Cullerton’s pension plan moves to Senate floor
The Senate Executive Committee approved Senate President John Cullerton’s union-backed pension reform bill by a 10-5 vote along party lines Wednesday afternoon. Senate Bill 2404 now will go to the Senate floor and could be voted on as soon as Thursday.
Labor leaders representing the AFL-CIO, the Illinois Education Association (IEA) and the Illinois Federation of Teachers (IFT) testified in favor of the bill. The Illinois Retired Teachers Association (IRTA) spoke in opposition, saying that they were not part of the negotiations and that the choices presented in the bill were not beneficial to retirees.
Bob Pinkerton, vice-president of the IRTA, stopped short of vowing that his organization would file a lawsuit contesting the constitutionality of the bill but that they would reserve their right to challenge the bill in court.
IFT President Dan Montgomery said his organization supported SB 2404 and was committed to helping pass it even though “I don’t think anyone is jumping for joy” about losing part of their pensions.
“We’ve heard the term ‘shared sacrifice’ a lot, but this is the only bill that actually does that,” Montgomery said, estimating that Madigan’s proposal would cost retirees about half of their retirement benefits. “To those who say (Cullerton’s plan) is not enough, I say it’s a lot, it is massive.”
IEA President Cynda Klickna said the bill has “overwhelming support” from IEA members, including retired as well as active members.
Michael Carrigan, president of the Illinois AFL-CIO, called the plan “fair, responsible and constitutional,” but also called it a “final, bottom-line agreement” and said the “We Are One” coalition of labor organizations would pull its support from the bill if substantive changes were made to the bill either in the Senate or the House, where the bill will go if it passes the Senate as expected.
Cullerton was questioned by Republican members of the committee regarding the projected savings of his plan versus the estimated savings of House Speaker Michael Madigan’s plan, Senate Bill 1.
“I don’t think there is much more room given the language in the constitution,” said Cullerton, who estimated that his plan would save between $8.5 billion and $15.7 billion in unfunded liability and would net between $45 billion and $51 billion over the next 30 years depending on which choices employees and retirees would make. “This plan is much less risky (than SB 1) and it gets you to virtually the same outcome in 2045. It doesn’t save the same amount along the way…but if (SB 1) is unconstitutional then you save zero, another year has gone by and we’re back here again trying to pass another bill.”
Madigan puts pressure on for cost shift; convenes Thursday meeting
On another front, Madigan has fulfilled his vow about resurrecting the cost shift issue and ending what he has termed a “free lunch” for downstate schools when it comes to paying the pension costs. The Speaker has called for a meeting Thursday with stakeholders, including IASA and the Illinois School Management Alliance, to discuss ways in which to implement shifting the state’s normal pension costs to local school districts, colleges and universities.
In a rare move, the Speaker has decided to make the meeting a public forum by allowing for the discussions to be streamed live.
Stand for Children, the advocacy group that spent a lot of money in Illinois legislative races a couple of years ago when they were trying to get school reform measures approved, apparently is ready to support the cost shift if the state agrees to reinvest those savings back into education.
Jessica Handy, policy director for Stand for Children, says her group has studied the issue and that only 26 of Illinois’ 102 counties would lose money under a cost shift that included money being put back into General State Aid, which was cut by 11 percent this school year and is projected to be cut by 18 percent in FY14.
Senate Republican Leader Christine Radogno, who is from suburban Lemont, has said that the pension costs are just part of the education funding picture when it comes to comparing downstate to Chicago, which has its own pension system and a separate tax levy with which to fund that system.
“The argument is also made that downstate and suburban communities are getting a free lunch when the state makes its pension payments, while Chicago pays its own. However, with data provided by the State Board of Education, we came to the unavoidable conclusion that it is Chicago Public Schools that receive a disproportionate share of state school funding,” Radogno told reporters, drawing the potential battle line for the cost shift issue.
Diane L. Hendren
Chief of Staff/ Director of Governmental Relations
Illinois Association of School Administrators
PENSION REFORM IN DISARRAY AGAIN
by IEA News
The agreement, which will be part of Senate Bill 2404, is a constitutional alternative to House Speaker Michael Madigan’s Senate Bill 1, which was passed by the Illinois House last week and is awaiting a vote in the Illinois Senate. Senate Bill 1 is clearly unconstitutional and unfair to the employees and retirees in the affected state pension systems.
The unions that comprise the coalition (IEA, IFT, SEIU, AFSCME, and other public employee unions) released a statement on Monday evening:
We Are One Illinois Union Coalition Reaches Pension Agreement with Senate President John Cullerton
The We Are One Illinois coalition of unions announced today that it has reached a negotiated pension agreement with Illinois Senate President John Cullerton, who will sponsor the measure.
The following statement is attributable to Michael T. Carrigan, president of the Illinois AFL-CIO, on behalf of the We Are One Illinois coalition:
“The union coalition has made a great effort to ensure fairness for the public employees and retirees who did not cause this problem, to ensure the stability of the pension systems for future generations, and to offer a credible way forward. This agreement is our coalition’s bottom line.
“We continue to strongly oppose Speaker Madigan’s mega-bill, SB 1, which threatens to rob the retirement savings of teachers, police officers, and others in public service, by 20-40 percent. His proposal is not only drastically unfair, but it is blatantly unconstitutional, rendering any advertised savings fictional.
“We urge lawmakers from both parties in both chambers to embrace the agreed bill and oppose SB 1.”
The coalition also released the following details about SB 2404:
1. Include an ironclad pension funding guarantee to ensure that the state cannot skip or short payments to the state’s retirement systems. This fixes the fundamental, chronic problem of state underfunding and ensures that future legislatures and governors can never again engage in the type of fiscal negligence that led to today’s pension funding problem.
2. Dedicate state revenues to a Pension Stabilization Fund to make supplemental payments on top of the state’s required contribution. This major financial commitment will strengthen the retirement systems’ solvency.
3. Establish three choices for employees in Tier I:
a. Move from a 3% compounded to a 3% simple COLA with a two-year delay. Employees choosing this option would a) receive guaranteed access to health care in retirement; b) ensure that all future salary increases count toward their pensions; c) have the option to enroll in a cash balance plan (on top of their defined-benefit pension); and d) for TRS participants, continued eligibility for the TRS ERO.
b. Choose to keep the 3% compounded COLA, but with a three-year delay before the COLA would take effect. These employees would also pay 2% more of their salary into the pension system. Employees choosing this option would receive guaranteed access to health care in retirement and ensure that all future salary increases count toward their pensions.
c. Choose to keep the 3% compounded COLA exactly as it is. These employees would not have guaranteed access to health care in retirement and would forgo any future salary increases counting toward their pensions.
4. Establish a choice for current retirees and those set to retire as of January 1, 2013.
a. Retirees could choose to keep their guaranteed access to health care and keep their 3% compounded COLA, but would agree to a two-year COLA freeze. The freeze would occur in non-consecutive years.
b. Alternatively, retirees could choose to keep their 3% compounded COLA without any freeze, but forgo guaranteed access to health care in retirement.
5. Create a Tier II task force to study improving the retirement benefits for Tier II employees.
IEA members are urged to contact their State Senators by calling 888-412-6570. Tell your senator to VOTE NO on SB1 and support SB 2404, the bill agreed to by the unions.
If you have not yet viewed the most recent Public Service
Announcement on Pensions, check all four out at:
“I’m a teacher” by GrassRootsIllinois
YOU MIGHT EVEN SEND THEM TO YOUR SENATOR
Illinois Pensions - Legislators Avoid Hard Questions
Illinois Pensions: Politicians Steal, Teachers and Taxpayers Pay
Illinois Pension Heist
Illinios Pension Commitment Shortchanged
The Senate Democratic caucus will meet Monday for an update on talks between the We Are One Coalition and Senate President Cullerton.
A message from IEA President Cinda Klickna can be found on Glen Brown’s blog at:
As you know, the House passed a bill last week that dramatically cuts retirees’ and active teachers’ benefits. The House gutted SB1 and replaced the language with Speaker Madigan’s own language that does not resemble the original SB1 at all.
It would be prudent for you to contact Senators and express your
opposition to the House version of SB1 and to restate your position that retiree pension benefits should be unchanged from existing law and any pension agreement for active teachers needs to be worked out with IEA and IFT.
IEA President Cinda Klickna prepares members for an update on pension talks Monday.
The Illinois Senate is not scheduled to be in session until the afternoon of Monday, May 6, 2013.
STATE OF ILLINOIS NINETY-EIGHTH GENERAL ASSEMBLY
HOUSE ROLL CALL SENATE BILL 1
PEN CD-REFORM STATE SYSTEMS
May 02, 2013
62 YEAS 51 NAYS 2 PRESENT
N Chapa LaVia
Y Mr. Speaker (Madigan)
E - Denotes Excused Absence
IASA CAPITOL WATCH
House passes Madigan’s pension reform bill
Big question is whether bill will pass in Senate
The Illinois House of Representatives today approved by a 62-51-2 vote a pension reform bill that would reduce pension benefits, increase the retirement age and cap pensionable salaries. Senate Bill 1, which contains an amendment by House Speaker Michael Madigan (D-Chicago), now goes back to the Senate, where it faces an uncertain vote.
The House vote was bipartisan in nature, with 22 Republicans, led by House Republican Leader Tom Cross (R-Oswego), joining 40 Democrats in voting for the bill. The bill closely resembles an earlier proposal put forth by Cross and Rep. Elaine Nekritz (D-Northbrook).
The Senate adjourned during the House debate on the bill and is not scheduled to return until 3 p.m. Monday. In fact, some members of the Senate came into the House to observe the debate.
Senate President John Cullerton (D-Chicago) long has maintained that in order to pass constitutional muster a pension reform bill would have to include a “choice” provision for employees and retirees to accept a reduction in pension benefits. Cullerton had been meeting with union representatives, who had submitted a proposal, but it is unclear whether that effort will continue or whether Cullerton instead will call SB 1 for a vote. Senate Republican Leader Christine Radogno (R-Lemont) endorsed SB 1.
During the debate Madigan listed 14 features of his bill, a listing of which can be accessed by clicking
In response to questions, Madigan said that language in the bill included a state “guarantee” to make its payments to the pension systems, but then acknowledged that future General Assemblies could choose to circumvent that intent — much like past General Assemblies have shortchanged the pension systems or skipped payments, the main reasons the pension systems are underfunded.
The state “guarantee” as well as a plan to start making $1 billion payments to the Pension Stabilization Fund beginning in 2020 is tied to a reduction in the cost-of-living adjustment (COLA) in terms of severability, meaning if the courts strike down the reduced COLA then the funding guarantees also would be removed.
The bill includes four of the state’s five pension systems, the Judges Retirement System being excluded, Madigan said, because a court challenge is expected and he wanted to relieve the judges of the conflict-of-interest burden.
The controversial cost shift is not part of SB 1, but Madigan said he planned to bring that issue up as a separate piece of legislation.
As reported in Tuesday’s Capitol Watch, this pension reform bill includes:
- Reducing the 3 percent compound COLA retirees currently receive to a simple 3 percent COLA only on the lesser of the total annuity or the number of years of service multiplied by $1,000 ($800 for those who also receive Social Security benefits). For example, a retiree who had 35 years of service would receive the COLA only on the first $35,000 of their annuity, or on the amount of their annuity if their annuity is less than $35,000. A retiree with 20 years of service would receive the COLA only on the first $20,000 of their annuity.
- The cap on the pensionable salary (the amount on which the annuity is based) would be the Tier 2 cap, which currently is $109,800. Previous bills had used the Social Security cap, which currently is $113,700.
- The retirement age would be unchanged for an employee who is at least age 45 at the time the bill becomes effective. For employees age 40-45, the retirement age would go up by one year. For employees between 35 and 40, it would go up by three years, and for employees younger than 35, it would increase by five years.
- Employee contributions increasing by 2 percent, 1 percent a year for the next two years.
- Limits ability of payment for sick and vacation leave to count as “creditable salary” and to use unused sick leave as service credit for new hires.
- Beginning in the year 2020, when some of the current pension obligation bond payments end, the state would place $1 billion per year in the Pension Stabilization Fund until the year 2045, when the pension systems are supposed to be 100 percent funded, or until the pension systems are fully funded, whichever comes first.
- The controversial cost-shift language that had been in the Nekritz-Cross bill is out of this bill, meaning that attempts to shift the state’s portion of the normal pension costs to local school districts would have to be in a separate bill.
SB 1 also includes a new section (Section 7.5) that eliminates pension benefits from collective bargaining.
The bill also begins with a nine-page preamble that seems to be laying the groundwork for the inevitable constitutional challenges if the bill becomes law. Those nine pages lay out in detail the fiscal problems facing the State of Illinois, an attempt to lay out the foundation for an argument that the Illinois Supreme Court should overlook the very clear pension protection language (Article XIII, Section 5) in the Illinois Constitution.
Madigan Wednesday predicted that “at least four” of the Illinois Supreme Court’s seven justices would uphold the language in the bill, and Nekritz, speaking during the debate, said she thought proponents of the bill had a strong case based on the courts balancing the pension protection clause against the state’s fiscal crisis.
Governor Pat Quinn praised passage of the bill in the House, saying “Today the Illinois House of Representatives took the biggest step to date towards restoring fiscal stability to Illinois. With the passage of this comprehensive pension reform solution, Illinois is closer than ever to addressing a decades-long problem that is plaguing our economy, our bond rating and the future of our children.”
If the bill passes the Senate, Quinn clearly would sign the bill into law. Madigan predicted the next step would be a court challenge and most likely a stay issued by the courts while the case over constitutionality plays out over a period of time many observers think will be one to two years.
Diane L. Hendren
Chief of Staff/ Director of Governmental Relations
Illinois Association of School Administrators
—————FROM SPEAKER MADIGAN
Speaker Madigan’s Pension Proposal – HA #1 to Senate Bill 1
House Amendment #1 to Senate Bill 1 is a comprehensive package that will stabilize and bring solvency to 4 of the State’s pension funds (GARS, SERS, SURS, and TRS). This package will ensure the State meets its obligations to the pension systems by adopting an actuarially accepted payment schedule, providing an enforceable funding guarantee, and altering benefits for current and prospective annuitants. The concepts in this package are not new, and several have been approved by the House.
- 1) New funding schedule. The new schedule requires the systems to reach 100% funding in 30 years, beginning in FY 15 and ending 2044.
- 2) New method for certifying contributions. Beginning in FY 15, contributions will be certified using the entry age normal actuarial cost method (“EAN”) instead of the projected unit credit actuarial method (“PUC”). The PUC method, which the systems currently use, requires higher contributions closer to retirement. The EAN method averages costs evenly over the pensioner’s employment, thereby resulting in more level contributions. This change was approved by the House in HB 1277 (Senger).
- 3) Supplemental contributions beginning in FY 20. The State currently makes payments on pension obligation notes from 2010 and 2011, and in 2019, the State will make a final payment of $952 million. Once those payments end, the State commits to annually contribute $1 billion in addition to the state’s scheduled contributions to the state-funded systems. The additional contributions will continue until all systems reach their funding goal.
- 4) Provide a funding guarantee. If the State fails to make a required payment under the funding schedule or fails to contribute the additional $1 billion promised above, the systems will have a right to bring a mandamus action to compel the State to make the payment. Each Board will have a fiduciary duty to bring an action if necessary. Payments compelled under this provision are expressly subordinate to the state’s debt service obligations.
- 5) Establish a pensionable salary cap for Tier I employees. The amendment applies the Tier II salary cap to Tier I employees. For 2013, the salary cap was $109,971. The cap will increase annually by 1⁄2 the consumer price index for urban consumers. There is a grandfather clause for those employees with salaries that currently exceeds the cap or will exceed the cap based on raises due to the person under a current collective bargaining agreement. Under the proposal, a person whose salary exceeds the salary cap is only eligible for an annuity based on the salary cap.
- 6) New method of calculating the COLA. Retired members will keep the compounded 3% annual increases they received up until the enactment, but future COLAs will be calculated differently. Going forward, the COLA will be based on 3% of a maximum annuity amount based on their years of service. The cap will be $1,000 for each year the employee had worked ($800 for those coordinated with Social Security). As an example, an individual retiring with 30 years of service will have a COLA of 3% of $30,000 or $900, which accumulates annually. If a person’s initial annuity is under this threshold, that person will continue receiving a 3% compounded adjustment based on their initial annuity until they reach the cap. This adjustment was originally proposed by Senator Radogno and incorporated in Senate Amendment #4 to SB 35.
Additionally, current and future retirees would have the first or next year in which they can receive their COLA delayed. Retirees who are age 67 and older would be unaffected by this delay. Those under age 67 would have their COLA paused until either they reach age 67 or until the 5th anniversary of their retirement, whichever comes first.
7) Increase the retirement age for employees under 45 years old. The amendment raises the retirement age, on a graduated scale, for current Tier I members who are under 45 years old (no change for those 45 years of age or older). This language was approved by the House in HB1166 (Madigan) and is included in the Cross-Nekritz pension reform package (HB 3411).The retirement age is increased by the following schedule:
- Age 40 to 44 – additional 1 year added to the applicable system’s minimum retirement age;
- Age 35 to 39 – additional 3 years added; and
- Below 35 – additional 5 years added.
8) Increase employee contributions by 2%. Beginning July 1, 2013, employees will be required to contribute an additional 1%, and this is increased to 2% on July 1, 2014.
9) Eliminate the subject of pensions for collective bargaining. Bargaining units and employers with participants in the State systems would be prohibited from negotiating changes related to pensions.
10) Fix the COLA for Tier II members of GARS. Under current law, the General Assembly and Judges’ Retirement systems have their salary cap and annuity increased by the lesser of CPI or 3%. All other systems have their salary cap and annuity increased by the lesser of one-half of CPI or 3%. This draft lowers the General Assembly Retirement System down to one-half of CPI to bring it in line with other systems.
11) Prohibit non-governmental organizations from participating in State systems. The amendment prevents new employees of several “non-governmental” organizations from participating under IMRF, SURS, and TRS. Additionally, it prohibits new employees of all state systems from using sick time or vacation time in calculating their annuity.
12) Change the effective rate of interest. The amendment suggests that the Comptroller adopt a more conservative number for what is known as the “effective rate of interest” (“ERI”). Under current law, the ERI determines benefits for university and community college employees hired before 2005. The amendment still provides that the Comptroller set this rate, but advises a figure that will more appropriately determine benefits for certain participants.
13) Prohibit the use of pension funds to pay costs associated with healthcare. The amendment makes clear that the state funded pension systems are not to use retirement contributions for the purpose of subsidizing the cost of retiree healthcare.
14)Require separate appropriation request for employer normal cost and amortization of the unfunded liability. The Governor must introduce and the systems must certify these costs separately.
This is not the bill passed by the Senate. It is very different than the Senate bill. See ilga.gov (Amendment 1 and 3)
VOTE 62 yes, 51 no, 2 present