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Pension Plan Awaits Gov. Action
Tue November 12, 2013
A Possible Pension Legal Test
Another legislative session has gone by without a solution in place to bring down the amount Illinois owes the state's retirement systems. Given the clamoring from the governor, business leaders and credit rating agencies for lawmakers to do something about it, legislators mentioned relatively little about pensions before adjourning from their fall veto session last week ... which may well be a sign that something is afoot; there's talk of legislators returning before the year's end to deal with pensions.
To say that the General Assembly adjourned without doing anything related to pensions isn't entirely true; it just didn't involve any of the five state-run retirement funds, which cover state workers, downstate and suburban teachers, public university employees, legislators and judges.
To listen to the Speaker Michael Madigan's introducing Senate Bill 1523 to the Illinois House, it's seemingly inconsequential to anyone that doesn't work for the Chicago Park District.
"This bill is concerned with the Chicago Park District pension fund," he said. "This a local pension system. It's not a state pension system. There is no state money involved with this pension system."
Given that, the package attracted little attention. Despite all of the controversy over pensions, this plan passed pretty easily: only 40 of the General Assembly's 177 members voted "no."
But the measure could prove significant.
Like Illinois' retirement systems, the Chicago Park District's pension fund has far less money saved than it should. So much so that the park district warns it's careening toward bankruptcy in a decade. With an eye toward getting back on track, the Chicago Park District asked the state for permission to change its retirement offerings. The measure - now awaiting Gov. Pat Quinn's action - reduces the size of workers' and retirees' pension payouts, raises the retirement age (for workers age 45 and younger), and requires both the park district and its employees, to incrementally pay more money into the pension fund.
All are concepts that have come up at some point or the other in state legislators' talks over what to do about Illinois' own pension situation; and all of which could be seen as a breach of a line in the state constitution that says government pensions -- from the state's to a park district's -- shall not be diminished nor impaired.
"We here in the Senate are not the Supreme Court and unless we pass a bill that someone can challenge we are never going to know," said Senate President John Cullerton, who sponsored the measure in that chamber. "If these unions object to this bill, they can go to court. We know what their arguments would be. They would say that we are unilaterally increasing employment contribution rate without any benefit increase, and there's no consideration -- all of those arguments would be made; there's no funding guarantee. But let them make that in court. in the meantime we should pass this bill and recognize the face that this pension system has come together to try to improve their finances and they need our support."
A law affecting Chicago area Metropolitan Water Reclamation District workers' pensions passed over a year ago -- but so far, no lawsuit has been filed to drop it.
Some unions that represent Chicago park district employees signed on to the measure that will reduce their retirement benefits -- after all, it's in their interest the system doesn't go belly up.
But others, like SEIU 73, which says it represents a majority of park district workers, are adamantly against it. That's noteworthy because the local SEIU organization is a campaign contributor to Gov. Quinn, who's been clamoring for a state pension overhaul, putting him in a tricky spot. Likewise, a statewide organized labor coalition issued a statement saying the plan unfairly slashes constitutionally-protected benefits, and harms the retirement security of thousands of workers.
Though they haven't explicitly said they will, the unions could sue. If so ... the Chicago Park District's pension plan would serve as a test case for Illinois' state systems.
"Until we pass a bill for the Supreme Court to consider -- it might by the Park District bill, I don't, I'm not in charge of lawsuits, I'm sure the unions, you know, would be doing that -- but until you get in front of the Court you don't know that for sure," Cullerton said. "If the court does strike down the law, then at least we'd know what we can come back and work on as soon as possible."
For now, though, lawmakers are forging on with a proposal to reduce the state's pension costs in some of the ways the Chicago Park District did.
There have been a bunch of attempts over the past couple of years, none of which made it through the General Assembly. But the legislators' leaders are giving tempered signs that an agreement may be near. Cullerton said "oh yes" when a reporter asked if a deal's closer than it had ever been. And the Senate's top Republican, Christine Radogno, had a similar take, on the last day of the veto session last week.
"Good news is, there have been four leaders' meetings in two weeks. There is a lot of focus on resolving this issue. I think a lot of good progress has been made," she said. "There are no guarantees, but I'm encouraged."
Radogno says it's different than before because this time all four of the legislature's leaders are actively engaged. As a result of those meetings, the leaders are eyeing a new platform.
One of the central fights is what to do about the three-percent-compounded cost-of-living adjustments pensioners receive every year -- it's seen as one of the biggest pension costs, and therefore one of the best places to find savings. The leaders are looking at using a different formula: an employee would get a COLA on $1000 times the number of years they worked for the state.
"It's been discussed before," Radogno said. "The concept is to make sure that our lowest paid and longest-serving employees are protected from inflation. The idea of a defined benefit is that people have something they can rely on. That's what Social Security is for people that don't have pensions. And we need to be sure that people at least have access to that level of retirement benefit. Beyond that, it's adjust the savings, so that people who are higher earners, and who haven't worked for the state as long, probably under some of these scenarios would be hit a little harder."
The leaders' plan also uses of a legal theory that President Cullerton has coined as "consideration." In an attempt to ease concerns over the constitutionality of such changes - the leaders' plan gives workers a mini perk in exchange for forcing them to take benefit cuts: they would put one-percent less of their paychecks toward their pensions. The employer - the state in this case - would have to pay more.
There's a loose agreement that this could be the way to go. Cullerton, Radogno and Madigan have all said that it's possible the General Assembly could come back - likely early December - for a vote. But President Cullerton says it all depends on how much it saves. Actuaries are scoring it now. If it saves too much, it may be seen as too harsh a cut in workers' benefits; or it could be seen as saving too little and not going far enough.
"All of the leaders agreed that we're not going to vote on something unless we know how much money it saves," Cullerton said. "And so that's where we are. That's the status. The problem with it is, if we comes back a certain number - might be lower than expected or higher than expected - then we have to go back to our members and see whether or not they would vote for a bill that has those numbers. And if not, then we might have to go once again and tweak it again. But people should know that we're working on it. We're close. All four caucuses are split, it's not a Republican vs. Democratic issue. And it's hard getting past 30 votes."
Though it's framed as a compromise, even a leaders blessing won't move some legislators off of their long-held, and disparate, opinions about pensions. Sen. John Sullivan, a Democrat from Rushville, says he wouldn't vote for the latest proposal.
"The benefits that are being taken away from current as well as retired state employees goes far beyond what I believe the constitution allows. And again, we haven't seen the final version, but from what I have seen thus far I think it's unconstitutional," Sullivan said.
Just what is and isn't constitutional is a question only the courts can answer -- and maybe they'll be asked to do just that with the Chicago Park District's Pension plan. But there are plenty of legislators who say they swore an oath to uphold the state's constitution, and they won't back any pension overhaul that would have them break that oath.
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