Friday, November 9, 2012

What might the Illinois General Assembly be up to in this Veto Session beginning November 27th or in the January session of 2013?

Many members of the Illinois General Assembly still want to renege on their legal and moral promises and responsibilities and, thus, increase current teachers’ contributions, raise retirement age, and cut or freeze benefits (SB 3932), such as the cost-of-living adjustment (COLA), for not only current public employees but for retirees as well. These proposals were concocted by those who will never be affected by them.

Many members of the Illinois General Assembly still want to force public employees (and retirees) to make a choice to diminish their constitutionally guarantee (COLA). This is an unconstitutional coercive choice to lose the state’s precarious health insurance subsidy (and creditable earnings in retirement for current employees) (HB 6209 & HB 6210).

Many members of the Illinois General Assembly still want to challenge the legal and moral commitment guaranteed by Article XIII, Section 5 of the 1970 Illinois Constitution because what really matters for most policymakers is the elimination of the state’s pension payments at any cost and not the state’s antiquated and unbalanced revenue system and increasing pension debt or unfunded liability.

Many members of the Illinois General Assembly also want to pass a bill containing an inefficient, inadequate and inequitable self-managed or defined-contribution savings (401 k) plan (HB 6204) by convincing public employees to falsely believe that they can possibly save enough retirement income without having a defined-benefit pension or any Social Security income. Public employees will never be able to accumulate enough assets for a secure retirement with only a self-managed plan.

Defined-contribution savings plans have always been considered supplemental to an employee’s defined-benefit plan (or Social Security). They were not meant to replace a defined-benefit plan because of their lack of guaranteed; lifetime income for the retiree; and the presumption that a retiree could make sound professional, investment choices that would sustain his or her longevity, inflationary and health care risks.

Since their inception, "the private sector’s self-managed plans “have not produced encouraging outcomes... Reliance on a 401(k)-type defined-contribution plan as the sole employer pension will leave public sector workers with insufficient resources to ensure a secure retirement… [Furthermore], a shift from defined-benefit to defined-contribution plan is not a panacea for the sponsor. It will not eliminate the current unfunded liabilities associated with defined-benefit plans; it will not reduce costs, and it will not lead to higher returns" (Alicia H. Munnell, Director of the Center for Retirement Research at Boston College). Moreover, this savings scheme is profitable for pension consulting companies and employers, contract and pension lawyers and actuaries.

These plans will also induce legal and regulatory questions, some of which might include whether these defined-contribution savings plans would be covered by the Pension Benefit Guaranty Corporation, whether there would be a pay credit formula in place for these plans based upon the employee’s age and service, and whether there would be a minimum interest credit rate tied to long-term bonds (30-year Treasury yield) without risk to principal. (One can only imagine how many self-managed retirement savings plans there would be in the Teachers' Retirement System. Each one would have to be individualized!).

Self-managed plans are as effective as the competence of their trustees and the regulation and complex structure of such schemes. It would entail proficient knowledge of their funding standards. It is important to perceive that defined-contribution savings plans by themselves are not definitive solutions for the apparent state’s budget problems.

Three final thoughts: 1) let’s not forget that House Speaker Madigan and his 71 Member Veto-Proof Majority may still want to shift the state's required pension costs to school districts. 2) Beware of other bills, besides the aforementioned, that may be contrived and passed while you are sleeping. 3) Beware of the Civic Federation, the Civic Committee of the Commercial Club of Chicago and the Illinois Policy Institute and their powerful influence on Illinois policymakers.

from the Chicago Sun-Times, November 10:

“…House Speaker Michael Madigan (D-Chicago) notified his chamber that he's prepared to be in session from [January 3] all the way through Jan. 8, which includes possibly working through a weekend. Those days would be on top of six already-scheduled days spread over two weeks, beginning Nov. 27…
“During the Democratic National Convention in Charlotte, Madigan signaled to reporters that a lame-duck January session might be the time to move a big pension-reform package that never could get off the ground this year…
“Odd-year Januarys are when things often get done in Springfield when they can't get done otherwise. That's because of a proliferation of lame-duck lawmakers, who can vote their consciences without fear of reprisal at the ballot box. This year, there are about three dozen of them.
“Also, the state Constitution lowers the threshold from a three-fifths majority to pass legislation with an immediate effective date to a simple majority, meaning fewer House and Senate votes are needed to get something to the governor's desk” (House eyes six-day January session).

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