Monday, March 18, 2013

Pension reform creeps along in Illinois legislature (a look at last week's legislation) by Doug Finke

Q. What passed the House?

A. The House has been voting on a series of amendments that deal with individual aspects of the state’s pension problem. Most of those have been rejected, such as plans to freeze retirees’ cost-of-living adjustments and raise working employees’ pension contributions by 5 percentage points. However, the House did approve two amendments and last week took final votes on the bills containing those amendments. House Bill 1154 limits the salary on which a pension can be earned to the Social Security wage cap, currently $113,700. People currently earning more than that would still get a pension based on those higher salaries. House Bill 1166 increases the retirement age on a sliding scale. Someone age 46 or older would see no change, but some people 34 and younger would have to work five years longer to earn full pensions. Although the bills passed the House, Representative Elaine Nekritz does not believe pension reform will be handled through the individual bill approach. “I still think we have to put the whole package together that hands the (Illinois) Supreme Court one piece of legislation to consider,” she said.

Q. Are there bills that do that?


A. Yes. Senate Bill 1 and Senate Bill 35 are both pending before the full chamber. In the House, the comprehensive reform bill is House Bill 3411. They are considered comprehensive because they incorporate many different elements of pension change. All of them would raise employee contributions and the retirement age. All of them would cap pensionable salary. They also all contain mechanisms to force the state to make its contributions to the pension systems. Significantly, they also all change cost-of-living adjustments automatically granted to retirees’ pension benefits. The bills delay when a retiree can begin receiving a COLA, and the COLA would be applied to only $20,000 or $25,000 of pension income, depending on whether or not a person is covered by Social Security. Also, the COLAs would no longer compound.

Q. Why are the COLA changes significant?

A. Governor Pat Quinn’s administration has repeatedly said COLAs are the biggest factor in ongoing increases in pension costs. Senator Daniel Biss, D-Evanston, sponsor of SB 35, testified last week that 80 percent of the pension savings produced by his bill come from the COLA changes. That would mean the annual state pension contribution could go down, which is why lawmakers are going through this exercise. [Read COLA: A Guarantee for Illinois Judges]

Q. So are all of the bills identical?

A. No. The single biggest difference is in SB 1, sponsored by Senate President John Cullerton, D-Chicago. That bill consists of two parts. Part A has all of the things the other reform bills contain, like the higher retirement age and COLA changes. Part B is Cullerton’s own plan. That’s the one where workers would have to choose between enjoying state-subsidized health insurance in retirement and a lesser COLA, or keeping the same retirement COLA and giving up the insurance. Cullerton believes offering a choice is the only way pension reform can survive a constitutional challenge. He wants lawmakers to pass his bill, and if the courts strike down Part A, Part B will already be on the books without further action by the General Assembly.

Q. Does Cullerton’s plan save as much money as the others?

A. No, and he admits that. But Cullerton also said his plan will save billions, and it’s better to have an immediate backup in place should the courts strike down Part A.

Q. Aren’t all of these plans unconstitutional because they diminish pension benefits?


A. Public employee unions certainly believe that is the case. Their legal experts can cite court decisions both in Illinois and in other states to support their argument that all of these bills will be voided by the courts. They cite the state Constitution’s pension clause, which says promised benefits cannot be impaired or diminished. Of course, advocates of pension change also have legal experts who can cite court decisions, both in Illinois and in other states, to support their arguments that the changes are constitutional. One point they raise is that the state’s pension systems are in such bad shape that cutting benefits can be legally justified to ultimately save the systems from insolvency, which would be the ultimate diminishment of benefits. ["No principle of law permits us to suspend constitutional requirements for economic reasons, no matter how compelling those reasons may seem" (from COLA: A Guarantee for Illinois Judges)].  They also point out that even the First Amendment to the U.S. Constitution, which guarantees free speech, is not absolute. [Read more rebuttal: Constitutional Issues Concerning SB 0001].

The Senate Executive Committee spent more than three hours last week debating the two Senate pension bills. Much of that time was spent by lawyers on the committee and lawyers representing those in favor and against the bills discussing fine points of constitutional and contract law. It also served to underscore the argument raised by many lawmakers: that no one knows what will happen until a pension proposal is passed, it is challenged in court, and the legal system decides the outcome. [Read more rebuttal Defending and Protecting Public Employees’ Pensions against Legislative Siege]

--Doug Finke
from Pension reform creeps along in Illinois legislature

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