Thursday, August 22, 2013

This unbalanced pension reform proposal is also being considered by the pension committee


“[A] proposal to alter public employee pension systems in Illinois would significantly undermine the retirement security of teachers and state workers. An estimated 80 cents on the dollar of pension system savings from the plan would be borne by retirees through a reduction in cost-of-living increases over the course of retirement. These benefit cuts would make it more difficult for Illinois public schools and the state to recruit and retain qualified college-educated employees. Additionally, the plan would create a new threat to the financial sustainability of the state's existing public pension systems, in part by diverting a third of funds contributed by new employees away from defined-benefit pension pools to individual retirement accounts. The plan could result in a drop in investment returns on the state's pension assets with state tax payers left to make up the difference...

·         [This proposal] would be highly inequitable in its distribution of costs…

·         It would undermine the retirement security of Illinois public-sector retirees, and especially harm those who live a long retirement… The proposal would give most Illinois public-sector employees less protection against inflation in their retirement income than the average inflation protection enjoyed by most other U.S. retired seniors…

·         [The proposal's] COLA reduction is more than four times larger than a proposed adjustment to the Social Security inflation index perceived by many as an unacceptable erosion of retirement security…

·         [The proposal] would hamper the ability of Illinois public employees to attract and retain qualified college-educated employees, including teachers…

·         It would introduce a new risk to Illinois taxpayers. The proposal would reduce funds going into the state’s existing defined-benefit pools and increase the share of defined-benefit pension obligations owed to retirees and to older active employees…

·         The proposal’s hybrid defined-benefit/defined-contribution plan would have additional downsides for retired public-sector workers. Future Illinois public-sector employees would bear increased financial market, or investment, risk in their retirement plan because of the shrinkage of the defined-benefit multiplier under the hybrid plan from 2.2% to 1.5%... (Someone who works 30 years with a multiplier of 2.2% receives a base pension benefit equal to 66% of salary. With a multiplier of 1.5%, this benefit drops to 45% of salary)… The combination of a lower multiplier and a lower COLA would mean a reduction in retiree benefits of more than half (53%) compared to current Illinois pension plan participants who were in the system before 2011…

·         The overall pay package for Illinois public school teachers could become increasingly non-competitive. This would compound the challenges of attracting and retaining a great teacher for every Illinois public school classroom…”


To read the full report, click here: “Universities” Proposal Would Erode Retirement Security, Weaken School’s Ability to Retain Talented Teachers, and Create New Threat to Financial Sustainability of Illinois Pension Funds by Stephen Herzenberg and Howard Wial


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