State leaders call on legislators to return to Springfield to consider pension reform deal
Illinois legislative leaders reached a deal to help solve the state’s $100 billion pension problem and offered details Friday afternoon. The Illinois House and Senate will consider the measure in a special session on Dec. 3.
A committee was formed to find a pension solution in June when lawmakers reached an impasse on competing plans. Higher education leaders actively engaged committee members regarding a simple, six-step solution for higher education proposed by the Illinois Institute of Government and Public Affairs.
“NIU continues to support the balanced six-step plan that has been presented to the General Assembly by the higher education community,” said Northern Illinois University Vice President of Administration Steve Cunningham. “We are closely monitoring the situation and will continue to work with other higher education leaders to express our perspective that we need to fairly treat current and retired university employees.”
The four leaders of the House and Senate have been working with a proposal developed over the summer and autumn by the 10-member committee of lawmakers that would have saved the state $138 billion over 30 years.
Lawmakers have faced considerable pressure to act on pension reform following years of unheeded calls for them to pass a reform plan. Years of skipping or shorting payments have resulted in multiple bond rating downgrades, with key funds being diverted from schools and social services.
Details of the legislative leadership pension reform proposal released Friday include the following, as summarized by Capitol Fax:
- Funding schedule and method for certifying contributions: Establishes an actuarially sound funding schedule to achieve 100% funding no later than the end of FY 2044. Contributions will be certified using the entry age normal actuarial cost method (EAN), which averages costs evenly over the pensioner’s employment and results in level contributions.
- Supplemental contributions: The State will contribute (i) $364 million in FY 2019, (ii) $1 billion annually thereafter through 2045 or until the system reaches 100% funding, and (iii) 10% of the annual savings resulting from pension reform beginning in FY 2016 until the system reaches 100% funding. These contributions will be “pure add on,” which means State contributions in any year will not be reduced by these amounts.
- Funding guarantee: If the State fails to make a pension payment or a supplemental contribution, a retirement system may file an action in the Illinois Supreme Court to compel the State to make the required pension payment and/or supplemental contribution set by law each year.
- Employee contribution: Employees will contribute 1% less of their salary toward their pension.
- Annual annuity adjustment (COLAs): Future COLAs will be based on a retiree’s years of service and the full CPI. The annual increase will be equal to 3% of years of service multiplied by $1,000 ($800 for those coordinated with social security). The $1000/$800 will be adjusted each year by the CPI for everyone (retirees and current employees). Those with an annuity that is less than their years of service multiplied by $1000/$800, or whatever the amount is at the time of retirement, will receive a COLA equal to 3% compounded each year until their annuity reaches that amount.Additionally, current employees will miss annual adjustments depending on age: employees 50 or over miss 1 adjustment (year 2); 49-47 miss 3 adjustments (years 2, 4, and 6); 46-44 miss 4 adjustments (years 2, 4, 6, and 8); 43 and under miss 5 adjustments (years 2, 4, 6, 8, 10).
- Pensionable salary cap: Applies the Tier II salary cap ($109,971 for 2013), which is annually adjusted by the lesser of 3% or ½ of the annual CPI-U. Salaries that currently exceed the cap or that will exceed the cap based on raises in a collective bargaining agreement would be grandfathered in.
- Retirement age: For those 45 years of age or under, the retirement age will be increased on a graduated scale. For each year a member is under 46, the retirement age will be increased by 4 months (up to 5 years).
- Effective rate of interest (ERI): For all purposes, the ERI for SURS and the rate of regular interest for TRS will be the interest rate paid by 30-year U.S. Treasury bonds plus 75 basis points.
- Pension abuses: Prohibits future members of non-governmental organizations from participating in IMRF, SURS, and TRS. Prohibits new hires from using sick or vacation time toward pensionable salary or years of service (applies to SERS, SURS, TRS, IMRF, Cook County, and Chicago Teachers).
- Defined contribution plan: Beginning July 1, 2015, up to 5% of Tier 1 active members have the option of joining a defined contribution plan. The plan must be revenue neutral and employee contributions will be equal to those for the defined benefit plan. If a member chooses to opt into the defined contribution plan, benefits previously accrued in the defined benefit plan will be frozen.
- Collective bargaining: All pension matters, except pension pickups, are removed from collective bargaining.
- Healthcare payments: Prohibits the State pension systems from using pension funds to pay healthcare costs.