Tuesday, November 29, 2011

Hum If You Can’t Sing

So what if at every conflict in life we burst
into song – thoughtless as reciting a prayer –

reward our feet with a waltz or two,
congratulate ourselves with an aria

then tap dance our way through
the kitchen and dining room?

And suppose the musicians arrive early
each morning to tune up their strings

and oil their drums
while the white-gloved conductor waits

with his cue sheet at the breakfast table?
Would we expect a chorus prophesying disaster

or a fugue in D-minor? Why not ask 
for a drum roll through toiletry instead

or a diminuendo through dinner?
And what might our friends and spouse say

about all that sheet music stuffed in our pockets,
about our lives cluttered with voice lessons,

rehearsals and women dressed in high heels
and fishnet stockings?

Imagine the fun of it all, the spotlight
on us all as we dance and sing

throughout our lives with our pets joining in
with happy tails, and birds whistling

from their cages, encouraging applause
for our pitch-perfect singing each day.

“Hum If You Can't Sing” was originally published in Prairie Light Review, 1992.

Wednesday, November 23, 2011

In the Cross Hairs

For five days the buck hung
from the wrought-iron grate,

a large, brown buck, heavy with muscle.
Its eyes held the look of an animal

about to be shot.
Raymond Benedetti, a pharmacist,

with a half-dozen hunting dogs
smelling of musk-rank fur,

worked his knife into its belly,
unknotting entrails before my eyes.

It wasn’t until the fifth day
that someone complained

about the stench and sound
of the chainsaw grinding through bone,

about the head that lay
on the front stoop one evening,

its deciduous antlers hacked from the skull.
I watched as a young boy would, an accomplice,

under a pale gray Midwestern sky
deep in November.

The neighbor’s cats kept their distance,
the air charged with pity and thanksgiving.

“In the Cross Hairs” was originally published in Willow Review, 1993.
“In the Cross Hairs” received an award from Poets & Patrons of Illinois in 1993.


Sunday, November 20, 2011

Tax Reform! Not Pension Reform, Budget Cuts and Tax Breaks for the Wealthy

An article in the State Journal Register (November 17, 2011) states that the five public pension systems need $5.33 billion for fiscal year 2013, approximately one billion dollars more than was originally anticipated, though Governor Quinn also says that state revenue is expected to grow by $1.3 billion next year.

This amount has increased 20% overall because of increases of approximately $700 to $800 million for Medicaid; changes in assumptions by actuaries from the State University Retirement System; the passing of SB 1946 (Public Act 96-0889) in April of 2010 that caps new public employees’ salaries and lowers their benefits; (note: there will be less money available for contributions to the pension systems); and, most importantly, because larger payments are needed today as a result of the faulty 1995 “ramp-up” funding law (Public Act 88-593) to pay the pension systems what the state owes because of its lack of payments to the pension systems for decades and its lofty goal of a 90-percent funding ratio by 2045 (Wetterich) -- even though only 15 states in the nation have a funded ratio slightly over 70 percent while the average funding ratio is 63 percent (Barclays Capital, May 2011). (According to the National Conference on Public Employee Retirement Systems (May 2011), “a funded ratio of 70 percent or above is [considered more than] adequate”).

It is true pension reform will not address the current unfunded liability and that what the state's legislators should focus upon is structural reforms for revenue and pension debt, but they have no political will to do it. Solving the shortfall between available assets and accrued liabilities is not the issue. It’s a symptom of a greater cause. Pension systems carry liabilities into perpetuity because they are “perpetual government agencies” (The Teachers’ Retirement System of Illinois). There is never a need to match assets and liabilities ever.

It is also true that most state legislators lack the political backbone to address the causes of the budget problems but prefer scapegoating public employees and their pension systems instead. They are abetted by the Civic Committee of the Commercial Club of Chicago, the Civic Federation and the Chicago Tribune, to name just a few. Illinois legislators do not want to pay what is owed to the public pension systems even though past legislators, especially past governors, were the cause of the public pension systems’ lack of funding throughout the decades.

What is needed to solve the budget problems in Illinois is a better revenue base to pay the state’s self-induced debts. What is easier to do is to evade serious problem solving of the budget issue and to incriminate the state’s public employees.

The issue at hand is the state’s regressive tax rate that no one wants to confront. The public lacks awareness and understanding about the main causes of the state’s budget deficits. Legislators, the Civic Committee, et al. have capitalized on the public's ignorance of the essential causes of the state's financial debacle by calling for budget cuts and radical pension reform as the solutions. They are diversionary, scapegoating tactics that will bring intentional, financial harm to public employees and allow legislators to escape legal and ethical responsibility.

“At the core of the budget ‘crisis’ facing [Illinois] is [its] regressive state tax structure… that is, low-and-middle-income families pay a greater share of their income in taxes than the wealthy… [A regressive tax] disproportionately impacts low-income people because, unlike the wealthy, [low-income people] are forced to spend a majority of their income purchasing basic needs that are subject to sales taxes” (United for a Fair Economy).

Instead of reforming the state's tax system, legislators (and their wealthy subsidizers) have focused on radical pension reform and severe budget cuts to services that the rest of us need. What do the wealthy and their puppet legislators propose? They propose sweeping, radical pension reform that will destroy the public employees’ defined-benefit pension plans, even though they know current unfunded liabilities will not be resolved by pension reform.

In addition, Illinois legislators propose budget cuts that will undermine healthcare for children, the elderly and low-income families; budget cuts that will prolong and increase the state’s unemployment; budget cuts in public safety and transportation; budget cuts in education; and budget cuts that will stifle economic recovery.

It is true that if the State of Illinois “does not [create] a contemporary tax system, one that is both sound and responsive to the needs of state, basic and necessary programs face the chopping block” (Center for Tax and Budget Accountability, CTBA).

Consider, for example, budget cuts in K through 12 and higher education: “Disparities in [the state’s] school funding and, therefore, quality of education, would be significantly reduced if the primary basis for school funding was on state revenues,” and that is why Illinois is “next to last in a ranking of states based on funds spent on education” (CTBA). As it is now, property taxes used as the main sources of revenue for school funding guarantee income inequalities among school districts throughout the State of Illinois.

Let’s be concerned about why the State of Illinois cannot obtain more revenue. Besides federal sources of income, the state uses only 11 sources of revenue: personal income tax (but note that Illinois was tied for the fourth lowest individual tax rate on households in the top income bracket), corporate income tax (note the recent extortionate tax breaks given to some Illinois corporations), sales tax (note that Illinois does not tax services like most other states for another significant source of revenue), corporate franchise tax and fees, public utility taxes, vehicle use tax, inheritance tax, insurance taxes and fees, cigarette taxes, liquor taxes and other miscellaneous (or rather unsubstantial) tax sources (Commission on Government Forecasting and Accountability, June 2011).

In regards to sales taxes, “a majority of states apply their sales tax to less than one-third of 168 potentially-taxable services… [States that do not tax services, such as Illinois], probably could increase [its] sales tax revenue by more than one-third if [it] taxed services purchased by households comprehensively” (the Center on Budget and Policy Priorities, July 2009).

Consider that a broader-based taxation system would provide a decrease in taxes for low-income and many middle-income families. Taxing services alone “would generate enough revenue to stabilize the General Revenue Fund and prevent structural deficits that lead to cuts in basic needs and social service programs” (CTBA). As long as our legislators play their political ping pong game with one another, it is impossible to obtain any just resolutions to the state’s perpetuated budget problems.

A case in point: reflect upon this potential financial windfall for corporations considered by legislators who are also ironically contemplating budget cuts and pension reform for the rest of us: "A package of tax breaks aimed at helping business and keeping a few high-profile companies from leaving Illinois could cost the government $850 million a year in its current form, raising the possibility that it will have to be scaled back to win approval from the Legislature. The package started as a move to lower the tax bill for two Chicago-based financial exchanges, CME Group Inc. and CBOE Holdings Inc., which are threatening to leave Illinois. Add a tax break for Sears to the mix, followed by tax incentives for businesses in general, and then measures to help poor families.

"Each new tax break means less money to run state government, requiring officials to get more money elsewhere or cut services… State government would have to absorb most of that loss, but 6 percent — or about $50 million — would hit the budgets of local governments across Illinois" (Associated Press, November 18, 2011).  

So why can’t the State of Illinois provide a fair and sound tax system (Illinois is one of seven states with a regressive flat-rate tax), one that is “efficient with minimal impact on the economic decisions that taxpayers have to make” (CTBA), one that captures increased revenues in times of economic growth, one that maintains revenue collections during poor economic times, one that is simple and not liable to inconspicuous error, one that is transparent and builds trust with the state’s government officials (CTBA), and one that helps 99 percent of the state’s population?

The answer is most legislators in the State of Illinois prefer the easy way out of a difficult and challenging situation. Illinois legislators will not address the most important causes of the state's budget deficits: the state's flat-rate taxation and pension debt because of their own self-interests and the wealthy one percent that bankrolls them.

-Glen Brown

Friday, November 18, 2011

Pension Hybrid Plans, Constitutional Challenges, and the Ethical Path to Take

Recently, a colleague sent me a brief about the State of Rhode Island’s pension reform. That state’s current reform proposal features a hybrid plan that combines a defined-benefit and defined-contribution savings plan. Imagine an option that would divide a teacher’s contribution as follows: from a 9.4 percent contribution, perhaps 5 percent would be contributed to a defined-benefit plan and 4.4 percent would be contributed to a defined-contribution savings plan, where both the employer and the employee would share the market risk with the supposition that the earnings from the defined-contribution plan would still reap the financial recompenses of group investing.

In other words, “a defined-contribution savings plan could be stacked on top to provide additional retirement income for those at the higher end of the pay scale. Such an approach would ensure a more equitable sharing of risks and would also prevent headlines generated by the occasional inflated public pension benefit” (Center for Retirement Research, April 2011).

We might ask, however, whether there are legal repercussions for such pension reforms. In Rhode Island, for instance, “pension reform is more than just an educational, financial and political issue. It’s also a legal issue” (Education Sector Policy Briefs, November 2011). In Illinois, it's also a constitutional issue.

It’s an educational issue because an essential goal for any state when considering pension reform is to attract and retain the finest possible teacher candidates available. It’s a financial issue because pension reform should be fair, affordable and address the issue of continued sustainability of the pension system. This has been duly noted elsewhere that “saving the pension system entirely on the backs of new teachers will not only fail to solve a state’s financial problems, more importantly, it will rob its future by making it more difficult to recruit new teachers” (Education Sector Policy Briefs…). This factor has apparently been forgotten by Illinois legislators, along with the fact that the State of Illinois will also have a serious Social Security issue to address in the not so distant future if a hybrid plan is passed for new teachers.

Furthermore, it’s a political issue because it entails the distinction among assumptions, values, beliefs and facts; the necessity for conflict resolution; and the application of powerful decision-making that will affect hundreds of thousands of people’s lives. Finally, it’s a legal issue because pension reform should concur with constitutional law and, therefore, be safeguarded.

Indeed, we are also aware that a challenge to a state’s constitution might take the form of a state’s exercise of “power as a sovereign to protect the health, safety, and welfare of its citizens” (Education Sector Policy Briefs…). In regards to the “diminishing or impairing” of a clause or contract that protects citizens’ rights, the United States Supreme Court has held “that the court must establish that impairment is reasonable and necessary to serve an important public purpose, such as ‘the remedying of a broad and general social or economic problem.’ To show that a change is necessary, the state must establish that no less drastic modification could have been implemented to accomplish the state’s goal; and that the state could not have achieved its public policy goal without modification” (Education Sector Policy Briefs…).

This particular option has seldom been brought to the test, and for good reasons. To declare that a state is in an “emergency state,” will ignite legal questions and litigation about the competency and ethical motivations of the policy makers and whether they had truly exhausted every alternative available to them for resolving a state’s financial debts.

Moreover, according to Dave Urbanek, TRS Public Information Officer: “State law [in Illinois] empowers TRS (40 ILCS 5/16-158c)… Payment of the required State contributions and of all pensions, retirement annuities, death benefits…, all other benefits…, and all expenses are obligations of the State… The State has waved its sovereign immunity in regard to the teachers’ pension because TRS is a qualified pension plan under the tax-deferred provisions of the IRS code. Federal law would protect all claims..."

In a recent decision concerning the reduction or elimination of a statutory exemption for public-pension incomes, for example, one state’s Supreme Court’s conclusion was unequivocal: “the people can and should expect shared sacrifice; however, it cannot come at the expense of constitutional nullification, and the legislature cannot expect to balance the budget on the backs of state workers” (State of Michigan in the Supreme Court, August 2011).

If we want “everyone” to share the burden for our state’s financial problems besides the new and future public employees of Illinois who, as the result of SB 1946, are now paying down the state’s mounting service debt (which will have to be eventually addressed), a way for legislators to collect needed revenue ethically is to raise the taxes of the wealthy elite and bring to a halt the corporate blackmailing of state government and the awarding of lucrative tax breaks.

The Institute on Taxation and Economic Policy (November 2009) maintains that the top 5 percent of income earners in Illinois pay the least amount of sales, excise, property, and income taxes because of federal deduction offsets or substantial tax savings from itemized deductions, such as capital gains tax breaks and deductions for federal income taxes paid that are coupled with an antiquated flat-rate tax structure.

Legislators should also consider spreading the tax base in Illinois: “A high-quality revenue system relies on a diverse and balanced range of sources… If reliance is divided among numerous sources and their tax bases are broad, rates can be made low in order to minimize the impact on behavior. A broad base itself helps meet the goal of diversification since it spreads the burden of the tax among more payers than a narrow basis does. And the low rates that broad bases make possible can improve a state’s competitive position relative to other states” (National Conference of State Legislatures, June 2007).

What is more, legislators should consider including the taxation of services instead of raising state income taxes. Consistent with creating a broader tax base, the Chicago Metropolitan Agency for Planning (July 2011) argues that the tax system in Illinois and most other states do not reflect today’s economic realities. States that do not tax services, such as Illinois, “probably could increase [its] sales tax revenue by more than one-third if [it] taxed services purchased by households comprehensively” (Center on Budget and Policy Priorities, July 2009).

Let us not forget the underlying reasons that have caused the pension systems’ unfunded liability in the first place. The unfunded liability of the pension systems in Illinois grew exponentially because of the state’s inconsistent funding methods for decades, the state’s unreliable accounting methods, and the special deals made by legislators and other stakeholders that were to be funded with future monies.

The scapegoating of public employees intensified when greed and corruption, particularly flagrant in the financial sector, exploded into the Great Recession. This, of course, came after eight years of inordinate military spending for two costly wars, deregulation and unprecedented tax cuts for the wealthy by the federal government. This tsunami of debt contributed to every state’s budget deficits.

A final question and answer for all of us to ponder: now who found it self-serving to confound the facts of the matter and shift the blame for the resultant economic debacle occurring in Illinois? The answer is those who benefit most by ignoring the injustices inherent in our state’s archaic system of income distribution, regressive tax loopholes for the wealthy, and flat-rate taxation. In other words, a three-headed Cerberus (better known as Tyrone Fahner of the Civic Committee of the Commercial Club of Chicago; his doppelganger, Laurence Msall’s of the Civic Federation; and their mouthpiece, the Chicago Tribune) has hoodwinked the citizenry of Illinois. This is made quite evident by Fahner’s Illinois Is Broke advertisements and their emphasis on so-called pension reform (Senate Bill 512) that will ensure the continuation of obscene profits that flow east along the River Styx of Chicago to the doors of 21 South Clark Street.

-Glen Brown

Thursday, November 17, 2011

Munditia, Patron Saint of Lonely Women

(St. Peter’s Church, Munich)

She is believed to have been martyred in 310 A.D., beheaded 
with a hatchet. Once kept hidden in a wooden box,
she was put on display in 1883. Each year, a feast day is held
in her honor complete with a High Mass and candle procession
on November 17th.

for M.K.

She was propped up one day
in a black-and-silver sepulcher
with an eternal glass view,
her vest sewn with gaudy charms,
her gloved hands clutching a chalice
half-filled with sand
and a long golden feather.

How difficult to look at those eyes,
fixed in a perpetual stare mocking death,
at her stone-studded skeleton
encased in glass, and to think
about her estranged life,
a lifetime devoted to Christ, her ex-lover,
and how you said:
"Poor, pitiful woman cheated by faith
and her celibate single-mindedness."

And then to imagine that someone
could bejewel her, knowing all along
that her most precious gem,
her locus of power,
had rotted away to bone
where "even from the tomb
the voice of nature cries."

“Munditia, Patron Saint of Lonely Women” was originally published in Willow Review, 1992.
“Munditia, Patron Saint of Lonely Women” also received awards from Willow Review and Poet Magazine in 1992.

Thursday, November 10, 2011

Sustainability, Affordability and Constitutionality: Are They Compatible?

How do we balance sustainability of the public pension system, affordability for the State of Illinois, and constitutionality (Bob Lyons, TRS Trustee)?

Illinois legislators realize that the cost of ramping up payments to address the unfunded liability is unaffordable based upon today’s depressing revenue projections. “In 1995, Illinois passed a pension-ramp bill requiring significant, annual increases in the state's contribution to its public employee retirement systems, to make up for a decades long practice of failing to make the full, employer contributions into the system. That is why the pension contribution escalates… each year. It is also why Illinois has a [total] unfunded liability in excess of $83 billion today [for all five public pensions]” (Center for Tax and Budget Accountability, CTBA).

What can any union leader or anyone else, for that matter, offer the state that will address the increasing service debt and decrease school district contributions and the required state contributions through 2045? According to Buck Consultants (June 2010), total school district contributions will not begin to decrease until 2043, and combined state and federal funds that are required will continue to increase until 2046.

How much do we need to pay of the service debt to keep the teachers’ retirement pension plan and the other four public pension plans solvent, even though the plans have always had an unfunded liability with fluctuating funding ratios that will never come due all at once? What proposals are there besides the Civic Committee’s flawed SB 512? Why would some legislators vote for a bill that has both obvious and unforeseen consequences for everyone “unless something better comes along?”

Why aren’t there any Nobel-prize winning economists of Illinois in this discussion? Where are the most prominent Illinois lawyers, and why aren't their opinions being solicited regarding legal ramifications? Why are we hearing only from the Civic Committee of the Commercial Club of Chicago that has much to gain from the passing of SB 512?

Should the IEA negotiate and "impair" the 1970 pension clause (Article XIII, Section 5)? Did SB 7 ruin any possibility for good-faith negotiations with state legislators (remember what Jonah Edelman revealed)? Is it because of the belief that once one side gives up something inviolable, the other side will insist for more concessions? How will any negotiation affect union members who pay their dues consistently to ensure that their hard-earned benefits are not decreased because public employees, such as teachers, only have one retirement pension and not Social Security to rely upon?

Can the IEA and other unions offer anything by way of negotiation on the issue that “something must be done” about the unfunded liability and the increasing state payments? What should teachers give up to solve the financial problems of this state that are the resultant causes of past-and-present greed, corruption and incompetence?

Moreover, is it fair that teachers and other public employees remain scapegoats for the problems that they did not cause? Indeed, few people care about the legal, moral and ethical appeals that are grounded in such an argument. However, why didn’t the state “consider implementing a new revenue source targeted to repaying pension liabilities that is independent of base revenue streams from income, sales, excise and utility taxes” (CTBA, 2006)? Why didn’t the state also consider a broader tax base and/or taxation of services instead of an increase in income taxes?

The passing of SB 1946 last April of 2010 (the current Tier-Two plan that began in January 2011) will most likely assure the demise of the Tier-One defined-benefit plan. Consider that the current proposed and amended SB 512 by freezing benefits in the Tier-One defined-benefit plan (for those who choose a Tier-Two option for its six percent contribution rate, capped final salary, reduced Cost of Living Adjustment (COLA) and full retirement benefits at the age of 67) will also hasten the demise of the Tier-One defined benefit plan. Consider the inevitability that members who choose the Tier-Three defined-contribution plan (401K) will also hasten the demise of the Tier-One benefit plan, and this will do nothing to eliminate the unfunded liability that the state is required to pay.

One thing seems certain: both current and retired teachers and their families have the most to lose by passing the amended SB 512. Consider that the Tier-One defined-benefit plan depends upon membership contributions for its sustainability, precarious contributions from the State of Illinois, and volatile Market investment returns.

According to the IEA president, Cinda Klickna, "We need to develop a plan that is constitutional, fair to the participants and will ensure the systems will, for many decades to come, continue to deliver the benefits earned by the participants and retirees. The pension systems must be sustainable." The teachers of Illinois are anxiously waiting for that plan.

So what might follow SB 512? Imagine an amendment to the state constitution that challenges Article XIII, Section 5, or a reduction or elimination of the retirees’ COLA and the taxation of their annuity, or the shifting of the state's pension costs to school districts...? What about state bankruptcy as an option? Just ask our U.S. Senator from Illinois, Mark Kirk, about this absurd possibility.

-Glen Brown

Tuesday, November 8, 2011

Amendment to SB512 [Other points of interest]

Amendment to SB512 (Nov. 7, 2011) [Other points of interest]:

Pages 6-7 [Tier-Two]:
(c) A member or participant is entitled to a retirement annuity upon written application if he or she has attained age 67 and has at least 10 years of service credit and is otherwise eligible under the requirements of the applicable Article. A member or participant who has attained age 62 and has at least 10 years of service credit and is otherwise eligible under the requirements of the applicable Article may elect to receive the lower retirement annuity provided in subsection (d) of this Section.

(d) The retirement annuity of a member or participant who is retiring after attaining age 62 with at least 10 years of service credit shall be reduced by one-half of 1% for each full month that the member's age is under age 67.

(e) Any retirement annuity or supplemental annuity shall be subject to annual increases on the January 1 occurring either on or after the attainment of age 67 or the first anniversary of the annuity start date, whichever is later. Each annual increase shall be calculated at 3% or one-half the annual unadjusted percentage increase (but not less than zero) in the consumer price index-u for the 12 months ending with the September preceding each November 1, whichever is less, of the originally granted retirement annuity. If the annual unadjusted percentage change in the consumer price index-u for the 12 months ending with the September preceding each November 1 is zero or there is a decrease, then the annuity shall not be increased.

Pages 84-85
(40 ILCS 5/9-170.6 new)
Sec. 9-170.6. Employer contributions to the self-managed plan: Beginning in fiscal year 2014, for members electing benefits under paragraph (3) of subsection (a) of Section 9-170.5, an employer contribution shall be made each fiscal year in an amount equal to 6% of total pensionable payroll for the respective employee group.

(40 ILCS 5/9-170.7 new)
Sec. 9-170.7. Maximum self-managed plan participation. By
January 1, 2013, the Fund shall certify its total active participant population. When the number of participants that elect the self-managed plan is equal to 20% of the total active participant population, then no participant may elect the self-managed plan.

Beginning in 2016 and every 3 years thereafter, the Fund shall recertify its total active participant population and the number of participants in the self-managed plan. If the number of participants in the self-managed plan is less than 20% of the recertified total active participant population, then eligible participants may elect to participate in the self-managed plan. However, participants shall be prohibited from electing to participate once the Fund determines that the number of participants in the self-managed plan is equal to 20% of the number of total active participants in the Fund.

Pages 249-50
(40 ILCS 5/16-133) (from Ch. 108 1/2, par. 16-133)
Sec. 16-133. Retirement annuity; amount:
(A)The amount of the retirement annuity shall be (i) in the case of a person who first became a teacher under this Article before July 1, 2005, the larger of the amounts determined under paragraphs (A) and (B) below, or (ii) in the case of a person who first becomes a teacher under this Article on or after July 1, 2005, the amount determined under the applicable provisions of paragraph (B):

(A) An amount consisting of the sum of the following:
(1) An amount that can be provided on an actuarially equivalent basis by the member's accumulated contributions at the time of retirement; and
(2) The sum of (i) the amount that can be provided on an actuarially equivalent basis by the member's accumulated contributions representing service prior to July 1, 1947, and (ii) the amount that can be provided on an actuarially equivalent basis by the amount obtained by multiplying 1.4 times the member's accumulated contributions covering service subsequent to June 30, 1947; and
(3) If there is prior service, 2 times the amount that would have been determined under subparagraph (2) of paragraph (A) above on account of contributions which would have been made during the period of prior service creditable to the member had the System been in operation and had the member made contributions at the contribution rate in effect prior to July 1, 1947.

Beginning on July 1, 2013, for purposes of calculating the sum provided under this paragraph (A), member contributions in excess of the member contribution rates that apply to this benefit and are in effect immediately prior to July 1, 2013 shall not be considered when determining the amount of the member's accumulated contributions under subparagraph (1) or the additional sum based on the member's accumulated contributions under subparagraph (2). This paragraph (A) does not apply to a person who first becomes a teacher under this Article on or after July 1, 2005.

Pages 275-77
For State fiscal years 2014 through 2045, the minimum contribution to the System to be made by the State for each fiscal year shall be an amount equal to the sum of (i) the contribution determined under Section 16-158.2, plus (ii) an amount determined by the System to be sufficient to bring the total assets of the System up to 90% of the total actuarial liabilities of the System by the end of State fiscal year 2045.

In making the determinations under item (ii) of this subsection (b-3), for State fiscal years 2017 through 2045, the required State contribution shall be calculated each year as a level percentage of revenue provided by the individual income tax, sales tax, and corporate income tax assuming a 2.3% average annual growth rate in these revenues based on the most recent fiscal year's actual revenues as reported by the Commission on Government Forecasting and Accountability over the years remaining to and including fiscal year 2045 and shall be determined under the projected unit credit actuarial cost method.

Notwithstanding any other provision of this Article, State fiscal years 2014 through 2016, the State contribution to the System under item (ii) of this subsection (b-3), as a percentage of State revenue from the individual income tax, sales tax, and corporate income tax shall be increased in equal annual increments so that by State fiscal year 2017, the State is contributing at the rate required under this Section.

For State fiscal years 2014 through 2045, the total State contribution required in each fiscal year under this subsection (b-3) must not be less than 100% of the prior fiscal year's actual or required contribution, whichever is greater. Notwithstanding any other provision of this Article, the total required State contribution for this System for State fiscal year 2013 shall be $2,765,140,669.

Page 314:
Section 99. Effective date. This Act takes effect July 1,

Monday, November 7, 2011

Amendment to SB512: Contributions by Members

Amendment SB512 (Nov. 7, 2011) pages 271-73
From (40 ILCS 5/16-152) (from Ch. 108 1/2, par. 16-152)
Sec. 16-152. Contributions by members:

…Beginning July 1, 2013, all members shall be required to make the following contributions:

(1) Members who elect the traditional benefit package provided under paragraph (1) of subsection (a) of Section 16-133.6 of this Code shall contribute:

(A) In fiscal year 2014, fiscal year 2015, and fiscal year 2016, an amount equal to 13.77% of salary.
(B) In fiscal year 2017 and in each fiscal year thereafter, a percentage of salary equal to the actuarially determined fiscal year 2017 normal cost of the traditional benefit package, minus contributions by the State of Illinois in fiscal year 2017 under subsection (a) of Section 16-158.2, provided that no member's contribution shall be less than 6% or more than 15.77% of salary. The System shall certify the actuarially determined fiscal year 2017 normal cost of the traditional benefit package and the amount of the required member contribution.

(2) In fiscal year 2014 and in each fiscal year thereafter, members who elect the revised benefit package provided under paragraph (2) of subsection (a) of Section 16-133.6 of this Code shall contribute an amount equal to the greater of the actuarially determined long term normal cost of the revised benefit package as calculated in fiscal year 2014 or 12%, minus contributions by the State of Illinois in fiscal year 2014 under subsection (b) of Section 16-158.2, provided that no member's contribution shall be less than 6% of salary. The System shall certify the actuarially determined long term normal cost of such revised benefit package and the amount of the required member contribution. For purposes of this paragraph (2), long term normal cost shall be defined as the normal cost of the revised benefit package assuming that all employees are covered under the revised benefit package. Contributions under this paragraph (2) shall be based on pensionable salary.

(3) In fiscal year 2014 and in each fiscal year thereafter, members who elect the self-managed plan provided under Section 16-133.8 of this Code shall contribute a minimum of 6% of salary. Members who elect the self-managed plan provided under Section 16-133.8 of this Code may elect to increase their member contribution in accordance with rules prescribed by the Board.
(Source: P.A. 93-320, eff. 7-23-03; 94-4, eff. 6-1-05.)
(40 ILCS 5/16-152.2 new)

Sec. 16-152.2. Increases in member contributions. If the member contribution required under Section 16-152 increases for any member pursuant to this amendatory Act of the 97th General Assembly, the additional member contribution in excess of the prior member contribution for such member shall be deducted from the member's salary unless the member's employer agrees pursuant to Section 414(h) of the Internal Revenue Code to pick up and pay part or all of such increased contribution in addition to the member's salary.

Amendment to SB 512: Self-Managed Plan

Amendment SB512 (Nov. 7, 2011) pages 261-65
(40 ILCS 5/16-133.8 new)
Sec. 16-133.8. Self-managed plan:

(a) Purpose. The Teachers' Retirement System of the State of Illinois shall establish and administer a self-managed plan, which shall offer members the opportunity to accumulate assets for retirement through a combination of member and employer contributions that may be invested in mutual funds, collective investment funds, or other investment products and used to purchase annuity contracts, either fixed or variable or a combination thereof. The plan must be qualified under the Internal Revenue Code of 1986.

The plan shall not include the retirement annuities, survivors' benefits, death benefits, or refunds provided under this Article.

(b) The Teachers' Retirement System of the State of Illinois shall be the plan sponsor for the self-managed plan and shall prepare a plan document and prescribe such rules and procedures as are considered necessary or desirable for the administration of the self-managed plan. Consistent with its fiduciary duty to the participants and beneficiaries of the self-managed plan, the Board of Trustees of the System may delegate aspects of plan administration as it sees fit to companies authorized to do business in this State.

(c) Selection of service providers and funding vehicles. The System may solicit proposals to provide administrative services and funding vehicles for the self-managed plan from insurance and annuity companies and mutual fund companies, banks, trust companies, or other financial institutions authorized to do business in this State. The System shall periodically review each approved company. A company may continue to provide administrative services and funding vehicles for the self-managed plan only so long as it continues to be an approved company under contract with the Board.

(d) Member direction. Members who are participating in the program must be allowed to direct the transfer of their account balances among the various investment options offered, subject to applicable contractual provisions. The member shall not be deemed a fiduciary by reason of providing such investment direction. A person who is a fiduciary shall not be liable for any loss resulting from such investment direction and shall not be deemed to have breached any fiduciary duty by acting in accordance with that direction.

Neither the System nor the member's employer guarantees any of the investments in the member's account balances.

(e) Participation. A member eligible to participate in the self-managed plan must make a written election under Section 16-133.6 and the procedures established by the System. A member who has elected to participate in the self-managed plan under Section 16-133.6 must continue participation while employed as a teacher. Participation in the self-managed plan under this Section shall constitute membership in the Teachers' Retirement System. A member under this Section shall be entitled to the benefits of Article 20 of this Code.

(f) Contributions. The self-managed plan shall be funded by contributions pursuant to salary reduction agreements for members participating in the self-managed plan and employer contributions as provided in this Section.

The member contribution shall be made as an "employer pick up" under Section 414(h) of the Internal Revenue Code of 1986 or any successor Section thereof. In no event shall a member have an option of receiving these amounts in cash, and payment of the member contribution shall be a condition of employment. The member contribution shall be deducted from the member's salary in the amount specified by paragraph 3 of subsection (f) of Section 16-152, unless the employer agrees to pick up and pay the member contribution in addition to the member's salary, pursuant to Section 16-152.1.

The program shall provide for employer contributions to be credited to each self-managed plan participant at a rate of 6% of the member's salary. The amounts so credited shall be paid into the member's self-managed plan account in a manner to be prescribed by the System. An additional amount of employer contributions shall be used for the purpose of providing the disability benefits of the System to the member. Prior to the beginning of each plan year under the self-managed plan, the Board of Trustees shall determine, as a percentage of salary, the amount of employer contributions to be allocated during that plan year for providing disability benefits for members in the self-managed plan.

The State of Illinois shall make contributions by appropriations to the System of the employer contributions required for members who participate in the self-managed plan under this Section. The amount required and the payment schedule shall be certified by the Board of Trustees of the System and paid by the State in accordance with Section 16-158.2.

The System shall not be obligated to remit the required State contributions to any person or entity until it has received the required contributions from the State.

(g) Vesting; withdrawal; return to service. A member in the self-managed plan becomes vested in the employer contributions credited to his or her account in the self-managed plan on the earliest to occur of the following: (1) completion of 5 years of creditable service; (2) the death of the member while in active service, if the member has completed at least 1 ½ years of service; or (3) the member's election to retire and apply the reciprocal provisions of Article 20 of this Code.

(h) If a member who is vested in employer contributions terminates employment, the member shall be entitled to the account values attributable to employer and member contributions and any investment return thereon.

If a member who is not vested in employer contributions terminates employment, the member shall be entitled to the account values attributable to the member's contributions and any investment return thereon, and the employer contributions and any investment return thereon shall be forfeited. Any employer contributions which are forfeited shall be used as directed by the System for future allocations of employer contributions.

Sunday, November 6, 2011

SB 512 & Money Purchase Option (Update)

Money Purchase Benefits or Purchase Benefit Options are a calculation based upon actuarial determiners as to the amount of money a retiree from TRS deserves after so many years of service. When an individual meets with a TRS advisor to calculate what annual annuity amount he or she will collect after “X” years of service, the TRS advisor will usually provide that figure based upon the number of years (times a calculation of 2.2 percent of his or her final average salary for each year of service and up to a maximum of 75 percent of the final average salary). The average of the highest four years’ service in the last ten years is used for the calculation.

However, if the employee began working before June of 2005, another calculation may be used based upon the person’s contributions plus interest and the employer’s contribution. Note that the retiree is given the higher of the two estimates.

According to David Urbanek, TRS Public Information Officer, “Your contributions will be accumulating in your account faster at a higher rate than under the old law. When the time comes to calculate, more people will have a higher pension. That is the biggest driver of the increased cost to the state” (Wetterich, Northwest Herald, November 6, 2011).

If there is an attempt to eliminate the money purchase option, Urbanek states that it will “create the same legal questions that [SB 512] has had since its inception. Senate Bill 512 wasn’t written with regard to other laws. SB 512 gives every member a choice of what contribution rate he or she is going to pay. That’s against IRS rules” (Wetterich).

SB 512 will have current teachers pay increasing contributions – as written now – moving from 9.4% to 13.77% and so on, to perhaps as high as 20% in the next 15 years. According to Dick Ingram, Executive Director of TRS, those individuals who qualify and decide to remain in the Tier One Pension Plan and absorb the increased rates may see returns at retirement nearly 50 – 75% beyond what they might have expected otherwise.

Note that while the Civic Committee of the Commercial Club of Chicago pushes the General Assembly to “do something” radical to thwart the pension systems and the public unions, the Civic Committee has designed a “quick-fix” bill that could cost the state even more:

“The bill could cost the state an additional $62 billion through 2045; employee pension contributions might no longer be taken out of their paychecks before federal taxes are deducted, and teachers who opt for a defined-contribution plan may be forced into the federal Social Security system, which would [increase the] cost [for] cash-strapped school districts” (Wetterich).

Thursday, November 3, 2011

Ask Your Legislators These Questions Regarding the So-Called Pension Reform Bill

When you became a legislator, did you swear to uphold both the U.S. Constitution and the Constitution of the State of Illinois? Do you believe that the contents of SB 512 are in violation of contractual agreements as stated in Article XIII, Section 5 of the Illinois Constitution and Article 1, Section 10 of the Constitution of the United States?

If you were willing to pass SB 512 last May, apparently without thoroughly examining the consequences of the bill, a bill that would “increase taxpayers’ costs of up to $34 billion over 15 years” and, by increasing the Tier-One member contributions lead to “increased money-purchase benefits and higher liabilities for the state to fund,” are you now willing to read, contemplate, debate and analyze the bill in its entirety before voting on it?

If you supported SB 512 as it was proposed last May, one of the many problems with the bill is that "it may have the unintended consequence of forcing Tier-Three members [who are in a defined-contribution savings plan] into social security because of a drafting error in minimum benefits.” Did you know this at the time you supported the bill? Do you understand the ramifications?

If you are still in favor of passing SB 512, note that “it is estimated that Tier-Three benefits will be 30 percent less than Tier-One benefits if the final average salary and service are equal.” If you were a teacher in Illinois, would you choose a Tier-Three benefit plan? Why or why not?

Do you know that members in the current Tier-Two benefit plan (signed into law in April 2010) are paying down the unfunded liability that the state owes and that SB 512 will simply shift a substantial funding burden to teachers without requiring a mandated state funding of the pension system? Do you know that the Tier-Two benefit plan will also be in violation of the Social Security Safe Harbor provision?

Most state contributions, “two-thirds” under current law, are for past underfunding. Do you believe that any form of pension reform should guarantee funding from the state? Why or why not?

If you are in favor of passing SB 512, given Market volatility these past few months, would you be skeptical with only a Tier-Three, defined-contribution savings plan as your only source of income for your retirement?

Do you believe it is sound public policy to follow the leadership of corporate America today, particularly in the financial sector?

Do you realize that migration into a Tier-Three defined-contribution savings plan “will accelerate the state’s obligation to pay down the unfunded liability?”

To move teachers into a 401(k) option will reduce the amount of money available for TRS investments and jeopardize retirement security for teachers. If teachers receive social security, “every school district would have to contribute 6.2 percent per teacher.” Do you believe that all Illinois school districts can afford “an estimated increased cost of approximately $40 million in the first year and more than $2.4 billion over a decade?”

Do you know that the administrative costs of a defined-contribution savings plan are more costly than a defined-benefit pension plan? Are you aware of West Virginia’s shift into a defined-contribution plan in 1991 and the subsequent consequences that state had to address in 2006?

The Civic Committee of the Commercial Club of Chicago wrote SB 512; forty percent of its membership is in financial services. Will some of these members profit from the money transferred into the Tier-Three plan when teachers move from a defined-benefit pension plan to a defined-contribution savings plan?

Do you believe that a defined-contribution savings plan will help retain highly-qualified teachers in Illinois the way a defined-benefit pension plan does?

During the past fiscal year, “TRS paid out $3.9 billion in benefits but collected $6.8 billion in revenue.” Why are you and other state legislators so concerned about the unfunded liability of TRS that will, of course, never come fully due at any time in the future?

Though the state has made some of its required contribution to the pension systems most recently, why do some state legislators not want to address the state’s antiquated revenue system (the most important problem) but rather shift the burden of payment for pensions to local school districts outside of Chicago and, thus, increase property taxes for the citizens of Illinois?

Does it matter to you that retired teachers and their defined-benefit pension create “more than $4 billion in economic activity, including more than 30,000 full-time jobs worth $2.3 billion in wages for non-teachers?” Have you considered the effects that SB 512 would have on the state’s economy as a result of the inevitable destruction of the Tier-One defined-benefit pension plan?

Do you believe that teacher pensions are too generous? The average pension is slightly more than $46,000. (Remember, teachers do not pay into social security and receive little to nothing because of the Windfall Elimination Provision and Government Pension Offset Act). The Teachers' Retirement System is the “only source of income for approximately 80 percent of teachers in retirement.”

Do you believe that a defined-benefit pension plan helps recruit the very best teachers and retain them, thus increasing the overall quality of public education for students in Illinois? Explain.

Most everyone knows that the state has not fully funded the pension systems throughout the decades. Do you and other legislators, (and the general populace) realize that all the people of Illinois have benefited from the programs and services that were funded with the money that was supposed to go into the public pension funds? Is this fair?

Most of us realize that the state has a cash-flow problem, and that it isn’t the fault of pension benefits but due to an economy that was almost completely destroyed by corrupt individuals in the private sector, particularly in the financial sector. Nearly 75 percent of people polled in Illinois believe that a regressive flat-tax rate, where millionaires and billionaires pay the same percentage of income, needs to change into a progressive tax rate. Consider that the wealthy pay even less than the average citizen because of tax breaks. How do you plan to address such a gross injustice?

If you were a public employee in Illinois, what would you honestly say about SB 512? What do you think about Civic Committee of the Commercial Club of Chicago, the Civic Federation, the Illinois Policy Institute, and the Chicago Tribune diatribes? 

-Glen Brown

Tuesday, November 1, 2011

Dia de los Muertos

Chalma, Mexico – At least 41 worshippers
were suffocated or crushed to death
when a tightly-packed crowd began pushing
and shoving at a church famed for a religious icon
believed to have miraculous powers.
Thirteen of the victims were children.
--from a news story

They came from Guadalupe and Guasave
and from villages in the south
with prayer on their tongues
and dead Jesus around their necks,
across nameless plains and mountains
in borrowed automobiles full of parcels
of hope and faith, their lives pawned
for one more pilgrimage.

Little children in their Sunday suits
and starched, white cotton dresses;
young, barefooted women
in embroidered bodices and lacy headdresses;
their mustachioed men in huaraches and doeskin;
and the old: tortilla-breasted and stern-faced
in dark shawls, fingering beads, pressed together.

Like a pile of sapodilla seeds,
they gathered at the sanctuary
with garlands of marigolds and chrysanthemum,
hoping for a cure.

There was a loud perfume of bougainvillea
rising among the festoons,
the Virgin enticing them to come closer,
and then an avalanche of bodies –
the terrible stomping
and crushing of skulls and bones –
two-and-a-half tons of trust
beneath the shrine, one afternoon
under the hemorrhaging, Mexican sun,
the red sky burning in their eyes.

“Dia de los Muertos” was originally published in Willow Review, 1993.
“Dia de los Muertos” was nominated by Willow Review for the 1994 Pushcart Prize.

Dia de los Muertos

Chalma, México - Al menos 41 fieles
fueron asfixiados o aplastados
cuando una multitud apretada comenzó a empujar
y empujar en una iglesia famosa por un icono religioso
cree que tiene poderes milagrosos.
Trece de las víctimas eran niños.
- a partir de una noticia

Venían de Guadalupe y Guasave
y de los pueblos del sur
con la oración en la lengua,
a través de llanuras y montañas sin nombre
en los automóviles prestados llenos de paquetes
de la esperanza y de la fe, su vida empeñado
en una peregrinación más.

Los niños pequeños en sus trajes de domingo
y almidonado , los vestidos blancos de algodón,
jóvenes, mujeres descalzas
en corpiños bordadosy tocados de encaje,
sus hombres bigotudos en huaraches y piel de ante,
y el viejo: tortilla de pecho y rostro severo
en chales negros, granos digitación, presionadas juntas. 

Al igual que un montón de zapote semillas,
se reunieron en el santuario
con guirnaldas de caléndulas y crisantemos,
con la esperanza de una cura.

Hubo un perfume fuerte de buganvillas
creciente entre los festones,
la Virgen tentarlos a acercarse,
y entonces una avalancha de cuerpos –
los pisotones terribles
y aplastamiento de cráneos y huesos,
de dos toneladas y-uno-mitad
de confianza por debajo de la capilla,
una tarde bajo la hemorragia, mexicano sol,
el cielo rojo ardía en sus ojos.