Here’s How a New Amendment Would Change Pensions in Illinois

The state House just passed a bill that would caps salaries, give cost of living adjustments, and more. Here’s what it would take to get the Senate to approve.

photo: Lane Christiansen/Chicago Tribune 

Speaker of the House Michael Madigan sponsored the amendment to change Illinois’s pension system.  

The debate in Springfield over how to revamp the state’s public pension system recently reached a stalemate. Legislative leaders couldn’t agree on what changes may or may not be constitutional, and businesses leaders were sending out what Whet Moser called “mixed messages” about their preferred “reforms.”

As often happens under the Capitol Dome, though, a proposal that looks dead in the water in April starts swimming upstream quickly in May.

And sure enough, moments ago, the full chamber passed the measure 62–51.

Here’s some background on what led to the most recent negotiations:

Yesterday morning, House Speaker Michael Madigan (D-Chicago) filed an amendment to an existing pension bill (SB1) and, within hours, guided it through a vote in the House Personnel and Pensions Committee. (The roll call was 9-1 in favor.) House Minority leader Tom Cross (R-Oswego) was added as a co-sponsor, signaling Madigan’s alterations had broad bipartisan support. That was confirmed with today’s vote.

What would the amendment do? Illinois Issues’ Jamey Dunn published clear details about the most notable changes:

Increase the retirement age for employees younger than 46. Employees from 40 to 45 would see a one-year increase, employees 35 to 39 would see a three-year increase and employees 34 and younger would see a five-year increase.

Require employees to contribute 2 percent more of their salaries. The increased contribution would be phased in over two years.

Cap pensionable salary at $109,000, the limit that is currently used for Tier Two employees. The cap would increase at the rate of one half of the Consumer Price Index that is set for urban consumers.

Base the amount of pension benefits that would be eligible for cost-of-living adjustments (COLAs) on the amount of time employees worked. For each year of employment, $1,000 (or $800 for employees who receive Social Security benefits) of pension income would be eligible for a COLA. For example, if an employee worked for 30 years, then $30,000 of his or her retirement benefit would see an annual COLA. Before employees reached their cap, they would receive a compounding COLA. After they reached the cap, they would get a flat annual increase.

The last change is key; retirees receive a 3 percent compounded increase in retirement benefits each year, in theory to keep up with inflation. For example, a government worker who starts out with a $10,000-a-year pension will receive $10,300 from the state in year two, after the cost-of-living adjustment. In year three, his pension base grows to $10,609. The COLA, however, has exceeded the rate of inflation 13 times over the past two decades, according to the Sun-Times. In 2012, officials from the Illinois Teachers’ Retirement System reported that 21.3 percent of the total retirement benefits the state paid out to (non-Chicago) teachers came from the compounded increases. It’s a big chunk of the hole the state finds itself in.

The speaker’s measure, according to Rep. Elaine Nekritz (D-Northbrook), his point person on this issue, could save $150 billion over 30 years and would fund the pension systems fully by 2045. (This is based on estimates of older bills of similar scope. No actuarial analysis of this new plan has been completed yet.)

It would apply to public school teachers outside of Chicago, state employees, legislators, and university and community college employees. (Judges are excluded.) And if the General Assembly skirted its obligation to pay up, something workers have never done but lawmakers consistently and blatantly have, “the systems will have a right to bring a mandamus action to compel the State to make the payment.”

Senate President John Cullerton (D-Chicago), whose chamber would need to pass SB1 before Gov. Pat Quinn could sign it into law, is holding his cards close to the chest. His interpretation of the state’s constitution differs greatly from Madigan’s; Cullerton has insisted that workers be given a choice between keeping their current cost-of living-adjustments or giving up state-subsidized health insurance when they retire.

Yesterday, he met with labor reps in an effort to hash out a compromise that would soften the blow for employees:

A similar package pushed by Sen. Daniel Biss (D-Evanston) failed last month, drawing only 23 of the necessary 30 Senate votes to pass. Cullerton said he intended to vote for Madigan’s bill if it reached the Senate, just as he was one of the 23 yes votes on Biss’ bill. But Cullerton stopped short of saying he would work a roll call to pass the Madigan rewrite or predicting whether it could reach the 30-vote threshold for passage in the Senate.

In fact, Cullerton indicated he was working on developing an alternative to Madigan’s rewrite by working with public-sector unions that have fought tooth-and-nail to keep the pension cost-of-living boost intact. He and the union leaders met privately on Wednesday. “We’re also working on another proposal, and the speaker’s aware of that, too, which we may pass out of the Senate. We’re still working toward getting an agreement,” Cullerton told the Chicago Sun-Times.

Details were hard to come by, as Rich Miller notes. What we do know is that union leaders are pissed at the speaker, and they would absolutely challenge this law in court. “It’s good that you‘re not kicking the can down the road,” said Henry Bayer, executive director of the American Federation of State, County and Municipal Employees. “It’s bad that you’re kicking our members in the butt.”

What to make of it all? The Tribune editorial page issued its customary tough talk to workers on behalf of “taxpayers,” even though employee contributions and investment earnings cover the bulk of defined benefit costs. Amanda Vinicky thinks “it may be a case of Madigan playing bad cop to Cullerton’s good cop, setting the stage for passage of a long-awaited pension plan.”

That’s a reasonable assumption, though one I’m not ready to make. Madigan, for what it’s worth, is confident the Illinois Supreme Court would uphold his theoretical statute. We’ll know more by month’s end.

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