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* Gov. Pat Quinn said this week that he’s creating a pension reform “working group” to tackle the complicated issue. While many would say this is preferable to allowing the corporate titans at the Civic Committee and their little “me too” buddies at the Chicago Tribune editorial board to dictate all the terms of pension reform, it’s a whole lot easier said than done…
Quinn said the working group will be led by Jerry Stermer, a senior advisor in his office, and will be made up of a mix of Democrat and Republican lawmakers from the Senate and House. Union groups and other organizations will also have a seat at the table, Quinn said. […]
Quinn said he modeled the makeup of the group on similar panels that have brought about major education overhauls and changes to the state’s workers compensation system.
“This process seems to me to be the very best way to make sure that everyone has a voice,” Quinn said. “We will work together to go forward on the common good when it comes to pensions, public pensions in Illinois.”
The school reform negotiations were long and tedious, but most of the groups at the table were OK with the general reform goals, which put pressure on the Chicago Teachers Union, for instance, to get in line. I highly doubt we’ll see the same willingness by the unions to compromise on sweeping pension reform, but correcting some of the more egregious abuses (like getting rid of the magic wand that universities have to put anybody they want into the pension system) is possible. So, good luck, Jerry, you’re gonna need it.
*** UPDATE *** Steve Schnorf ought to be on this panel. There isn’t a better big picture and small details guy in all of Illinois. If the governor wants this panel to succeed, then Schnorf most definitely needs to be on it. Period.
* Meanwhile, one of the most significant developments in pension reform this year just happened in Rhode Island…
Retired police and firefighters from Central Falls, R.I., have agreed to sharp pension cuts, a step thought to be unprecedented in municipal bankruptcy and one that could prompt similar attempts by other distressed governments.
Matthew J. McGowan, who represents the retirees, said the agreement could be groundbreaking if the courts approved it.
If approved by the bankruptcy court, the agreement could be groundbreaking, said Matthew J. McGowan, the lawyer representing the retirees.
“This is the first time there’s been an agreement of the police and firefighters of any city or town to take the cut,” he said, referring to those already retired, who are typically spared when union contracts change. “I’ve told these guys they’re like the canary in the coal mine. I know that there are other places watching this.”
As cities, towns and counties struggle with fiscal pain, there has been speculation that they could shed their pension obligations in bankruptcy. Some have said it might, in fact, be easier for local governments to drop those obligations than it is for companies, which use a different chapter of the bankruptcy code. Large steel companies, airlines and auto suppliers like Delphi have terminated pension plans in bankruptcy.
Illinois municipalities can’t declare bankruptcy without the state’s permission, and the state Constitution is written in such a way that they probably couldn’t discharge their pension obligations in bankruptcy anyway. But, hey, you never quite know what will happen when an issue reaches the courts.
posted by Rich Miller
Wednesday, Dec 21, 11 @ 8:59 am
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An interesting point about the pension clause in the constitution in bankruptcy.
The entire point of bankruptcy is a judicially sanctioned breaking of contracts, however. It’ll be interesting if it gets there. Hope it never does.
Comment by John Bambenek Wednesday, Dec 21, 11 @ 9:18 am
Creating and running a working group discussing the pensions may be hard, Rich, but its necessary for the very reasons you state. With the Civic Committee, the Trib, and the Illinois Policy Institute flooding the airwaves with misinformation, the first job of the group ought to be a statement of the problem(s), followed closely by an agreement on the facts. Only then can potential solutions to those problems be discussed.
Comment by PublicServant Wednesday, Dec 21, 11 @ 9:20 am
Gee John, why would you even bring that up? Wait…let me go look to see whether the sky is falling…nope.
Comment by PublicServant Wednesday, Dec 21, 11 @ 9:24 am
Of course, the unions have been pushing to address the real pension crisis — the state’s failure to pay its share. SB 512 and its ilk aren’t just unconstitutional and unfair to public employees, they would do nothing to ensure adequate funding. So the core question is what is this about, more empty politics, or really working together to solve a problem?
Comment by Reality Check Wednesday, Dec 21, 11 @ 9:24 am
The Rhode Island case is a new twist: shed your pension obligations but keep bondholders whole.
If that holds up, you can bet a lot of distressed municipalities would give it a look. Why not? It worked for the airlines. They whacked their employees and still maintained access to credit markets.
Comment by wordslinger63@gmail.com Wednesday, Dec 21, 11 @ 9:32 am
The Rhode Island example is ominous for municipality pension plans since they can declare bankruptcy, but not for states which cannot declare bankruptcy.
Correct me if I am wrong but congress would need to change the law to allow states to go legally bankrupt.
Comment by Cassiopeia Wednesday, Dec 21, 11 @ 9:37 am
I like the idea of a group of diverse interests gathering at table to work out difficult problems. I’m glad to see that. It should be very interesting, when it happens. The Trib might have to take a bit of a chill pill and ease off of its doomsday predictions, now that a difficult democratic process is in the works.
Comment by Grandson of Man Wednesday, Dec 21, 11 @ 9:40 am
The comparison of creating a working group similar to that of the workers comp negotiations is interesting, particularly considering that the Governor’s office was expelled from the table throughout the month of May when the deal got done.
Comment by unspun Wednesday, Dec 21, 11 @ 9:43 am
== congress would need to change the law to allow states to go legally bankrupt.==
The Supreme Court changes the law on Eleventh Amendment Immunity every time it looks at it. But basically there are only two levels of government in this country, federal and state, and they are both sovereigns. Local governments are creatures of the state. So changing the law to allow the federal government to take over a state, and by extension all local governments, would change the allocation of power in this county dramatically and would probably be beyond the power of congress.
Comment by Bigtwich Wednesday, Dec 21, 11 @ 9:59 am
PublicServant-
I brought it up because Rich brought it up as it happened in Rhode Island. And I like complex legal issues. If I’m making a policy stand, you’ll know. Generally, I don’t realize white papers as 20 word blog comments.
Comment by John Bambenek Wednesday, Dec 21, 11 @ 10:04 am
This is a step in the right direction. Ignoring the problem won’t solve it. The solutions offered by the fat cat Civic Federation are all from people that hate government and its employees. The real solution must come from having all parties that have an interest vetting various ideas, and coming formulating policies that are workable, have the support of those affected, and are enforcable. The pension crisis was solved years ago, except the people responsible to administrate the solution failed to follow their own plan (i.e. the ligislators and governors). Solutions formulated today must have the support of the unions, employees, governor and the GA. The current measures of pension solvency are unnecessary and unrealistic. A pension system that is funded at 65 or 70% would probably be doable. This would reduce the amount of perceived underfunding, reducing the necessary state contributions to catch up, and also cutting back any additional state worker contributions.
Comment by AFSCME Steward Wednesday, Dec 21, 11 @ 10:15 am
Isn’t about time to bring up that Meredith Whitney massive muni default prediction and ask how her new rating agency is doing?
Comment by CircularFiringSquad Wednesday, Dec 21, 11 @ 10:18 am
Let’s say an agreement is made, but a union member takes the agreement to court because of the Illinois Constitution saying Public Pensions cannot be reduced or impaired. The court agrees with the union member…..then what?
Comment by Union Wednesday, Dec 21, 11 @ 10:20 am
Can we hope for someone with actuarial experience to be on the panel?
Benefits are wonderful, but they have to be paid for.
Comment by Plutocrat03 Wednesday, Dec 21, 11 @ 10:37 am
Let’s all wish the panel luck. They face a very difficult series of problems.
Comment by steve schnorf Wednesday, Dec 21, 11 @ 10:41 am
Yes John, it happened in a CITY in Rhode Island, whose pension fund was DEVOID of funds, and 60% of the retirees were on “Disability” retirement. States can’t declare bankruptcy as pointed out by posters above, and our state pension funds, while continuously underfunded for the last 50 years are not out of money, or anywhere near out of money, as was this city in Rhode Island. In addition, any law that favored one set of creditors (the bondholders) over another (the pensioners) would absolutely end up in court here in Illinois, and we’d win.
Comment by PublicServant Wednesday, Dec 21, 11 @ 10:46 am
Steward and others: whatever the funding formula target, remember the unfunded balance will require interest payments at 7.75-8.5%. In other words, let’s say 70% would leave an unfunded balance of $50B. That would then require a (growing) contribution of about$4B per year, plus normal costs plus debt service on POBs.
Whatever is left unfunded will be the most expensive long-term debt the state will hold. As the old trucker song says, there ain’t no easy road.
Comment by steve schnorf Wednesday, Dec 21, 11 @ 10:56 am
===Whatever is left unfunded will be the most expensive long-term debt the state will hold.===
Only if we abide by the status quo.
Comment by Rich Miller Wednesday, Dec 21, 11 @ 10:59 am
I don’t understand your comment Rich.
Comment by steve schnorf Wednesday, Dec 21, 11 @ 11:05 am
I nominate Schnorf for the panel.
Comment by walkinfool Wednesday, Dec 21, 11 @ 11:06 am
I do this for a living, so I’d like to offer a couple points as clarification. First, Congress won’t have to change a law to allow states to go bankrupt: Congress and the states jointly would have to amend the Constitution. Presently the 10th Amendment reserves to the states all powers not granted the federal government, and since states are sovereign, it would take an amendment to the Constitution to allow state bankruptcies to occur.
Second, Chapter 9 of the Bankruptcy Code contains eligibility requirements to go bankrupt. One of the first, and a key one, is that units of government within states must be permitted by state law to file for bankruptcy. At present, 26 of the 50 states generally do not permit unfettered access to the Bankruptcy Courts by their municipalities and other governmental units. Illinois is one of the states that does not, while California (see: Vallejo) is one of the states that, for now, does permit unfettered access.
Certain states, Illinois and Pennsylvania most famously, have state constitutional prohibitions against altering or amending existing public pension plans. So, yes, dealing with Illinois’ pensions would be difficult. However, this prohibition does not extend to other employee benefits such as healthcare and the like. In other words, you could, in theory, reduce retiree costs for the governments within the state by simply eliminating all other benefits beyond their pension obligations. In truth, no one would want that, and so the issue then becomes allocation of pain. In other words, how much would some folks be willing to give on pension obligations by way of negotiating concessions in order to preserve their medical benefits?
While Draconian, this does set the stage for negotiation. Central Falls is the Rhode Island city being discussed in today’s post. Prior to the city’s bankruptcy, the state appointed a Receiver to take charge of its affairs, an action not too dissimilar to the current appointments of Emergency Managers in Michigan these days. The Receiver actually has broader latitude, under Rhode Island law, to alter, amend or slash pensions than a judge does under Chapter 9 of the Bankruptcy Code. This dynamic has been playing out for more than a few months, and the discussion today reflects the fact that a bargain has been struck between the Receiver, acting for the city and state, and the public employee unions, and at this point, what is being asked of the Bankruptcy Court is merely that the Court bless this negotiated settlement rather than impose it.
Comment by Bill Wednesday, Dec 21, 11 @ 11:14 am
There is room to negotiate. Recent years have seen increases in the normal costs of some systems that are now somewhat out of line with private sector costs. Those costs can be accounted for through adjustments in employee contributions, but why agree to adjustments in contributions if you don’t believe the state will make its contributions. So there needs to be some sort of solidification of state funding and I am not sure how that can be accomplished.
The real savings should come from shifting normal costs to certain employers. Downstate school districts are left off the hook and contribute only a fraction of a percent towards benefits. Pensions are compensation for employment but yet the employer does not fund the system. Transfering normal costs to taxing districts and adjustments in employee contributions would decrease FY 13 state contributions which are certified at a billion dollars more than FY 12 contributions.
Comment by Anonymous Wednesday, Dec 21, 11 @ 11:16 am
Schnorf and I just talked on the phone about what I’m trying to get at here.
Essentially, we need to say that Illinois pledges to have “x” years’ full funding on hand in the systems at all times rather than this enormously painful 90 percent total funding level. Let’s say for the sake of argument it’s 10 years’ of funding on hand, just in case a huge number of people decide to retire at once (which is highly unlikely, but whatever). That would take huge pressure off the funding mechanism and still provide abundant assurance that everybody will be paid.
Anyway, I hereby officially endorse Steve Schnorf for this pension reform panel. The man is brilliant and even when we disagree I always respect his positions.
Comment by Rich Miller Wednesday, Dec 21, 11 @ 11:17 am
Hats off to the Civic Committee, the Trib editorial board, and others for identifying the unholy pension mess that its creators and beneficiaries have only begrudgingly started to address.
Comment by Sam I am Wednesday, Dec 21, 11 @ 11:36 am
Odds that Molaro ends up on the taskforce?
Comment by piling on Wednesday, Dec 21, 11 @ 11:37 am
The public should be concerned if public compensation is out of line with private compensation. I think taxpayer/business groups have every right to be at the table if there is disparities between public and private compensation.
But the underfunding of these systems has paid for medicaid reimbursements, schools, prisons, etc. In other words the public has benefited at public employees expense. If we were to equalize the wrongs of the General Assembly, payments to the systems would be required from any entity who has recieved money from the state.
The Civic Committee’s proposal artificially creates larger disparities between public and private compensation as a way to put employees on the hook for a portion of the unfunded liability. This places a disparity in tax burden for public employees. Essentially their increased contributions would be used to service the debt on past medicaid reimbursements, payments to schools, prisons, etc.
By closing off Tier 1, contributions sky rocket so that Tier 1 public employee costs are significantly higher than private sector employee costs for similar benefits.
But the Civic committee doesn’t close off Tier 2 for the purposes of determining Tier 2 employee contributions. Instead they require the systems to pretend as if everyone is in Tier 2. By pretending everyone is in Tier 2 the normal cost of the benefit is artificially inflated. the real cost of the benefit requires an employer normal cost that is far lower than private sector employer costs for comparable benifts.
Comment by Anonymous Wednesday, Dec 21, 11 @ 11:37 am
This is not possible.
I can’t believe that the Democrats have established a “Blue Ribbon” panel that does not have Abner Mikva at the helm.
Even before I realized he was on the congresssional ethics panel reviewing Jesse Jackson Jr’s behavior, he had played the straw man on so many different appointed panels I thought he had season tickets in this type of role.
I was thoroughly convinced that that they had a contingency plan to have him cryonically preserved in the event of his untimely demise so that they could bring him back again in the future for the really role which is yet to come.
Comment by Quinn T. Sential Wednesday, Dec 21, 11 @ 11:40 am
===In other words the public has benefited at public employees expense. ===
Wrong. The state has never missed a pension payment. Stop playing the victim.
Comment by Rich Miller Wednesday, Dec 21, 11 @ 11:41 am
I like the “move normal costs to the districts” idea. These are the folks who gamed the system by giving top administrators great honking raises in the last years of their contracts to boost their pensions, then sent the bill to taxpayers statewide. Let’s have a little “reap what you sowed” action….
Comment by soccermom Wednesday, Dec 21, 11 @ 11:59 am
Ah, yes, the age-old Springfield cannard that we must gather everyone at the table. Surely the problem hasn’t been solved yet because all parties haven’t gathered together in a deliberative setting, right?
Wrong.
Let’s review:
- 2004 Blago pension commission, everybody had a seat at the table, everybody talked, nothing happened
- 2005 Blago pension commission, everybody had a seat at the table, everybody talked, nothing happened
- 2009 Pension Modernization Task Force - a failure of epic proportions. Everybody had a seat at the table, everybody recited their well-worn talking points, no consensus was reached and the task force almost didn’t issue any report at all. A big nothing.
2011 House pension working groups - everybody had a seat at the table, everybody talked, nothing happened.
See where this is going?
Comment by The Elderly Man You Used to Love Wednesday, Dec 21, 11 @ 12:00 pm
It’s funny to see that a quick search of this column finds the word “panel” 10 times in the text and comments. The governor said he was going to convene legislators from the four caucuses and interested parties. He didn’t say he was creating a panel. Indeed, Quinn’s words were “I don’t know all the details about it, but I think we’ve got to be a little careful with respect to our pension systems right now,” noting that there was no structure, no format, no official panel. Ignoring the key details of stories like this can derail the process even before it has begun by turning it into something it is entirely not.
Comment by gournalizm Wednesday, Dec 21, 11 @ 12:05 pm
I have nothing against Steve Schnorf, but if he’s so brilliant, where were his pearls of wisdom during the last 5 pension working groups?
Comment by The Elderly Man You Used to Love Wednesday, Dec 21, 11 @ 12:09 pm
schnorf
You’re idea is an excellent one. I endorse you’re inclusion on the panel.
Another fact is overlooked in the public vs private discussion, while it is true that most private pensions have been scrapped, they have been replaced by 401k’s, which many employers match the employee contribution. So look at it this way, the pension payment the state was supposed to pay is very similiar to your 401k match. I wonder how many of these people squawking about the state pensions would feel if they discovered that the 401k contributions the employer was suposed to make never were.
Comment by AFSCME Steward Wednesday, Dec 21, 11 @ 12:09 pm
You can’t just barge into those sorts of meetings. Sheesh.
Comment by Rich Miller Wednesday, Dec 21, 11 @ 12:10 pm
They let Filan in to the Modernization Task Force.
Comment by The Elderly Man You Used to Love Wednesday, Dec 21, 11 @ 12:11 pm
Well, he had some power at the time, no?
Don’t be so obtuse.
Comment by Rich Miller Wednesday, Dec 21, 11 @ 12:14 pm
I say we send him down there & see what happens.
Comment by AFSCME Steward Wednesday, Dec 21, 11 @ 12:19 pm
Has anyone actually seen any words of the governor’s that say “panel” or “commission” or “task force” in reference to pensions in the past three days. No, everyone is literally making this up as they go along.
Comment by gournalizm Wednesday, Dec 21, 11 @ 12:23 pm
They probably would be severely confounded. Someone who has real practical solutions to serious problems that don’t involve scape-goating or blaming the other party.
Comment by AFSCME Steward Wednesday, Dec 21, 11 @ 12:25 pm
- Has anyone actually seen any words of the governor’s that say “panel” or “commission” or “task force” in reference to pensions in the past three days. No, everyone is literally making this up as they go along. -
My god Woodward, you’ve really cracked the story here. Yeah, the specifics of the “working group” aren’t set in stone yet, everyone knows.
Comment by Small Town Liberal Wednesday, Dec 21, 11 @ 12:38 pm
The number of goofy red herrings, misdirection and downright nastiness is more than a little appalling. People, chill out a bit.
Comment by Rich Miller Wednesday, Dec 21, 11 @ 12:40 pm
And will the Governor’s panel, committee, working group or whatever deal with all the approx 300 state, county local gov employee pension plans in Illinois or just the Illinois gov employee and union boss plans? Anyway, sounds like more kick the can down the road. Besides, the real problem with the plans won’t materialize for years, when the most feeble literally run out of money. Plenty of time to posture and do nothing. Real reform will arise when non-gov employee voters get a grasp on gov employee pensions, including the feds with a pension and 401k-like plan, compared to the table scraps most have. 10,000 Americans are turning 65 every day according to reports. That’s the countdown clock to real gov pension pension reform.
Comment by Cook County Commoner Wednesday, Dec 21, 11 @ 1:00 pm
I am ready to be completely underwhelmed by whatever the said august panel comes up with unless they start cranking out money from a machine in the basement of the the Capitol 24 hours a day…
See The Elderly’s comment @ 12:00 noon…ditto …
Merry Christmas to all bloggers here.
Time to bake more cookies!
Comment by Borealis Wednesday, Dec 21, 11 @ 1:54 pm
Was Simpson-Bowles a model?
Comment by Cincinnatus Wednesday, Dec 21, 11 @ 2:13 pm
Central Falls should raise taxes to cover their obligations.
Comment by bigdaddygeo Wednesday, Dec 21, 11 @ 2:37 pm
I’m going to change the subject a bit, but I’m trying to figure something out: what would be the advantage to all these non-state agencies to be in SURS? Social Security is a good-enough system, and there are a million vendors that would be happy to add on a 403(b) plan.
The real issue for small non-profits is health insurance. The premiums are killing them (as they are killing just about everyone). Are Special Olympics, etc., getting health care benefits through SIU? Or just pension?
And if it’s just pension, what’s the catch to the taxpayer over a combination of Social Security and 403(b)? Because there has to be one.
Forgive me if this was discussed already and I missed it.
Comment by Lakeview Wednesday, Dec 21, 11 @ 2:48 pm
Steve, if you get put on the working group, recommend me too. I’m fair and balanced just like Fox. I report, you decide.
P.S. I hope Rich doesn’t apply the delete button here!
Comment by PublicServant Wednesday, Dec 21, 11 @ 3:11 pm
The IL Constitution says “the benefits of [state pension plan membership] shall not be diminished or impaired”. But that MUST mean benefits already earned and not benefits yet to be earned, correct? Suppose a 23 year-old college graduate starts working for the state today. Is the unions’ position that the 23-year-old has an entitlement for life (assuming she keeps working) to the same benefits guaranteed to the 65 year-old worker about to retire tomorrow? Surely not. Surely the state could say to the 23-year-old next year (when she is 24) “Yes, we will give you the actuarial value of what you have earned in the past year, but from now your benefit going forward is that we’re putting your contribution into a 401(k)-type defined contribution plan.” Correct? Or do the unions really think this is a lifetime entitlement. If so, that is a breathtakingly broad reading.
Comment by Rarely Posts Thursday, Dec 22, 11 @ 5:11 pm