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Statehouse update: Pension changes loom for state employees as lawmakers wrestle budget

March 2, 2011
Ken Zehnder

Ken Zehnder

Talk of budget cuts, borrowing, deficits, tax increases and pensions have dominated conversation throughout the halls of the Illinois Capitol this year. 

Legislators and staffers have debated whether the budget cuts actually cut the budget or whether they merely act as a substitute for the absence of federal funding. 

The income tax hike is real enough, although increased taxes are perhaps not enough to stave off the need for more borrowing.

Then there is the pension issue.

For years, state pension funding has been used as a budget tool by both state budget officials and legislators.

Too frequently, required state pension contributions (the employer share) have been underfunded or funded only after other priorities of the General Assembly have been addressed.  State officials justify the lack of, or reduced, pension contributions with a pledge that future year pension payments will be ramped up to sustain an employee benefit guaranteed in the Illinois Constitution. 

Now, however, the state’s pension underfunding is estimated at over $70 billion; endangering the viability of the five pension systems for current and future retirees.

Members of the General Assembly last year approved legislation that changed the pension provisions for new state employees starting in 2011.

Down the road, that might lessen the fiscal pressure. But a problem still remains: the lack of funding for current debt.

Discussion of reductions in benefits for future earnings of current employees has mostly been centered on cost-of-living adjustments, a tax on retirement benefits or a hike in health care costs. All of those issues are in play this year as well as other adjustments.

Speaker Madigan also has been in the news mentioning that these questions might come before the Illinois Supreme Court. Prior to this year, however, the notion of diminished benefits consistently earned a blanket objection from the legislative and executive branches.

Because there seem to be no other funding sources, legislators are coming up with new proposals. Here are some to be aware of:

House Bill 146 amends articles of the Illinois Pension Code pertaining to the General Assembly, Illinois Municipal Retirement Fund, state employees, state universities, downstate teachers and judges.

It caps the highest salary for annuity purposes, final rate of earnings, final average compensation and final average salary for current members, participants and participating employees of the affected systems at $106,800.

However, it also authorizes that amount to be annually increased by the lesser of 3 percent or one-half of the annual percentage increase in the consumer price index for the 12 months ending in September. Further, it also bases employee contributions on these capped amounts.

House Bill 149 also amends the Illinois Pension Code.

It requires current participants in the state-funded pension and retirement systems to make a one-time, irrevocable election of one of the following:

  • the traditional benefit package under the applicable Article of the Pension Code.
  • the existing benefit package for new hires.
  • a self-managed plan (if made available by the participant’s employer).

It authorizes persons who became or become participants on or after Jan. 1, 2011, to irrevocably elect either the benefit package for new hires or the self-managed plan (if made available by the participant’s employer).

The bill sets forth the requirements for the self-managed plan and provides that if such a plan is available it is the default plan if a participant fails to make an election.

In the articles creating the state-funded pension and retirement systems, it provides that, beginning in Fiscal Year 2013, the state’s required contribution is the greater of 6 percent of the applicable employee payroll or one-half of the actuarially determined normal cost of the benefit package for new hires. It also mandates that the required employee contribution be based on the benefit package elected by the participant.

House Bill 3081 amends the Illinois Pension Code by decreasing the amount of the annual increases in benefits to which current and future annuitants, participants and survivors of the state-funded pension and retirement systems are entitled.

House Bill 3375 temporarily suspends the Illinois Pension Code-created retirement annuities or pensions to members or participants who become full-time employees and members of any other Illinois Pension Code-created system or fund.

House Bill 3427 applies only to persons who are participants on the effective date or who first become participants on or after the effective date

It requires all pension funds and retirement systems established under the Illinois Pension Code to exclude the following items when computing the compensation, salary or wages upon which an annuity, pension or other benefit is to be based:

  • lump sum payments for retirement, severance and sick or vacation time, and
  • any annual increase in compensation, salary or wages of more than 6 percent. 

Senate Bill 1318 amends various acts relating to the governance of state universities.

It repeals the 50 percent tuition waiver to children whose parents have been employed at state universities for an aggregate period of at least seven years.

Legislators also have introduced a host of technical or “shell” bills relating to public employee benefits.

In past years, these were often used to address specific limited situations. This year, they could carry a more ominous message for state employees.

House Bills
, 513, 526, 527, 529, 1679, 1732, 1792, 1795, 1895, 2032, 2285, 2294, 3216, 3474, 3475, 3476

Senate Bills
511, 512, 518, 521, 522, 523, 530, 532, 536, 537, 538, 2160, 2161

The Voices section of NIU Today features opinions and perspectives from across campus. Ken Zehnder is director of state and local relations for NIU.