Thursday, May 09, 2013

Senate passes rival plan for changing employee pensions

By Jamey Dunn with Meredith Colias contributing 

The Illinois Senate approved a union-backed overhaul of the state’s pension systems today, a week after the House passed its own pension plan. 

Senate Bill 2404 would cut worker and retiree benefits but would offer members of the pension system a say in what they give up and what they get in return for the reduction. Current employees would have three options:

Option 1 Employees would give up the current 3 percent compounded cost of living adjustment (COLA) for a flat 3 percent COLA that would be delayed for three years after retirement. In exchange, the employees would receive access to retiree health care plans, and future raises would count toward their pensions. They would also have the option of enrolling in 401(k)-like plan to supplement their pensions.

Option 2 Under this option, employees would keep their compounded COLAs but would lose access to retiree health care, which is currently subsidized by the state. Their future raises would not count toward pension benefits

Option 3 Employees would keep their COLAs and access to retiree health care, but they would pay 2 percent more of their salaries to their retirement benefits. Their COLAs would be delayed for three years after retirement.

Employees who are retired or who had given notice of their retirement by Jan. 1, 2013, would have two options:

Option 1 Keep the 3 percent compounded COLA but give up access to retiree health care.

Option 2 They could still have access to retiree health care and a 3 percent compounded COLA, but the COLA would be frozen for two years.

Senate President John Cullerton says that employees must be offered choices such as these to make any reductions in their benefits, which are protected by the state’s Constitution. “The contractual approach, I believe, is necessary to satisfy the pension clause of the Illinois Constitution,” which he says prohibits “unilateral reductions” of benefits. 

The proposal is backed by a group of public employee unions and teachers' unions. “Our coalition is encouraged by this powerful show of support for a solution developed with unions representing public employees and retirees,” said a statement from the We Are One coalition. “Today's strong, bipartisan vote in the Senate sends a clear message to the House: SB 2404 is constitutional, reasonable and responsible. The House should pass the bill without change or delay.” However, the Illinois Retired Teacher's Association opposes the bill and has threatened a legal challenge if it becomes law.

SB 1, the House plan sponsored by Speaker Michael Madigan, does not offer employees anything in exchange for benefit cuts. The bill would cap pensionable salary at $109,000, increase retirement ages for employers younger than 36 and increase employee contributions by 2 percent of their salaries over two years. Compounded cost of living adjustments would be capped based on the amount of time worked. For each year on the job, the cap would increase by $1,000. For example, if an employee worked for 30 years but received less than $30,000 of annual pension benefits, he or she would receive a compounded COLA until the pension benefit caught up with that cap. Then the COLA would be a flat amount going forward.

Madigan’s plan would shave more off the nearly $100 billion unfunded liability and save the state more in overall pension costs. SB 1 is expected to reduce the unfunded liability by $30 billion of the unfunded liability and save the state $140 billion in future pension costs. Cullerton said that depending on what options employees choose, his plan could reduce the liability by $8.5 billion to $15.7 billion and cut overall future pension costs by $45 billion to $52 billion.

Opponents of Cullerton’s plan said that it just wouldn’t save enough. “The big problem with this bill is that it doesn’t solve the problem,” Sen. Matt Murphy, a Palatine Republican, said during the floor debate. He told senators not to get “too hung up” about what bill might be constitutional. “There isn’t anybody in this room who has an opinion that matters even a little about the issue of constitutionality. Period. There are seven people on the Illinois Supreme Court whose opinions are the only ones that matter. You will find lawyers who will tell you this bill is constitutional. You will find lawyers who will tell you this bill is not. You’ll find lawyers who will tell you that the Senate Bill 1 that passed the House is constitutional. You’ll find some that will tell you it’s not.”

But supporters of Cullerton’s plan argue that the House proposal will not result in any savings if the court rejects it. “You can’t just say: ‘Oh, screw the Constitution. Let’s just proceed without it,’” said Kwame Raoul, a Chicago Democrat. Raoul said of SB 1: “It’s not constitutional just because you declare it's constitutional. You’ve got to make an argument based on the law.”

Gov. Pat Quinn this morning called upon Cullerton to put SB 1 up for a vote in his chamber. “I think it’s important for them – members of the Senate – to take a look at everything, but ultimately, it’s important for Senate Bill 1 to get a vote.” Murphy echoed that call on the Senate floor. “It’s May. This issue has dragged on for too long. We have a bill that is in all likelihood constitutional, that has passed the House, a bill that in all likelihood would have broad support in the Senate Republican caucus and a bill that the governor has indicated he would sign,” he said. “You’re on an island right now, given what I’ve just described. Please, please take yourself off the island. Focus on Senate Bill 1. And let’s finally get the meaningful pension reform that seems to be so close to our grasp if only you would be willing to take it.”

Cullerton pointed out that SB 35, which is similar to SB 1, did not gain the needed support to pass in the Senate. “That bill would have passed ... if every Republican would have voted for it,” he said. A spokesperson for Cullerton said that if Republicans can put up enough additional votes for SB 1 to pass, he would call it for a floor vote. “The bill that the House has passed, I believe, is risky if we pass that bill by itself because there would be a lawsuit. I think it [would have] a very difficult time being upheld. And we would delay by at least a year passing a reform. And we would then have to run back here [to] pass another law. There would be another lawsuit. We would lose at least a billion dollars of additional money we have to put in the pension system.”

Madigan said today that he does not know if he will call SB 2404 for a vote in the House. “I think the bill that passed out of the House is a good solid bill, well-thought-out, it has a broad base of support and it ought to be passed by the Senate. And I think they will pass it.” Madigan denied that the differing opinions between himself and Cullerton on how best to address the pension problem had become some kind of grudge match. “You can take that battle about personalities and throw it in the ashcan. This is all about correcting the serious fiscal problems in the state of Illinois.” When asked what he thought might cause the Senate to embrace his plan, he said, “I don’t have the answer to that question, but I have faith.”


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