Friday, April 20, 2012

Quinn plan would force state workers to choose between pension cuts or losing retiree health care

By Jamey Dunn

Under a plan Gov. Pat Quinn laid out  today to reform the state pension system, workers would have to choose between retiring later and paying more for benefits or giving up state subsidized retiree health care coverage and not having any future pay increases figured into their pension benefits.

While Quinn acknowledged that the primary cause of the state’s $83 billion pension liability was governors and lawmakers failing to make the needed contributions in the past, he said today that benefits must be scaled back to ensure the future integrity of the state’s retirement systems. “I know I was put on Earth to get this done,” Quinn said at a Chicago news conference.

He added, “I really expect the legislature to rise to the occasion here.”

Under Quinn’s plan, employees of state government; public colleges, universities and local schools; and legislators would have to pay 3 percent more of their salaries into the pension systems. They also would not be eligible for full retirement benefits until age 67. Currently, contribution levels and retirement ages vary from system to system. Under Quinn’s plan, teachers would go from paying 9.4 percent of their salaries to 12.4 percent. University workers would see their contributions rise from 8 percent of their salary to 11 percent. Currently, many state employees can retire at age 60, but the number of years spent on the job also goes into determining retirement age and level of benefits. Quinn said the change in retirement age would be phased in but did not give details on how that would work. Quinn's plan would not affect judges, who also belong to a state retirement system, or currently retired state employees, according to Brooke Anderson, a spokeswoman for the governor.

Cost of living increases for future retirees also would be reduced. Retirees now receive an annual compounded 3 percent cost of living increase. Quinn’s plan calls for future retirees to get an annual increase of 3 percent or half of the federal Consumer Price Index, whichever is less. The cost of living increase also would not be compounded over time and would not kick in until a retiree reaches 67 or has been retired for five years, whichever comes first. Anderson said current retirees would not be affected by Quinn's proposed changes to the cost of living increases.

Quinn also said he supports shifting some costs to local school districts and state community colleges and universities, but he said that component of the plan is still a work in progress. “I think that this is a principle of accountability that everybody understands that those that are negotiating [employee contracts] should have skin in the game,” Quinn said.

He said his proposal would produce $65 billion to $85 billion in savings, not including savings produced by shifting some pension costs to local schools and state universities and colleges. He also said that by 2042, the state would commit to 100 percent funding for the pension systems, eliminating its current $83 billion pension liability. The target under current statute is for the pension systems to be 90 percent funded by 2045, meaning that they would have about 90 percent of the money needed to pay the projected future benefits of all employees in the systems. According to the United State Government Accountability Office, funding levels of 80 percent or more are considered “sound” for government pensions. The state pension systems overall are now about 43 percent funded. The funding formula, including a requirement that the state must fund the systems in the future, would be enacted into state law, Quinn said.

Quinn said individual state employees could choose not to go along with his proposal, but if they did, they would lose their state subsidized retirement health care, and any pay increases they earned after the plan was in place would not count toward their pension benefits. “Well, you can’t have both. You can’t have the current retirement plan and have the state of Illinois subsidize your health care in retirement,” Quinn said. “The state in the past has done both, and we can no longer afford to do both.”

Quinn added, “The other thing that employees will have is the assurance that the state will make the payments over the next 30 years.” He said he expects about two thirds of employees to opt for the benefit reductions over losing health care coverage. 

It is this choice that Quinn and others say allows the plan to adhere to a state constitutional requirement that pension benefits cannot be unilaterally reduced. “I do believe it is constitutional. … There is an opportunity here for each person who is in the retirement system to make a choice. We are offering some consideration to them,” Quinn said. ‘We are not under a constitutional obligation to offer subsidies for those who are retired with respect to their health care.”

Senate President John Cullerton has argued that benefits could not be reduced unless workers agreed to the reductions and received something of value in return. “Pension benefit rights can be changed if the General Assembly offers public employees something of real value and public employees agree to accept that offer. Illinois cannot simply welsh on its pension promises to public servants,” Cullerton said during a recent speech to the City Club of Chicago. Cullerton added: “Employees must have a real opportunity to accept or reject the General Assembly’s offer in order to pass constitutional muster. With that said, the General Assembly may build incentives to encourage employees to accept the offer.”

A statement from Cullerton's office in reaction to Quinn’s proposal would indicate that he thinks Quinn’s plan does just that: “While the proposal will need to be resolved through further discussions with stakeholders, Cullerton is pleased that the governor's proposal embraces the legal framework that will allow the state to control pension costs in a constitutional way.”

But union officials do not see it that way. “We strongly disagree with the proposals made today. Considering that the subject at hand is the ability of hundreds of thousands of Illinoisans to support themselves in retirement, we believe the proposals are insensitive and irresponsible,” Illinois AFL-CIO president Michael Carrigan said in a written statement on behalf of the We Are One coalition of unions. “By appearing to endorse these unfair and unconstitutional cuts, the governor has made the process of finding common ground much more difficult. Forcing public servants to choose between two sharply diminished pension plans is no choice at all. It is a clearly illegal attempt to solve the problem caused by past governors and the legislature solely on the backs of teachers, caregivers and other public workers.”

Teachers unions argue that such reductions would hurt recruitment efforts and deter people from entering the profession. “Today, Gov. Quinn announced a proposal to address the Illinois pension problem that will adversely impact many active [Illinois Education Association] members and make education a less attractive career,” said a written statement by the Illinois Education Association. Education officials have argued that keeping teachers working longer would cost the state more than $1 billion because senior teachers earn higher salaries than newer teachers.

Republican leaders responded positively to Quinn’s plan. “I think there’s some real good components in this,” House Minority Leader Tom Cross said at a Chicago news conference. “This will get the attention of employees who are worried about their pensions.” However, the Republican leaders said they could not support pushing costs to local entities such as school districts because they believe it would result in property tax increases. “The cost shift is not something we’re supportive of at this time. We have been clear on that from the get-go,” said Senate Minority Leader Christine Radogno. Democratic leaders have argued that it is only fair to expect downstate school districts to cover a larger chunk of their pension costs since Chicago pays for almost all of its teacher’s retirement system. “There are a number of other inequities in the funding systems, particularly in education. We need to reevaluate all of the equity issues,” Radogno said. “I think who funds the pensions, local or state, is a separate issue.”

Quinn’s recommendations come after a legislative working group was unable to reach an agreement on a proposal. However, group members said they would keep working on a plan. The governor had set a deadline of April 17 for the group to present ideas and said today that he believes he has to move forward. “There has to be something put forward by the governor that is a plan that can be enacted by a bipartisan majority of each [chamber].”

Cross said he want to make sure that any plan that is signed into law would have the best chance of surviving an inevitable court challenge.  “I think at the end of the day, regardless of what we do, it’s going to end up in court," he said.

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