Monday, May 6, 2013

We Are One Illinois Union Coalition Reaches Pension Agreement with Senate President John Cullerton

The We Are One Illinois Labor coalition announced an agreement has been reached on pension legislation with State Senate President John Cullerton. [According to the We Are One Coalition], the agreement, which will be part of Senate Bill 2404, is a "constitutional alternative" to House Speaker Michael Madigan's Senate Bill 1, which was passed by the Illinois House last week and is waiting for a vote in the Illinois Senate. Senate Bill 1 is unconstitutional and unfair to the employees and retirees in the affected state pension systems.

The following statement from Michael T. Carrigan, president of the Illinois AFL-CIO, on behalf of the We Are One Illinois coalition:

"The union coalition has made a great effort to ensure fairness for the public employees and retirees who did not cause this problem, to ensure the stability of the pension systems for future generations, and to offer a credible way forward. This agreement is our coalition's bottom line.

"We continue to strongly oppose Speaker Madigan's mega-bill, SB 1, which threatens to rob the retirement savings of teachers, police officers, and others in public service, by 20-40 percent. His proposal is not only drastically unfair, but it is blatantly unconstitutional, rendering any advertised savings fictional.

"We urge lawmakers from both parties in both chambers to embrace the agreed bill and oppose Senate Bill 1."

The coalition also released the following details about SB 2404:

1. Include an ironclad pension funding guarantee to ensure that the state cannot skip or short payments to the state’s retirement systems. This fixes the fundamental, chronic problem of state underfunding and ensures that future legislatures and governors can never again engage in the type of fiscal negligence that led to today’s pension funding problem.

2. Dedicate state revenues to a Pension Stabilization Fund to make supplemental payments on top of the state’s required contribution. This major financial commitment will strengthen the retirement systems’ solvency.

3. Establish three choices for employees in Tier I: 
a) Move from a 3% compounded to a 3% simple COLA with a two-year delay. Employees choosing this option would 1) receive guaranteed access to health care in retirement; 2) ensure that all future salary increases count toward their pensions; 3) have the option to enroll in a cash balance plan (on top of their defined-benefit pension); and 4) for TRS participants, continued eligibility for the TRS ERO.

b) Choose to keep the 3% compounded COLA, but with a three-year delay before the COLA would take effect. These employees would also pay 2% more of their salary into the pension system. Employees choosing this option would receive guaranteed access to health care in retirement and ensure that all future salary increases count toward their pensions.

c) Choose to keep the 3% compounded COLA exactly as it is. These employees would not have guaranteed access to health care in retirement and would forgo any future salary increases counting toward their pensions.

4. Establish a choice for current retirees and those set to retire as of January 1, 2013:
a) Retirees could choose to keep their guaranteed access to health care and keep their 3% compounded COLA, but would agree to a two-year COLA freeze. The freeze would occur in non-consecutive years.

b) Alternatively, retirees could choose to keep their 3% compounded COLA without any freeze, but forgo guaranteed access to health care in retirement.

[Read Constitutional Issues Concerning Legislative Pension Reform Proposals by Gino L. DiVito, John M. Fitzgerald, and Katherine M. O’Brien of Tabet, DiVito & Rothstein LLC regarding a retiree's choice].

5. Create a Tier II task force to study improving the retirement benefits for Tier II employees.

The agreement is structured as a choice proposal, for which Senate President Cullerton has consistently advocated.  The legislation impacts those in the Teachers’ Retirement System (TRS), the State Universities Retirement System (SURS), the State Employees’ Retirement System (SERS), and the General Assembly Retirement System (GARS).  The proposal does not impact the Judges Retirement System (JRS).

Choice: Affecting Tier I Actives

Choice A: Lower COLA
Choice B: Keep Your COLA
Ø  Agree to 3% simple COLA with a 2 yr. delay
Ø  Receive retiree healthcare access
Ø  Enrollment in optional cash balance plan on a pre-tax basis by making an irrevocable election to join plan after choosing Choice A
Ø  Eligibility for ERO (TRS only)
Option 1:
Ø  No change to 3% compounded COLA
Ø  No retiree healthcare access
Ø  Future salary increases offered as non-pensionable
Option 2:
Ø  No change to 3% compounded COLA
Ø  Receive retiree healthcare access as consideration
In exchange for:
Ø  A 3 year delay in 3% compounded COLA
Ø  Paying an additional 2% in employee contribution over two years

Choice: Affecting Current Retirees (and Tier I Actives Already Set to Retire as of 1/1/2013)

Choice A
Choice B
Ø  No change to 3% compounded COLA, except that COLA is subject to a staggered two-year freeze
Ø  Receive retiree healthcare access
Ø  No change to 3% compounded COLA
Ø  No retiree health care access

Other Items in the Legislation:

Collective Bargaining: Prohibits mandatory bargaining over the benefit changes and employee contribution increases in the bill.

Pension Stabilization Fund: Adds the Pension Stabilization Fund schedule originally embodied in SB 2404, but starting in FY 2017.

Funding Guarantee: Includes funding guarantee language requiring State contributions to the pension systems under the schedule in current law. 


Click on Constitutional Issues Concerning Senate Bill 2404

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