Two-tiered pension plan still in the works

By Bethany Jaeger
While Gov. Pat Quinn withdrew a proposal last week to require existing state employees and teachers pay more for their health care and pension benefits, creating a two-tiered pension system that would affect newly hired workers is still very much on the table.

Proponents and opponents of the two-tiered concept contained within SB 1292 testified this afternoon before a House committee, and a committee vote is expected Thursday morning. (Changes are expected to the current version.)

Reducing pension benefits for newly hired employees is a critical part of Quinn’s overall budget plan for next fiscal year. He also would short the amount the state pays into the pension system by $2.8 billion over the next two years, but that’s completely separate from SB 1292. “This is a step we have to take, really, to get to that discussion,” said David Vaught, a senior adviser to the governor. He added that a two-tiered system is essential to maintaining a defined benefit plan for public employees. “It’s time to step up and take this one on.”

Rep. Kevin McCarthy, an Orland Park Democrat sponsoring the bill, said reduced benefits for new employees hired after August 1 would help establish a more sustainable pension system that the state could better afford in the future. Illinois ranks last in the nation in terms of having enough money on hand to afford its projected pension obligations.

“All this is going to fit into the final [budget] discussions at the end of the day, but if we don’t make reforms that are included in this bill, talk of any kind of changes in the funding system are very difficult,” he said.

Such business-based organizations as the Civic Federation's Institute for Illinois' Fiscal Sustainability and the Taxpayers Federation of Illinois support the concept of a two-tiered system for new hires. (The General Assembly already uses such a system.) Tom Johnson, president of the Taxpayers Federation of Illinois, described Quinn’s proposed changes as an appropriate way to “modify the plan to reflect today’s reality,” referring to the longer amount of time people draw on their pension benefits because they live longer.

Strong opponents include labor unions, teachers’ unions and the Center for Tax and Budget Accountability. Michael Carrigan, president of the Illinois AFL-CIO, described the proposal as “anti-worker,” while the executive director of the American Federation of State, County and Municipal Employees Council 31, Henry Bayer, said the state pensions aren’t excessive. The average annual pension benefit is $18,000. “You can’t even buy a Ford,” he said.

The Illinois Federation of Teachers’ president, Ed Geppert, testified that Quinn’s plan is “more fiscal nonsense” and that he doesn’t trust the administration’s projected savings. He added that requiring teachers to work until age 67 would cost an additional $1.4 billion in 2009 dollars for the added years of salaries.

The labor and teachers’ organizations also alleged that the state’s failure to make its regularly scheduled payments, not the level of retiree benefits, is the true root of the problem. And reducing benefits for future hires would cause a disincentive to accept and keep a state job, resulting in a lower quality workforce and education.

Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability, testified that the state can’t rely on “long-term, highly speculative” savings as a real revenue source to pay pensions. The temptation will be to take the savings up front.

McCarthy said he would try to make more concrete savings estimates available Wednesday.

The legislature’s economic forecasting arm, the Commission on Government Forecasting and Accountability, recently released a report about Quinn’s pension plan. See highlights of SB 1292 and comparisons of Quinn’s plan versus the current payment schedule.

Until Thursday morning, here are a few highlights of SB 1292:

• If enacted, teachers, state employees and judges hired after August 1 this year would earn the lesser benefit and have to work until age 67 before they could retire without penalty. They could retire at age 62 without penalty if they already put in 35 years.
• The retirement life annuity would be 2 percent of the final average salary for each year of service, with a maximum of 70 percent of the final average salary (based on the final eight years of average salary).
• If workers wanted to retire at age 62, the retirement life annuity would decrease by half of a percent for each month they’re below age 67.
• They couldn’t work another full-time state job or teaching job after they retired and drew upon their pensions. If they did work again, they would have to start repaying into the pension system and suspend their benefits.
• The bill currently would not allow teachers and state employees to buy back time used during pregnancy leave so they could retire on time. McCarthy said he’s working to erase that provision so workers could still buy back pregnancy leave, as they can now.