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* The Civic Committee of the Commercial Club of Chicago, led by Mayor Lightfoot’s then-law firm partner Ty Fahner, was all-in on cutting public pensions during the previous decade, so Z makes a good point…
They're effectively giving up on cutting pension benefits to bend the cost curve, and going all in on using a combination of revenue ideas designed to accelerate the Edgar ramp's downward trajectory.
— Michael J. Zalewski (@mjzalewski) February 8, 2023
However, the group is now targeting future retiree health insurance costs, which the Illinois Supreme Court has ruled is a protected pension benefit…
Illinois is barred from changing its retiree healthcare subsidy for current employees due to the Kanerva v. Weems decision, but the State could enact a new retiree healthcare plan for new employees, and we believe the State should do so as soon as possible. (Note that such a change would not impact current employees or OPEB liabilities since they’re based on previous service, but it would help reduce growth in future liability). The new plan should move away from the existing premium-tied subsidy to a fixed dollar premium subsidy allowing for continued access to the State’s healthcare coverage options. This will help the State slow the growth of future OPEB liabilities, which will reduce the pressure on future state budgets.
Implementing a new retiree healthcare plan that changes the trajectory of future OPEB costs would be credit positive. The financial benefits to the State would take many years to manifest but taking action now to control costs in the future would demonstrate the State’s commitment to long-term fiscal health.
At least they’ve finally accepted legal realities, but that’ll be quite a legislative fight, if anyone even engages. So far the group has no sponsor for its proposal, let alone a proposal in bill format.
* The Question: Should the state create a new retiree healthcare plan for future hires that would increase out of pocket retiree costs in order to help bump up the state’s bond rating? Make sure to explain your answer. Thanks.
posted by Rich Miller
Wednesday, Feb 8, 23 @ 11:34 am
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The state has already changed the teacher retiree health benefit plan. They have taken away the medicare advantage option.
Comment by Seymourkid Wednesday, Feb 8, 23 @ 11:40 am
No. Tier 2 is already bad enough with regards to the huge problem with young employee retention.
Comment by Cornerfield Wednesday, Feb 8, 23 @ 11:42 am
===They have taken away the medicare advantage option. ===
It’s not a diminishment.
Comment by Rich Miller Wednesday, Feb 8, 23 @ 11:43 am
It would make it yet another reason to discourage my own kids from getting into the education field here in Illinois.
Comment by Person 8 Wednesday, Feb 8, 23 @ 11:44 am
No. The ratings agencies are scam artists who use tea leaves to drive Wall Street profits. Their stated purpose is to evaluate the chance of default, which for is functionally zero for every state government. We shouldn’t take money from the pockets of middle-class Illinoisans in the hope of more favorable pronouncements from the oracles on high.
Comment by vern Wednesday, Feb 8, 23 @ 11:50 am
Meanwhile, over in Missouri, the Republicans are debating giving state workers raises because they have so many vacancies and so few interested in working for a state that pays and provides so little.
https://fox2now.com/news/missouri/missouri-lawmakers-urged-to-act-fast-on-state-worker-pay-raise/
Comment by Michelle Flaherty Wednesday, Feb 8, 23 @ 11:52 am
Yes, retiree benefits for future workers should be in line with what they would get in any other field. BUT, that implies their Total Compensation would be in line with other fields. Otherwise, as Cornerfeld has stated, the retention problem will become a permanent feature of state gov.
Comment by cermak_rd Wednesday, Feb 8, 23 @ 11:54 am
No. there is no reason to. according to Isabel’s morning briefs. so far in 2023 revenue is up $2.3 billion. let’s use the excess cash to pay down debt.
Comment by Blue Dog Wednesday, Feb 8, 23 @ 11:56 am
Question for someone out there: Since the IL Supreme Court put the kibosh on Rahm’s negotiating with unions concept (that I thought was brilliant), is the only way to really make a change on pension contributions a Constitutional Convention issue? Or is there another way?
Comment by levivotedforjudy Wednesday, Feb 8, 23 @ 11:57 am
Should they? Probably. Better yet, encourage more adoption of high deductible plans for young employees with an HSA contribution match.
Comment by thechampaignlife Wednesday, Feb 8, 23 @ 11:57 am
With respect, no. A ploy to “help” (maybe) bump up a bond rating is not worth the continued diminishment in ability to recruit State employees. We have multiple agencies with severe staffing shortages and this sort of thing will not help. Furthermore, this encourages people to come and go more quickly rather than stay and make a career working for the State and helping to build institutional memory/competence.
Comment by Former ILSIP Wednesday, Feb 8, 23 @ 11:58 am
Absolutely not. Life for the average government worker is hard enough with these crazies and their meddling. There is no reason to reduce employee health benefits as well.
Comment by Three Dimensional Checkers Wednesday, Feb 8, 23 @ 11:59 am
===debating giving state workers raises because===
Are they unionized?
Comment by Rich Miller Wednesday, Feb 8, 23 @ 11:59 am
just another way to make sure to increase the teacher shortage
Comment by Anonymous Wednesday, Feb 8, 23 @ 12:12 pm
Short answer, no. Short solution: Medicare for all.
Comment by Jibba Wednesday, Feb 8, 23 @ 12:13 pm
“No. there is no reason to. according to Isabel’s morning briefs. so far in 2023 revenue is up $2.3 billion. let’s use the excess cash to pay down debt.”
A most reasonable comment. Thank you.
Comment by Grandson of Man Wednesday, Feb 8, 23 @ 12:17 pm
Yes.
1) Savings here will free up resources, on a relative basis, to tackle improving funding for the non-profit agencies to which we’ve outsourced foster care and support for those with disabilities.
2) This should be coupled with the revenue increase for pension contributions (which I view as just an opening bid — if there’s an increase, it will be used to fund programs as well)
3) while we’re at it, please lower the sales tax and increase the base — it could be done in a progressive way
Comment by Phineas Wednesday, Feb 8, 23 @ 12:20 pm
I’m not a fan of our outsourcing of HHS work to non-profit agencies. It would be cleaner for the state to do that work itself. No religious issues (LFS doesn’t have any but that doesn’t mean CC won’t wriggle themselves back in), and if the state has to deal with the most challenging cases themselves anyway they may as well deal with the easier ones, too.
Comment by cermak_rd Wednesday, Feb 8, 23 @ 12:35 pm
=Better yet, encourage more adoption of high deductible plans for young employees with an HSA contribution match.=
This is a very good suggestion, one we have been implementing locally. Takes time but there is real savings to be had and the HSA money that is not spent becomes retirement for the employee.
Comment by JS Mill Wednesday, Feb 8, 23 @ 12:53 pm
This is a very hard question today.
Where I hang my hat we have had very difficult discussions about health insurance for at least 25 years. We always end up paying 100% of a top drawer health insurance package, but this is a very expensive benefit package and it will always be part of any budget discussion.
I suppose I would say that if the choice for taxpayers and employees is to reduce health benefits or have employees kick in to cover costs I would start to pass some costs on to employees.
Americans don’t have plans for a national health insurance program like other nations which would be the best solution to the health insurance question.
As to do this to improve bond ratings, I think the groups position that we have the worse ratings in the country are correct. And that costs everyone including taxpayers and employees a lot of money.
Comment by Back to the Future Wednesday, Feb 8, 23 @ 12:55 pm
No, I think the State need to take steps to improve it’s attractiveness to younger technical staff getting out of University. While I’m not sure the retirement is a net attraction to kids just out of school but reducing it won’t help.
Comment by Mason born Wednesday, Feb 8, 23 @ 12:57 pm
The health care S Ct case is the best example why approving the new worker’s rights amendment was ill advised. With rights so called protected by the constitution no one knows exactly what those rights will turn out to be until the Illinois Supreme Court determined what they are. When the Court ruled that retiree health care was entitled to the same protections as pension annuity payments/ they were totally making up new rights where they were not mentioned in the pension clause. Talk to folks at the State pension systems and you likely learn that they were surprised at the decision. Years from now Illinois will wake up and discover that public employees have protections no one anticipated would be promised under the new amendment. It may take a while but you can be certain that various lawsuits will be filed to confirm a host of rights that union leaders dream up as being contemplated under the Amendment
Comment by Sue Wednesday, Feb 8, 23 @ 1:20 pm
Resounding no.
It’s absolutely critical that we do everything we can to recruit folks to state government service. The candy doesn’t get made if we don’t have Oompa Loompas. With unemployment as low as it’s been since 1969 nationally we have to do what we can.
This is merely a long game ploy to tie income tax increases with state workers pensions. It’s a long blame game.
Comment by Honeybear Wednesday, Feb 8, 23 @ 1:21 pm
Honoring contracts is a real bummer isn’t it @Sue.
Comment by Demoralized Wednesday, Feb 8, 23 @ 2:01 pm
The answer is no. The solution for these types seems to always be to go after the employees.
But, if you do it, you better make it up by drastically increasing their wages.
Comment by Demoralized Wednesday, Feb 8, 23 @ 2:04 pm
SERS retirees who are older than 65 are required to have Medicare parts A & B. And they have to pay for Part B.
What they get is a Medicare advantage plan.
Comment by Huh? Wednesday, Feb 8, 23 @ 2:10 pm
Demoralized- it’s fine to honor a contract. The problem I have is when the courts create contracts the legislature never intended which in turn add billions to Illinois’ already crushing debt. Please tell me where is retiree health care mentioned in the pension clause
Comment by Sue Wednesday, Feb 8, 23 @ 2:26 pm
Healthcare is a part of your pension. It goes hand in hand hence the connection.
Comment by Demoralized Wednesday, Feb 8, 23 @ 2:43 pm
No, not necessarily. Medical inflation and the fact that most OPEBs are pay-go create massive unfunded liabilities, but the bottom line is whether annual program costs have created structural budget issues. I know they have for some municipalities, but for the state? Even then, a prefunding scenario, even a partial one, might be the appropriate step for a sounder future.
Comment by yinn Wednesday, Feb 8, 23 @ 3:20 pm
No. The State is having enough problems finding and retaining qualified people, especially since the Tier 2 pension change. And the State has already achieved some significant cost savings from splitting the retirees off into a Medicare Advantage program instead of just being the supplemental insurance to Medicare. Actual retiree health expenses for a lot of retirees went up some with that move; it wasn’t a huge amount but the copays under an MA plan were previously covered when there was a traditional health insurance policy as secondary.
And as a bit of historical perspective, the ‘free’ retiree health insurance was originally implemented to try to stop the turnover / brain drain back then. If was viewed as a tool to increase employee retention.
Comment by RNUG Wednesday, Feb 8, 23 @ 3:26 pm
No. I am Tier 2 and I see no reason why anyone under 40 would join the State, especially teachers. Pay is too low once benefits were cut, along with too few workers and diminished job satisfaction.
Comment by Lurker Wednesday, Feb 8, 23 @ 3:29 pm
== was entitled to the same protections as pension annuity payments/ they were totally making up new rights where they were not mentioned in the pension clause ==
I believe you misunderstand the basic issue; new rights were not made up. It was a simple issue of Contract Law, not the Pension Clause.
The State made an offer: If you work 20 years, then the State will provide free health insurance when you retire. Straight contract language, if A, then B; offer, acceptance / fulfillment. The offer was contingent with employment, so that also made it a benefit. When the State started to charge for retiree health insurance, they violated that contract.
Ralph Kanerva led a group of initially (I believe) 20 retirees that self financed a lawsuit and was the first to file; other groups, including unions, filed later and were eventually consolidated into the original case, which became the IL SC Kanerva decision. I’m quite familiar with it; while I wasn’t part of the initial 20, I was invited to be part of an expanded group.
Comment by RNUG Wednesday, Feb 8, 23 @ 3:44 pm
== is the only way to really make a change on pension contributions a Constitutional Convention issue? Or is there another way? ==
There is NO way to unilaterally impose such a change on existing employees, regardless of what Tier they fall on.
The State can modify it contractually by making an offer of some value, and each individual employee deciding to accept said offe. There are a couple of those offers out there. Some employees have accepted them, although personally I think the available offers are really bad deals for the employees except in some very limited circumstances such as a terminal illness.
Person terms can be changed for new employees. But once hired, those benefits can not be reduced. That is how Tier 2 came into existence.
Comment by RNUG Wednesday, Feb 8, 23 @ 3:51 pm
== The problem I have is when the courts create contracts the legislature never intended ==
The courts didn’t create the contract. CMS did when they offered free retiree health insurance after 20 years of service and retirement. The courts just found said contract existed and could not be retroactively changed. Yes, they voted the pension clause since the contract tied the benefit to retirement, but at its’ basic level, it was a contract issue, protected at both the State and Federal level.
Comment by RNUG Wednesday, Feb 8, 23 @ 3:56 pm
No. Tier 2 pensions are so bad that the average Tier 2 employee will put more money into the pension system then they will ever collect. It is basically a negative pension. Medical expenses should not be increased, they would have a hard time paying the costs out of their reduced pensions.
Comment by DuPage Wednesday, Feb 8, 23 @ 4:29 pm
No. Enough said.
Comment by Paris 2 Wednesday, Feb 8, 23 @ 5:11 pm
Not if the state wants future hires.
Comment by JoanP Wednesday, Feb 8, 23 @ 5:21 pm
RNUG - if the state offered free health care to retirees after 20 years of service, why are they required to pay for Medicare Part B? Why doesn’t the state reimburse them for this cost?
Having to pay for Part B is not “free” health insurance.
Comment by Huh? Thursday, Feb 9, 23 @ 7:34 am