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Pension bill sent to the floor

May 26, 2011

The Illinois House Personnel and Pension Committee today recommended approval of an amended version of Senate Bill 512, which would dramatically change the way that the state handles employee pensions.

The committee voted 5-2, with one member voting “present,” to send the bill to the floor for debate. Sponsor of the bill, Rep. Tom Cross, provided a fact sheet summarizing the proposal.

The hearing featured testimony from union officials, university administrators and others stating their opposition to the bill on numerous grounds. Opponents included NIU Vice President for Human Resources Steve Cunningham. (His full remarks can be found here.)State Pension & Budget Update

“It is our recommendation that the committee carefully examine and weigh the likely effects that this legislation, if enacted, would have on human resource investments at Northern Illinois University, the Illinois system of public higher education, and related interests in economic development throughout the State of Illinois,” Cunningham said in submitted remarks. “Lifetimes of financial planning would be thrown into disarray, and the state’s ability to attract and retain high quality employees would be severely damaged. Ultimately, it could weaken the capacity of the Illinois system of public higher education in its significant role as an economic engine for the state.”

Cunningham and other opponents charged that many of the changes proposed in the bill would violate the Pension Protection Clause of the Illinois Constitution.

“The historical basis of the Constitutional Pension Protection Clause predicts exactly the type of situation that we find ourselves in today. Employees have relied upon the State’s representation to maintain a predictable and secure set of core pension benefits that serve as a replacement for the Social Security System. This is both an ethical and constitutional requirement,” he said.

Many objectors, including Cunningham, voiced misgivings about a new wrinkle in the plan that would allow the state to increase the contribution level of Tier 1 employees every three years, with no guarantee of a cap. As the plan is set up, Tier 1 – essentially the current guaranteed benefit plan – would require participants to contribute 15.3 percent, with the first potential increase in 2015.

The plan is expected to be unattractive enough that many participants would migrate to other options, retire or find employment elsewhere. That possibility led some to question how benefits for already retired Tier 1 participants can be sustained if the number of participants shrinks dramatically.

Throughout the hearing, lawmakers emphasized that the current system is unsustainable, saying that changes that will directly affect employees are necessary. Representatives from public employee unions pointed out repeatedly that employees have never missed a payment (while the state has repeatedly deferred its obligations), and have made concessions in the past including forgoing general salary increases and extending the number of years required for full medical coverage after retirement.

When asked for alternate ways to address the issue, the officials suggested that rather than implement SB512,  they would be open to revising the 1995 law that requires the state’s pension systems to be 90 percent funded by 2045, by either extending the timeline or lowering the percentage.

The union officials also vowed that if the plan is approved it will be challenged in the courts.

After brief discussion, the committee approved the bill. It will now be debated in the full legislature and could come up for a vote before the May 31 conclusion of the legislative session.