Illinois pension reform panel zeros in on COLAs

CHICAGO Fri Aug 23, 2013 7:04pm EDT

CHICAGO Aug 23 (Reuters) - Cost of living increases for pension checks would be tied to inflation under a plan being considered by an Illinois legislative panel charged with reforming the state's woefully underfunded retirement system, a source close to the negotiations said on Friday.

Employee contributions toward their pensions also would be reduced by 1 percent under the plan being considered by the 10-member bipartisan panel of state lawmakers. Taken together, the two changes could amount to a "consideration" that could help address constitutional challenges to any cuts in pension benefits.

An actuarial review of the plan, which includes other elements, found it could result in $145.6 billion in savings for Illinois through fiscal 2045 and could cut the state's $100 billion unfunded pension liability by $18.1 billion. The pension system for state, university, college, legislative and local school district workers would be fully funded in 30 years.

"This is what they are discussing pretty seriously," the source said.

State Representative Elaine Nekritz, a panel member and the House Democrats' point-person on pensions, said there is no final plan yet. She said COLA changes and contribution decreases could be items under consideration.

"Things are still very much in a state of flux," she said.

The legislative panel is looking at changing the current 3 percent compounded cost of living allowance (COLA) to reflect half of the inflation rate, subject to certain compounding, according to the source.

The plan being hammered out in a series of private small-group meetings could emerge as an alternative to two bills previously proposed by top legislative leaders, neither of which is under active consideration, panel members have said.

One bill, pushed by Illinois Senate President John Cullerton and state labor unions, would give workers and retirees choices between reduced benefits and continued access to state-sponsored healthcare in retirement would save only an estimated $47 billion. House Speaker Michael Madigan's bill, which calls for unilateral cuts to retirement benefits, could result in savings of $187 billion.

Neither bill made it out of the Democrat-controlled legislature's spring session, which ended on May 31. The impasse led to the formation of the panel.

"I would like to think we are close enough to join hands and jump in the pool," Nekritz said, regarding a final plan.

She said a decrease in employee contributions could be used to offer workers and retirees "consideration" for agreeing to cuts in pension benefits. Cullerton's bill offers consideration, while Madigan's does not.

Any pension reform is expected to face a constitutional challenge.

"We want to give ourselves as many arguments before the court as we can," she said.

Cullerton has argued that giving workers a choice is the only way around strong protections for public worker retirement benefits in the Illinois Constitution. And lawmakers, credit rating agencies and others believe any pension changes will be challenged in court on constitutional grounds.

Pension payments are squeezing out funding for core state services such as education and health care. Illinois' structural budget imbalance and pension liability have weakened its credit ratings to the lowest among U.S. states.

Frustrated with continued inaction on pension reform, Democratic Governor Pat Quinn suspended lawmakers' pay starting this month.

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Comments (4)
Timmytoby84 wrote:
Illinois retirees deserve the benefits they were promised. Anything less is a violation of the CONTRACT they signed. Should the people that worked hard their entire career have to pay the price for Illinois not managing its budget? Leave peoples pensions alone, try cutting some, or all of the states entitlement programs. Stop borrowing money you can’t pay the interest on. But it’s not all the states fault, were is the outrage from the people of Illinois? How could they be so silent while the state is being run into the ground. People can’t watch as this happens and say nothing, and not expect to share some of the blame.

Aug 24, 2013 3:30am EDT  --  Report as abuse
Earls wrote:
Timmytoby84 is absolutely right. Not only do retirees deserve the benefits we were promised, the State under law owes retirees the COLAs they paid into. Slashing COLAs as suggested in the Univ of Illinois Institute of Government and Public Affairs proposal would result in draconian cuts to a retiree’s standard of living. These cuts would not only be unconstitutional but they would be unethical and immoral as well.

Also, if these COLA cuts went through, not only would these cuts have a dire impact on retirees, but these cuts would also have an adverse impact on local and state economies. Such cuts will result in less discretionary money for retirees which will mean less money they will be plowing back into the local and state economies. Also, there will be more retirees looking at moving to other states where the cost of living is much less

Aug 24, 2013 9:59am EDT  --  Report as abuse
Bogner wrote:
100% correct Timmytoby84. The pensions hadn’t been properly funded by the state for Decades. Madigan, Cullerton and Quin have been in Illinois State Government for a long time. They make it seem like this issue just came up. They are part of the reason that Illinois is in this mess. The Politians have not fully funded the pentions stealing that money to use for other entitlement pet projects. The pensioners paid there part. Bernie Madof went to jail for a similar scheme. Maybe some Illinois politians should as well.

Aug 24, 2013 11:32am EDT  --  Report as abuse
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