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State Pension Fix Would Offload Teacher Retirement

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The top Illinois House Republican and the Democrats' pension point person in the Illinois General Assembly have come up with what they believe is a solution to solving the state pension problems.

According to the plan, current retirees and employees would see some of their benefits cut. Cost-of-living adjustments for retirees, which are currently 3 percent compounded annually, would only apply to the first $25,000 of an employee's pension.

Those increases would be delayed until age 67 or five years after retirement, whichever comes first.

The retirement age would not change for workers age 45 and older, but it would hit younger workers on a sliding scale — from one more year for those in their early 40s to five more years if you're 34 or younger.

Many of these ideas have been out there, but Sen. Daniel Biss (D-Evanston) said the previous efforts were each lacking in some way.

"Everyone was working in good faith, “ Bliss said. “Everyone was pulling in the same direction. But fundamentally we were never able to get a bill that a critical mass of both Democrats and Republicans could support."

Biss said the new proposal is different.

"We all knew that there was a way of meeting in the middle that could put together both coalitions at once, and I think today we've found it,” he added.

One of the major sticking points so far has been a so-called "cost shift" to Downstate and suburban school districts and public universities. Under current law, teachers pay into their retirement, but the state pays the employers' share.

Democratic leaders say those institutions should have take over those payments, so they are more responsible about negotiating salaries and benefits with employees.

But Republicans say previous plans for a cost shift would have led to property tax hikes by schools and tuition spikes at universities.

The new plan sidesteps the issue by creating an entirely new retirement system for teachers and university employees hired in 2014 or later.

House Republican Leader Tom Cross is one of the lead backers of the proposal.

"What this does is it combines a DC component with a DB component," Cross said.

In plain English, that means it has got both a traditional pension and a 401-k-style private account. In this way, the entire cost of pensions for future employees is on school districts and teachers, and universities and their employees.

Cross said for those two systems, the state will eventually be out of the pension business.

"We think that is the wave of the future. It's the way that many other states have gone,” Cross said. “And it's the only we think, as a state, we can sustain a pension system and take care of our employees at the same time."

School districts, backed by Cross and other Republicans, have been reluctant to embrace the cost shift because they contend the state already underfunds schools and additional pension costs would require increased local property taxes.

Ben Schwarm of the Illinois School Management Alliance, representing public school administrators and school boards, said he didn't know the new plan's details but said if the employer portion was based solely on what education boards negotiate with teachers, legislative plans were moving in the right direction.

Senate President John Cullerton embraced the Cross-Nekritz idea but will also continue pursuing a proposal that he believes is constitutional because it offers annuitants a choice of post-career benefits, a spokeswoman for the Chicago Democrat said. That concerns Nekritz, who doesn't believe that Cullerton's ideas save enough money.

A coalition of public-employee unions called "We are One Illinois" rejected the new twist put on Nekritz's idea as a proposal that "defies the Constitution and diminishes benefits unilaterally."

There is little doubt the state can set up whatever kind of system it wants for brand new employees. What is less clear is how much latitude lawmakers have to monkey around with the benefits of current employees and retirees.

"Look, my view on this is whatever we pass is going to end up in the courts," Cross said.

The courts are likely to get involved because the Illinois Constitution says government employee pension benefits are a contractual obligation that shall not be diminished. That means any reduction in benefits is likely to spur a lawsuit.
Elaine Nekritz is a Democratic Representative from Northbrook, and the lead sponsor of the new pension plan.

"None of us want to take a vote that will require that we be back here in five to seven years,” Nekritz said. “We know that these changes are really significant, but that's the level of changes that need to occur in order to fix the problem."

Some lawmakers say Nekritz's unilateral approach is not constitutional, because you have to offer employees something in exchange for accepting reduced benefits.

That has been the view of Democratic Senate President John Cullerton, though he said he will pass the Nekritz plan in legislation that has his own ideas as a back-up, in case the courts strike it down. Nekritz said she thinks the courts will give lawmakers broad latitude to solve the pension problem.

"The Constitution is restrictive, but it's not a death march for us,” Nekritz said. “We have to be able to fix these things in a way that achieves some balance between all the competing demands that the Constitution requires."

If signed into law, the pension plan would reduce the state's annual contribution to five employee pension accounts by $2 billion, reduce the $96 billion funding shortfall by 30 percent, and reduce the deficit within three decades, according to Cross and Nekritz, who were joined by about a dozen other representatives and senators at a news conference outside the House chamber on Wednesday.

Their plan is not viewed as a final attempt at a pension fix, but rather a way to show workers, unions, and others what the worst-case scenarios might be if they cannot agree to milder changes.

So far, most lawmakers have not clearly taken positions on specific ideas to address the pension mess.

That could change on Thursday when House Speaker Michael Madigan has scheduled a debate on several hot-button pension changes. Even more benefit cuts are on the agenda — like eliminating cost-of-living increases, raising the retirement age to 67 for everyone, and forcing workers to pay an extra five percent of their salaries toward pensions.