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New Illinois Pension Reforms Offered

CHICAGO – A group of Illinois House members unveiled a pension reform package unveiled Wednesday that cuts future benefits and shifts the burden of funding teacher pensions to school districts, billing it as a road map to help dig the state out from $96 billion in unfunded liabilities.

“We have supported other reform legislation and would definitely consider other good ideas moving forward. But we must continue to push this issue forward and not let excuses get in the way of progress,” said Rep. Elaine Nekritz, D-Northbrook, a co-sponsor of House Bill 6258. Nekritz is chairwoman of the House Personnel and Pensions Committee and has served as a lead negotiator on reforms.

Several Republicans signed on to the bill.

With the state struggling to meet rising annual payments to address its unfunded obligations, advocates pushing for reforms called the package a positive step as lawmakers attempt to reach agreement on a package to vote on early next month.

At the same time, questions over whether it would pass state constitutional muster were raised. While encouraged over some pieces of the legislation, Senate President John Cullterton, D-Chicago, issued a statement saying: “The larger proposal appears to impose unilateral pension reductions without offering voluntary acceptance by participants. We appreciate the efforts of Representative Nekritz and her colleagues but we will take a closer look at the plan to see if it can be squared with the pension clause.”

The state constitutional affords strong contractual protections to promised employee benefits.

The new bill includes many of the provisions floated by Quinn and other lawmakers earlier this year with some new ones. It calls for the pension plan to reach strong funded status in 30 years with state funding obligations cemented in law. It limits cost-of-living increases to the first $25,000 of a retiree’s annuity, increases the retirement age between one to five years depending on current age, raises employee contributions, and shifts new employees to a hybrid pension plan.

The legislation also limits legislators’ pension increases, gradually shifts the burden of funding teacher pensions from the state to local school districts, and requires revenues that now go to retire various pension-related debt be directed to pay down obligations once the debt is retired.

The new plan’s sponsors acknowledged that there’s no guarantee any changes can withstand a legal challenge, but said they believe the changes impact only future benefits while protecting already earned benefits. Reviews conducted by legal firms have differed as to whether the state can change benefits not yet earned without running afoul of the constitution.

Quinn and Senate and House leaders earlier this floated a plan that asked state workers to voluntarily shift to a new plan that raised the retirement age, limited cost-of-living increases, and gradually shifted the teacher funding burden to districts.

In exchange, workers would preserve their access to state subsidized retiree healthcare. Supporters believed the plan could better withstand a constitutional challenge expected from unions because workers and retirees would opt to make the change or not.

That plan stalled over Republican opposition to the teacher cost-shift. Lawmakers are hoping to reach agreement on a plan during a brief legislative session before Jan. 9 when the new General Assembly is sworn in.

Although Democrats increased their majority in both chambers in the November election, delays on a pension vote could bog the issue down in budget debate.

Quinn issued a statement on the new plan saying: “As we continue negotiations and discussion on how to achieve comprehensive pension reform as soon as possible, this latest bipartisan proposal sponsored by Rep. Nekritz is a welcome contribution.”

The state’s current unfunded liabilities total $94.6 billion for a funded ratio of 40.4%. The state’s pension woes have contributed to a series of rating downgrades and to an interest rate penalty that can range from 45 basis points to 175 for the state and other Illinois issuers.

Standard & Poor’s rates Illinois general obligation debt A with a negative outlook. Moody’s Investors Service rates the state’s $32.8 billion of general obligation debt A2 with a stable outlook, and Fitch Ratings assigns an A rating and stable outlook.

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