CHICAGO — A bipartisan group of Illinois lawmakers put their support Wednesday behind a new pension reform package that cuts benefits, raises employee contributions, and reduces the state’s burden for funding future teachers’ pensions.
The plan could shave $30 billion off the state’s $95 billion of unfunded pension obligations, supporters said. House Bill 3411 joins a growing list of pension reform legislation introduced during the new session after political divides derailed passage of a plan last year and during a special session early this year.
The state’s pension crisis is underscored by the system’s funded ratio of just 40.4% and annual increases of $1 billion in pension payments. The strain has contributed heavily to the state’s credit deterioration and analysts have warned without action in the coming months further downgrades are likely.
The new bill’s sponsors portrayed the plan — which includes key proposals filed in a House bill last year — as one with momentum and the best chance of drumming up enough support to win passage.
“This legislation is the most complete, fairest bill we could come up with that will solve our pension crisis,” House Minority Leader Tom Cross said Wednesday. “We believe that this legislation addresses the concerns of the many interested groups and will send a clear message to the bond houses that we are addressing our pension crisis.”
Cross is a lead sponsor along with author state Rep. Elaine Nekritz, D-Northbrook. They unveiled the plan alongside other supporters at a news conference Wednesday.
Like the Nekritz bill last year, the legislation would cap cost-of-living adjustments, raise the retirement age, raise employee contributions by 2% and cap pensionable salaries. The bill requires the state to make an actuarially based annual payment, and unions could go to court to enforce the provision. The current funding plan adopted in 1995 bases annual payments on a statutory formula that often falls short of the actuarially required contribution.
The plan dedicates $1 billion annually to the funding schedule once pension notes are retired in 2020.
The bill drops the Democratic-backed measure to gradually shift pension contributions for teachers and professors from the state to local districts and universities. Republican opposition over the cost shift helped kill the legislation last year. The new legislation establishes a hybrid defined benefit/contribution plan for teachers and professors hired beginning next year and requires local district and universities to fund those plans.
The plan puts the system on the path to full funding in 30 years. The changes would shave $30 billion off the state’s $94.6 billion unfunded liability, would save the state $160 billion in overall contributions to fully fund the system, and would reduce the scheduled payment of $6.8 billion in fiscal 2014 by $2 billion.
State budget officials, however, have previously said that they won’t incorporate any reform savings into the state budget for several years as any changes likely face a legal challenge by unions.
The bill does not include a backup plan like one pending in the Senate. Democratic Senate President John Cullerton’s bill includes some provisions of the Cross/Nekritz bill in what’s called Plan A. The bill also incorporates as a backup his plan that asks employees to accept benefit cuts and higher contributions in exchange for preserving their retiree health care subsidies. Cullerton’s backup plan would take effect in the event the courts rule that the Plan A changes violate the state constitution’s protections against impairing or diminishing pensions. Gov. Pat Quinn most recently endorsed Cullerton’s bill.
Cross and Nekritz said they believe various legal opinions support their plan’s ability to withstand a legal challenge. They argued that the current pension structure is so imperiled that the reform package could be characterized as one that strengthens and enhances, not impairs, it. They also cited the position of some lawyers who believe that the courts might give the state greater leeway to reform pensions in a situation construed as an emergency. “Anything is going to end up in the courts … the reality is nobody knows” what changes will hold up until decided by the courts, Cross said.