Friday, May 1, 2015

Governor Rauner’s so-called pension reform plan, or breaking a constitutional contract with public employees, is illegal too

“…At issue is a difficult debate in Illinois over how to pay down a massive pension debt, now standing at nearly $105 billion, the product of decades of politically expedient decisions in Springfield to divert money due pension funds to more voter-pleasing causes. The shortfall has badly damaged the state's credit rating, and pension costs are consuming an ever-larger share of tax revenue.

“The battle over Tier 2 is separate from a different, broad-based pension reduction plan signed into law in 2013 by then-Gov. Pat Quinn. The Illinois Supreme Court is mulling the constitutionality of that reform package after hearing oral arguments last month. Critics contend the law violates guarantees in the Illinois Constitution that public pensions not be ‘diminished or impaired.’

“Rauner ripped Quinn's solution, pushing an alternative vision of pension reform that evolved as the campaign progressed last year. Then, after the election, Rauner said it would be prudent to wait on new pension actions until the state Supreme Court set ‘ground rules’ on what ‘probably works and won't work.’

“Once in office, however, Rauner did not wait for guidance from the court. His budget for the next fiscal year anticipates significant savings from extending the scope of the less generous — and less expensive — Tier 2 benefit structure…

“Under Rauner's proposal, veteran employees would be allowed to keep all retirement benefits they have earned up to the end of June. After that, everyone would be moved into the Tier 2 plan, with the exception of workers who opt to transfer their retirement benefits into a 401k-style retirement account similar to those now common in private industry.

“Jean-Pierre Aubry, an expert on public pension plans at Boston College, termed the benefit cuts of Tier 2 ‘pretty draconian,’ opening the door to future problems he said would be without precedent in the U.S. ‘There's a lot of things in Illinois that are different from the rest of the country,’ said Aubry, assistant director of state and local research at the college's Center for Retirement Research.

“Central to questions about Tier 2 is a federal tax provision sometimes referred to as the Safe Harbor rule. In short, it requires public pension plans to offer retirement benefits at least as good as the minimum workers would get if they were covered by Social Security.

“Failing that, federal law requires public workers to join Social Security and pay a 6.2 percent tax to the national retirement system. Their employers would also have to kick in another 6.2 percent, costing taxpayers more money. Most public employees and employers in Illinois currently do not pay Social Security taxes.

“Teacher retirement system experts say Tier 2 benefits currently meet the Safe Harbor test but will begin to fall out of compliance by 2027. The reason, they say, is that Tier 2 includes both a limit on benefits and inflation adjustments much tighter than those adopted by Social Security — leaving retirement benefits for some workers at risk of falling below what they could qualify for under the federal system…”

For the complete article, click here.

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