Pensions
7:00 am
Thu May 9, 2013

Labor's Pension Deal: Best Bet Or Too Good To Be True?

The Illinois Senate is expected to vote Thursday on the latest proposal to fix the state's drastically underfunded pension systems. In what's become a multi-year pension debate, many aspects of the plan have been put forth before. But it has one element that makes it unique.

Brian Mackey reports.

It may seem as though there's been another new pension fix every few weeks. The Senate has previously approved two limited proposals — one dealing with state employees and members of the General Assembly, the other dealing with public school teachers. The House voted on a different, more comprehensive overhaul last week. That one would affect lawmakers, state workers, teachers, and university employees — basically all Illinois pensioners except judges.

But this latest proposal in the Senate has something going for it that that none of the other plans have had: the support of organized labor.

"I've been at this committee before over the last couple years — and in other committees — on pension legislation," says Dan Montgomery, president of the Illinois Federation of Teachers. "This is the first time, I'm happy to say, on one which we support."

Needless to say, he's not exactly happy to be supporting legislation that will reduce his members' retirement benefits. But with the House moving an even more Draconian proposal, the time must have seemed right to cut a deal.

"We've been frustrated at the other plans and proposals we've seen," Montgomery says. "Plans like SB1 — sent to the Senate from the House last week — result in a loss of nearly one-half of one's retirement."

So Montgomery and the leaders of other unions representing tens of thousands of public-sector employees cut a deal with Democratic Senate President John Cullerton. Addressing fellow members of the Senate Executive Committee, Cullerton laid out the choices employees would have to make.

Employees would face a choice: accept lower cost-of-living increases to pensions, and when they retire, they'll still be able to buy health insurance through the state. They'll also get to have future pay increases count toward their pensions.

Right now, retirees' pensions go up  three percent every year, compounded, regardless of the rate of inflation. Many other pension fixes would end that practice, giving a much smaller cost-of-living-adjustment, or COLA, tied to the consumer price index. The Senate plan would give either a three-percent, simple COLA — or one that's compounded if employees agree to pay more out of every check. Anyone who's already retired — or was set to retire as of Jan. 1, 2013 — would have to accept a two-year freeze on their COLA or they'd lose access to health insurance.

As Cullerton and the unions see it, all these choices area a key component of any pension overhaul. That's because government pensions are explicitly protected in the state Constitution, as Michael Carrigan of the AFL-CIO explains: "The Constitution mandates that our public pension benefits cannot be 'diminished or impaired.' We believe this legislation, in its present form, represents a fair, responsible, and constitutional solution to the public pension problem."

But not everyone that represents workers and retirees is on the same page. Bob Pinkerton is with the Illinois Retired Teachers Association. He says retirees should not have to pick between cost-of-living increases and health insurance.

"It is our opinion that a choice where it's kind of like either jump off the cliff or I'll shoot you is not really a very good choice," Pinkerton says.

His group is considering a lawsuit. The unions, however, have promised not to sue if the plan becomes law exactly as it is. That's a change of pace, since the unions have promised they would sue over just about every other proposal. Of course, anybody in the affected pension systems can sue, and there are hundreds of thousands of potential litigants. That's why Cullerton says his plan to offer choices saves about as much money as possible — at least without running afoul of the Illinois Constitution.

"If we unilaterally do it and the court throws it out, not only have we not saved any money, we've lost another year, which is another billion dollars," Cullerton says.

The measure passed out of committee on a vote of 10-5, with all the Republicans voting no. They've aligned themselves with the cuts advocated by House Speaker Mike Madigan.

The General Assembly is trying to meet an end-of-the-month deadline to wrap up its spring session. Until the House and Senate resolve their differences over how to address the $100-billion dollars in unfunded retirement liability, pensions are likely to remain at the top of the agenda.