins get wiped away when the General Assembly decided it had to lower pension benefits for new hires to avoid a fiscal catastrophe.

The reforms produced a system known as “Tier 2,” as opposed to the more generous pre-existing system, which is known as “Tier 1.”

One of the changes eliminated survivor benefits if the first responder was killed on duty during the first 10 years of service. Previously, survivors had been entitled to 54 percent of final average salary, no matter how long they’d worked. But, with Tier 2, if that dead cop or firefighter wasn’t yet entitled to a pension, the survivor received nothing.

So, one of the ways the governor’s pension consolidation task force apparently helped convince the firefighters union to go along with the merger of the state’s 600+ local first responder pension fund assets was to change the survivor benefit back to its original Tier 1 level. The cost to the funds is relatively minimal, but the peace of mind it gives first responders is probably priceless.

The police unions are not on board, but the Associated Firefighters of Illinois has infinitely more political strength than the coppers. They raise a lot of money and their members walk a ton of precincts. The police union members do neither, as a general rule. It’s very tough to beat the firefighters (except in 2010 when every public employee union took it in the ear), but it’s a lot easier to pass a bill that the firefighters union supports.

The pension consolidation report, issued last week, also recommended tweaking the annual Tier 2 pension benefit increase to bring it into line with federal laws on Social Security. Pension benefits are not allowed to be less than what a pensioner would receive in the Social Security program.

The current Tier 2 system was deliberately constructed to subsidize the Tier 1 system — in other words, it’s designed to bring in more than it will pay out. One of Springfield’s biggest expensive secrets is that Tier 2 will eventually have to be revised to align it with federal law. And that could come in a little more than a year, when some employees will have put in 10 years of work and will therefore be vested and have standing to sue.

The Tier 2 annual benefit increase is currently set at half the Consumer Price Index increase or 3 percent, whichever is lower. The task force recommended changing that to the full yearly Consumer Price Index increase or 3 percent, whichever is lower.

The pension fund consolidation task force also recommended changing the pension calculation from the current average of the highest eight of the last 10 years of service to the average of four of the last five years because first responders’ “years of service tend to be more abbreviated than other public-sector occupations,” the report claims.

The task force estimated the costs of these changes at between $14 million and $19 million a year over five years. The estimated investment gains from consolidation are between $164 million and $500 million per year over five years.

But this is Illinois, and if I’ve learned anything in this job, it’s that estimated costs are almost always too low and estimated returns are almost always too high. I’ll believe those projections when I see them.

Even so, the governor’s bipartisan task force should be commended for recognizing that: 1) Pension benefit recipients are real people, not just some numbers on a piece of paper; and 2) Reforms don’t automatically happen just because yet another blue ribbon commission recommends them — the reforms must be crafted in a way so they have a chance to clear two legislative chambers and be signed into law.

This report satisfies both of those requirements. Whether it will actually perform as advertised will have to be thoroughly debated.

If this succeeds, however, it might set the template for dealing with the same sort of Tier 2 federal law issues facing the state’s three big pension funds (state workers, suburban and Downstate teachers and university employees). Make some benefit tweaks to get them into line with federal law along with some other benefit changes and then consolidate assets.

* Related…

* Tribune editorial: Gov. J.B. Pritzker’s pension suture can be one step toward a full healing

posted by Rich Miller
Tuesday, Oct 15, 19 @ 9:09 am

Comments

Doing something that makes financial, long-term sense, doesn’t eviscerate a safety net for emergency workers and their families, and does not demonize organized labor.

Must be a Democrat behind the wheel.

Comment by efudd Tuesday, Oct 15, 19 @ 9:15 am
the Trib editorial of course calls the constitutional amendment, which with Tier 2 the amendment is already done to the extent it can be, and no changes can be made to current pensions, but Trib’s gonna Trib

Comment by James the Intolerant Tuesday, Oct 15, 19 @ 9:28 am
If I am reading this correctly, your are suggesting possibly consolation of the big three public pension systems?

I don’t think you would get the same administrative cost savings as consolidating police and fire. The ratio of staff to beneficiary is much lower in the big three systems.

Comment by A Jack Tuesday, Oct 15, 19 @ 9:41 am
==recommended tweaking the annual Tier 2 pension benefit increase==

Is there a search function on the blog where I can easily find all the comments stating Tier 2 solves the problem and Tier 2 benefits would never be increased? Might require infinite scroll.

This will be the first of many tweaks to Tier 2. Rubber doesn’t truly meet the road until 2-3 decades from now when full career vesting will begin. Look out below.

Comment by City Zen Tuesday, Oct 15, 19 @ 9:45 am
CZ at 9:45: How do you propose the State gets in line with MINIMUM Federal Reqirements? I have always thought the state would improve tier 2, just not this soon. As Rich points out the early tier 2s are about to become vested. Time flies.

Comment by Just A Dude Tuesday, Oct 15, 19 @ 9:53 am
I’ve never understood why the General Assembly hasn’t taken the same approach to pension reform that it took to fixing the CTA pension in 2011.

Comment by Just Me 2 Tuesday, Oct 15, 19 @ 9:54 am
The 3 large state retirement systems absolutely need to have the Tier 2 problems corrected. However, they don’t need to consolidate assets, it wouldn’t save much if anything, and would lose some accountability. The concept was looked at years ago, and found that the 3 systems did NOT get equal returns on investment. SURS did better then SERS and TRS. Had all the systems been merged and managed by SERS, SURS would have lost a lot of their return, which would have increased the amount the state would have to pay in to the system.

Comment by DuPage Tuesday, Oct 15, 19 @ 9:55 am
== The task force recommended changing that to the full yearly Consumer Price Index increase or 3 percent, whichever is lower. ==

That may work for a while but at some point giving less than CPI could have us right back looking at a lower benefit than SS.

Keep in mind this issue mostly applied to the groups, like first responders and teachers, who do not pay into Social Security. That is a smaller universe than all retirees since most SERS and IMRF do pay into SS.

Comment by RNUG Tuesday, Oct 15, 19 @ 9:58 am
When it passed, we all knew Tier 2 would have to be tweaked. The hope was it would be far enough down the road that the pension funding was in better shape.

Comment by RNUG Tuesday, Oct 15, 19 @ 10:01 am
==The police unions are not on board==

Too bad for them. Maybe they shouldn’t have opposed marijuana legalization, and then out of spite when that failed for them, pushed at the local level for towns to opt out.

Your retirement funding has to come from somewhere, boys.

Comment by TheInvisibleMan Tuesday, Oct 15, 19 @ 10:14 am
=How do you propose the State gets in line with MINIMUM Federal Reqirements? I have always thought the state would improve tier 2, just not this soon.=

Despite the rhetoric, the Feds do not want to add additional members to social security. The Social Security Program is not a good shape either. What should be done is increase the Tier 2 salary cap to match the Social Security Wage limitation, and add a provision that allows members with 35+ years to retire at 62 with no early age reduction. I keep hearing the Tier 2 wage cap that does not increase in step with the SS cap is the primary driver of that notion.

Comment by Davos Tuesday, Oct 15, 19 @ 10:16 am
Why on earth did they adopt tier 2 knowing it at to be fixed later? Oh, and I cry over spilled milk: Big Jim should never have signed the compounding cola for the big 3 systems.

Comment by the Edge Tuesday, Oct 15, 19 @ 10:19 am
== Why on earth did they adopt tier 2 knowing it at to be fixed later? ==

Politics … they had to appear to do something.

Comment by RNUG Tuesday, Oct 15, 19 @ 10:29 am
How will the Tier 2 wages caps be addressed? The Soc. Sec. 2019 wage cap is 132,900 where the 2019 Tier 2 wage cap is 114,951.

Comment by lostintranslation Tuesday, Oct 15, 19 @ 10:30 am
== when some employees will have put in 10 years of work and will therefore be vested and have standing to sue. ==

Just a note that the 10 years was another of the changes that Tier 2 made. Under Tier 1, minimum service to receive a reduced pension was only 8 years.

Comment by RNUG Tuesday, Oct 15, 19 @ 10:36 am
==giving less than CPI could have us right back looking at a lower benefit than SS==

RNUG, is this only an issue for Tier 2? Many Tier one retirees get a 3% AAI no matter what the CPI is, but no one has suggested this is not sufficient to avoid SS. Or are you suggesting that all non-SS retirees should get CPI?

Comment by Jibba Tuesday, Oct 15, 19 @ 12:20 pm
== Many Tier one retirees get a 3% AAI no matter what the CPI is, but no one has suggested this is not sufficient to avoid SS. ==

Statistically, CPI has averaged 2.9% to 3.2% depending on what 10, 20 year or longer period you select. Given that, it is unlikely the fixed 3% AAI will fall significantly behind the SS CPI.

Comment by RNUG Tuesday, Oct 15, 19 @ 1:16 pm
I read the task force recommendations, and I don’t see where they call for the tier 2 retiree COLA/AAI to increase at inflation or 3%, whichever is smaller. Rather, they call for the pensionable salary cap to increase at that rate. Those are different things. Someone who retires under tier 2 would still have his/her pension benefit grow at 1/2 of the CPI inflation rate, unless I am missing something.

Comment by Andy S. Tuesday, Oct 15, 19 @ 7:08 pm
If my info is correct a big reason State Police are seeing a reduction in applicants is the Tier 2. I believe it says Troopers can’t collect until age 60 but are forced to retire at age 60 by State law. They do max out at 28 years.

Comment by ISPEEVED Tuesday, Oct 15, 19 @ 8:06 pm