Wednesday, March 20, 2013

Senate approves changes in pensions for current teachers

By Jamey Dunn

The Illinois Senate rejected a comprehensive pension proposal today, opting instead to approve benefit changes that would apply only to teachers.

Senate Bill 35, which is similar to legislation being considered in the House, received bipartisan support but fell seven votes shy of the majority needed to pass. The bill would:

  • Allow cost of living adjustments [COLAs] on only the first $25,000 of a retiree’s pension, or on only $20,000 for those who receive Social Security benefits. COLAs would not kick in until a retiree turns 67 or five years after retirement, whichever comes first. 
  • Increase the retirement age for employees younger than age 46. Employees from age 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. 
  • Limit the amount of pensionable income to the Social Security wage base, which will be $113,700 in 2013, or the employee's current salary, whichever is greater. 
  • Guarantee that the state make required annual payments to the pension systems. 
Sponsor Sen. Daniel Biss, a Democrat from Evanston, said the proposal would cut the state’s required pension payment by about $2 billion, reduce the unfunded liability by almost $30 billion and reduce total payments by about $150 billion. The unfunded pension liability is currently estimated at $96 billion.

Opponents argued that the bill clearly violates the pension protection in the state’s Constitution but that for the state to uphold other constitutional obligations, such as funding education and ensuring public safety, the state must be allowed to reduce retiree benefits.

But Biss said:  “Article XIII Section 5 [the pension protection] is not the only part of the Illinois Constitution. The preamble of the Constitution says explicitly the whole point of the document is to provide for the health, safety and welfare of the people; to eliminate poverty and inequality; to ensure legal, social and economic justice.”

Chicago Democratic Sen. Kwame Raoul said the language in the Constitution regarding pensions is clear. “You really don’t have to be a lawyer to read the plain language of Article XIII [which describes membership in a public retirement system as] a ‘contractual relationship, the benefits of which shall not be diminished or impaired.’ It’s plain English. Read Article XIII, please read it.” He said that if Biss’ plan were approved, it would be tossed out by the courts, and lawmakers would be forced to revisit the issue. “We can’t ignore it. We can’t just say we ... think that the court is going to look at this unambiguous language and say, ‘Oh well, um, we think the exigency of the circumstance gives us the opportunity to say, 'Oh, the heck with Article XII.’ The court is not going to do that,” he said. “In order to kind of do that, they would have to kind of conclude that this is our only option. They would have to conclude that this is an emergency, and this is the only thing we can do. ... and that’s not our only option. There’s several bills that have been introduced. They will be of record. The court will not ignore that.”

Biss said he does not think that cutting benefits is fair, but he said it is necessary to get the system and the state on stable footing. “The argument that we’ve all heard may many times is that the employees, of whom we are asking a very real sacrifice in this bill, have done nothing wrong. And they haven’t. That they have made every payment. And they have. That they were made a promise. And they were. ... I have never used the word fair when talking about this because they were made a promise and it isn’t fair.” But Biss said his proposal would “enable us out of the ashes of that failure, to build a system going forward that we can truly afford and to build a state going forward that we can all be proud of.”

Republicans who spoke in favor of the plan agreed with Biss. “We all know what a vexing problem this is. And no matter what we do, it’s going to be painful to someone,” said Minority Leader Christine Radogno. “We have a lot of great ideas here, but I think at this moment, this is the best, most comprehensive plan that we’ve seen to date, that tries to treat everyone fairly.” A dozen Republicans and 11 Democrats voted in favor of the bill. Radogno said she was disappointed with the outcome.

However, Rep. Elaine Nekritz, who is sponsoring similar legislation in the House, said that she was not discouraged because the vote was somewhat close. “For a bill that is as challenging as that bill, I was not that upset about the roll call.”

The Senate did approve SB 1, which would only to apply teachers who are currently working. But Senate President John Cullerton, who sponsors the bill, said that bill is only the first part of a package of reforms he plans to propose. “The pension clause states that membership in the state pension system is an enforceable and contractual right. I believe that means that benefits cannot be changed unless the legislature offers public employees and retirees a choice and the opportunity to consider and accept that offer,” Cullerton said in a prepared statement after the proposal passed. No Republicans voted in favor of the bill. “I also acknowledge that there are other interpretations of the pension clause and various ways to structure a reform bill. While it’s our job to pass a bill that addresses this crisis, it will be up to the courts to rule on the constitutionality of the legislation. In an effort to capture the maximum amount of savings for the state, I have agreed to sponsor a package of reforms. We addressed part of that package today.”

Under SB1, current teachers would be offered a choice. They could opt to give up their compounded-interest cost-of-living adjustments (COLAs) for access to the state’s health plan and access to a cash balance retirement plan in addition to their current benefits. Employees who opted to keep their COLAs would have their pensionable salaries frozen, so no future raises could be considered for benefits. Cullerton said he removed retired teachers and those who have already given notice that they plan to retire, because most would not opt to reduce their COLAs. So, he said, including them would not produce substantial savings. “We’ve reached a crossroads. We’ve had enough debate on these issues. Now it’s time to pass a bill,” Cullerton said on the Senate floor.

Republicans said Cullerton’s bill is not comprehensive and would not save enough money. “If we’re going to do it, let’s do it. Sen. Biss’ bill saves us seven times more money than this,” said Palatine Republican Sen. Matt Murphy.

While he said leaving retirees out of any pensions deal would be a positive step, Dan Montgomery, president of the Illinois Federation of Teachers, said SB1 is unconstitutional. “It’s a positive that they took retired teachers out. That’s true. They should take retirees out of every system [changes]; we’ve said that for a long time. Not only [because] of the constitutional reasons but out of fairness. ... That’s a good thing that they did that. But the bill still is unconstitutional, and the impact on active teachers we still believe should fail in the courts.”

Nekritz said that the Senate passing SB 1 would likely not have any immediate effect on the House, which has been considering several pension provisions individually on floor votes. “I can’t imagine that this will change the program that we’re on in the short run,” she said. “The Senate is going down its path and the House is going down its path, and at some point, we will need to reconcile them. But I don’t think it is that time yet.”


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