Illinois Senate Bill 2404 (a review)

Hearing Scheduled for Wednesday, March 20, 2013 at 3pm in Springfield

SB 2404: Senate Sponsors
Sen. Linda Holmes - Pamela J. Althoff - Mrs. Melinda Bush - Toi W. Hutchinson - Kimberly A. Lightford, Mike Jacobs, Wm. Sam McCann, Dan Kotowski, John G. Mulroe, Thomas Cullerton, Pat McGuire, Bill Cunningham, Michael W. Frerichs, Jennifer Bertino-Tarrant, Julie A. Morrison, Tim Bivins, Gary Forby, Iris Y. Martinez, William E. Brady and Andy Manar

Synopsis as Introduced
Amends the Budget Stabilization Act. Provides for transfers from the General Revenue Fund to the Pension Stabilization Fund according to a specified schedule beginning in FY 2016 and continuing until FY 2045 or until the retirement funds have achieved a 100% funding ratio, whichever is earlier. Amends the General Assembly, State Employee, State Universities and Downstate Teacher Articles of the Illinois Pension Code. Changes the manner in which the annual required State contribution is calculated so that the affected systems are 100% funded by 2045. Provides that employee contributions to the retirement systems are increased an additional 1% on July 1, 2013 and 2% on July 1, 2014. Provides that the State is contractually obligated to each retirement plan participant and retiree to provide funding to the retirement systems according to the specified amortization schedule beginning in FY 2016 and continuing until FY 2045 or until the retirement funds have achieved a 100% funding ratio, whichever is earlier, in addition to the annual required State contribution certified by the Board for each fiscal year. Provides that each retirement system has the right to bring a mandamus action against the State to compel the State to make any installment of the annual required State contribution certified by the Board and the transfers required under the Budget Stabilization Act. Further provides that if a retirement system shall fail to bring a mandamus action against the State to compel the State to make any required installment, then any participant or retiree may bring such a mandamus action. Effective July 1, 2013.

We Are One Coalition of Illinois support SB 2404 for these reasons:

A Funding Guarantee

“It is essential that proper funding for the pension systems is guaranteed by law. That means allowing those who have the most at stake, the members of these systems, to have the right to bring action in court to compel the state to make its required annual contribution. In addition, making these contributions a constitutionally-protected provision will ensure that the Legislature cannot underfund these systems by a simple majority vote when it is politically expedient” [SB 2404 full text: read pgs. 13-15, 21, 30-32, 46-48, 72-75, 88-89].

 

A Pension Stabilization Fund

“Illinois needs to create a constitutionally-protected pension stabilization fund. Devoting additional resources… is essential for any pension funding plan to be successful. Part of this proposal was championed by Representative Mike Fortner (R-West Chicago) and is a sensible approach to paying down the state’s pension debt. Dedicating resources that have already been built into the base of the Illinois budget to directly pay down the unfunded liability, all while the state and the members continue to make the actuarially-required contribution, is a common-sense and constitutional approach.

“The idea is to use pension bond payments, which the state currently makes to pay off pension obligation bonds (POBs), to supplement the funding of the pension systems. The state sold POBs in 2003, 2010 and 2011 to fund pensions. When each set of bonds are paid off, the proposal would redirect those dollars, which are already included in the state budget, to go toward the pension funds. The 2010 bonds are paid off in 2015, which will free up hundreds of millions of dollars that would go to supplement the funding of the retirement systems. The 2011 bonds are paid off in 2019, which would then free up over $1 billion that would go to fund pensions. The 2003 bonds are paid off in 2033, freeing up a combined total of $1.79 billion that would go to fund pensions” [SB 2404 full text: read pgs. 58-63, 75-79].

We Are One Coalition of Illinois are willing to offer:

An increase in Membership Contributions

“Out of every paycheck, members of Illinois’ pension systems have consistently paid toward their pensions. While public workers are not to blame for Illinois’ pension shortfall, they are willing to share in the sacrifice and be part of the solution. In this proposal, active Tier 1 members would contribute 2% more of their salary (phased in 1% a year over 2 years) to help fund the pension systems. This will generate an estimated $350 million more each year and $3 billion over the next ten years. Although this may seem like a small amount when compared to the pension funding issue, it helps mitigate the annual increases in the state’s required pension payment and adds to the $1.6 billion annually contributed by public employees” [SB 2404 full text: read pgs. 15-16, 62-63, 69-70].

from the Teachers’ Retirement System of Illinois

“…The TRS contribution rate for active teachers would climb from the current 9.4 percent to 10.4 percent in the first year after enactment and to 11.4 percent in the second year. Active TRS members contributed $917.6 million to the System in fiscal year 2012 [At 11.4%, Illinois teachers will have the highest rate in the country].

“…The main reason the TRS funding level is only 40 percent is because state government has never funded the System at levels that an actuary would say are required to cover all long-term obligations. Since 1970, this funding shortfall to TRS totals $36 billion.

“Senate Bill 2404 calls for a new state law that guarantees the state will make an actuarially-required contribution to TRS every year. In Illinois, only pension benefits for members are protected as a contractual right by the state constitution. In other states, both pension benefits and state contributions to help fund the benefits are guaranteed as contractual rights for members... [Read about the New York State Teachers’ Retirement System].

“The Illinois Municipal Retirement Fund is the only statewide pension system that currently has a legal guarantee of funding (from local governments) and the IMRF funded ratio is 83 percent. Under Senate Bill 2404, if the state does not pay its annual contribution to TRS within a set period of time, TRS could go to court to force the state to pay the contribution in the same way that the IMRF can force local governments to pay their contributions.”