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Legislators take up issue of pensions Friday

August 16, 2012

Illinois State Capitol building in Springfield. Photo courtesy Illinois Board of Tourism.State lawmakers will meet in a special one-day session Friday to discuss potentially dramatic changes to the pension systems that serve state employees.

Statehouse watchers say that Speaker of the House Mike Madigan has agreed to call HB1447 for a vote.

Approved May 31 by the Illinois Senate on the final day of the spring legislative session, the bill would require state employees and lawmakers to make a choice:

  • Receive a 3 percent compounded annual cost of living allowance (as is the case now) but give up access to retiree state health insurance and not have future salary increases count toward their pensions.
  • Or, accept a lesser cost of living adjustment but retain access to retiree health insurance and have future raises count toward their pensions.

The choices are irrevocable, which creates potential problems, some argue, because there is no guarantee that health insurance programs offered to retirees will remain affordable or will continued to be offered as they are known today.

State employee unions made a counter offer Monday: If the state guarantees to make its full yearly pension contribution (instead of skipping or shorting it, as it has done repeatedly), state employees then might be persuaded to contribute more toward their pensions.

Neither plan as currently presented is believed to have enough support to pass.

Rep. Elaine Nekritz

Rep. Elaine Nekritz

Another plan, put forth Aug. 3 by Rep. Elaine Nekritz, is similar to an earlier proposal to shift pension costs to universities and community colleges.

It does so at a more gradual rate, however, increasing their share by 0.6 percent a year for 10 years, than by 0.5 percent a year until schools were bearing the full cost.

Her plan also introduces a Cash Balance Plan, which establishes a new Tier III benefits structure. All new SURS members hired after July 1, 2013, would be automatically placed in that tier, and existing Tier II employees would have the option to join Tier III.

Under the plan:

  • State Universities Retirement System members would pay 8 percent of salary; employers would pay an annual contribution of 4.4 percent of pay, while SURS would annually credit interest of between 4 and 10 percent, dependent on investment earnings.
  • Tier III members would be commingled for investment purposes; however, each member would have an individual notional account comprised of the contributions made by the individual, employer and investment income.
  • At retirement, SURS would calculate a guaranteed life-time annuity. The annuity would continue after money in account is exhausted.

The College Insurance Program (CIP) is also included in the bill.

It calls for an increase to employer costs, active employee costs and retiree costs. Under the plan, both employers and employees would contribute 1.25 percent of salary to CIP. Beginning July 1, 2013 employers and employees would contribute an amount determined by Central Management Services, which by rule, shall not exceed 108 percent of the percentage of salary of the previous fiscal year.

The CIP retiree costs will be the difference between the projected costs of the health benefits and the projected contributions from the community college districts, employees, and any other income of the program (other income excludes contributions made by the state to retire unpaid claims of the program). The state attempts to eliminate its contributions to CIP in fiscal year 2013 and each year after.

Whether the Nekritz plan will even be part of the conversation Friday is unknown.

Meanwhile, most observers believe it is unlikely that the session will resolve the issue and that more special sessions are likely to be called as the governor tries to bring closure to the issue, which might be difficult in an election year.