Photo: William DeShazer / Chicago Tribune
Bruce Rauner has predicated his campaign on fixing the state’s finances, from what he believes is a tax structure unfriendly to businesses to the state’s overwhelming debt. On Thursday, after a whirlwind round of interviews, including one with Chicago’s Carol Felsenthal, Rauner gave his first press conference, in which he “continued to call out union leaders,” and how:
The pension mess is a disaster. And that is primarily an issue between the governor and the union bosses. The head of SEIU, the head of AFSCME, the teachers unions. It’s between the governor and them, primarily.
It is both a mess and a disaster. And the latest is that Pat Quinn is backing John Cullerton’s idea to offer up both the House and the Senate bills (discussed here previously). What would Rauner do? He addressed that, and it’s a bit different from what he says on his website, or at least suggests an intermediary step:
What we have to do, we have to protect the good, hardworking government retirees. Those folks who have been working for years to have try and retire on 30, 40, $50,000 a year - they need to be protected and they deserve a good retirement. Unfortunately the system has been defrauded in a major way. There are folks who have been spiked in. There are folks who are triple-dipping. There are politicians who have worked their way in when they weren’t even supposed to be in the pension. We have to clean up that abuse so we can protect the honest hardworking retirees.
“To do that we have to do two things. One, we have to end and cap the existing pension structure and protect it so it’s there. The folks who paid into it and the obligations that are in it need to be protected, and we need to fund into that as we can afford over time. But we need to end the current pension structure and protect it.
“We need to put a new pension structure in from this day going forward for our existing workers and our new workers. And we should offer them a range of choices so they can choose for themselves what sort of retirement they’d like to have. We should offer a defined-contribution plan like a 401(k). We should offer a blended plan like they’ve done in Rhode Island when they reformed their pensions. We should also offer, I think, a defined-benefit plan, but it should have very different characteristics and be much more affordable than the existing defined-benefit plan that we’ve got today.
It actually sounds a little bit like John Cullerton’s plan, at least in structure. The idea with Cullerton’s plan is that by giving pensioners a choice there’s a contractual agreement superceding the previous one, instead of a unilateral, less-likely-to-be-constitutional cut. The competing plan in the Illinois House would just cut benefits and let the Illinois Supreme Court be its co-pilot. By offering a choice, Rauner’s plan addresses the constitutional problem of pension cuts. It doesn’t solve it, but no one knows how to guarantee that.
The “blended plan,” if it resembles that of Rhode Island, splits the difference: a smaller pension with an additional 401k-like account. It’s a compromise: the retiree gets some guaranteed income, while the pension plan can respond somewhat to market forces. The carrot for state employees is that, like a 401k, you can take it with you if you change jobs. An Urban Institute survey of Washington State teachers, who have a choice between a defined benefit plan and a hybrid plan, found that younger teachers were more favorable to the hybrid plan than more experienced teachers, and I couldn’t help but wonder if that’s because expectations for job stability have changed so much.
The defined-contribution plan is basically just a 401k. They’ve had problems:
Stock market problems prevented retirements from 2000 through 2002 and those in the new plan “achieved much lower investment returns” than the closed pension fund. In 2005, West Virginia returned to a defined benefit plan.
Nebraska opted for a defined contribution plan in 1967, which it closed in 2002 for a plan that does not let employees control investments made with their accounts. Instead, it guarantees an annual return and then pays out like a defined contribution plan, according to the National Conference of State Legislatures.
As of 2010, only two other states and the District of Columbia had mandatory defined-contribution plans. Six others have optional ones.
Anyway, this is all a long way of saying that Rauner’s plan, at least as proposed during his press conference is… pretty moderate, in the sense that these ideas have been kicked around the Illinois legislature, including the hybrid plan. Only the 401k-like plan—which, on his site, Rauner says he wants to move towards—hasn’t gotten much traction, and under Rauner’s proposal, it would merely be an option. Unless Rauner’s plan for the defined-benefit plan to “be much more affordable” is much more aggressive than Madigan’s, his idea to redo the state’s pension plans is in the ballpark of what’s going on in the legislature now, and what could still be going on if Rauner is elected.