CHICAGO — Ill. Gov. Bruce Rauner's proposed $2.2 billion pension reform plan needs a thorough review to determine its long-term impact and whether it runs afoul of federal rules ahead of a legislative vote, two Illinois lawmakers said.
State Rep. Elaine Nekritz, D-Northbrook, and state Sen. Daniel Biss, D-Evanston are sponsoring resolutions that seek a detailed analysis from the pension funds on the potential impact of the proposals and a federal review of their legality.
The two are considered Democratic point persons on pensions in the General Assembly. They helped craft past reform proposals aimed at stabilizing a system saddled with $111 billion of unfunded obligations and a funded ratio of just 39%.
"We need to make decisions on pension reform based on core principles of mathematics, law, and basic fairness," Biss said. "It is unjust to these employees and dangerous for the state to do anything less."
Rauner's proposed fiscal 2016 budget counts on $2.2 billion in savings primarily achieved by freezing as of July the level of benefits earned by employees hired before 2011. That's when a reduced tier 2 benefit structure was adopted. Rauner's proposed changes would shave $100 billion off state payments owed over the next 30 years and $25 billion off the state's unfunded tab.
The tier 2 scheme would be applied to benefits earned by pre-2011 employees going forward. The tier 2 structure offers lower cost of living adjustments, higher retirement age, and caps pensionable salaries. Public safety employees would be exempt from the changes.
Rauner now wants to exempt overtime pay from salary that counts toward an employee's annuity. The plan also offers an optional buyout for employees who started before 2011 who agree to lower a lower COLA and move to a 401(k)-style plan. Budget documents stress that accrued benefits earned by retirees and current employees would be protected.
The state's scheduled payment for its pension system next year is $6.6 billion, up $580 million from this year. Although the state approved pension reforms in December 2013, recent budgets did not assume any savings because of the expected legal challenge.
A state court last year voided the 2013 pension reforms that cut benefits including cost-of-living adjustments finding them unconstitutional. An appeal of the decision is pending before the Illinois Supreme Court.
The Rauner administration has stressed its position that its proposed reforms are within the state's constitutional framework because accured benefits are protected. Action is needed quickly due to the weight of the state's pension woes, his administration argues.
"Illinois' current pension system is unaffordable and choking the state's budget, and the governor's plan enacts true pension reform for the financial future of Illinois," the Rauner administration said in a statement Tuesday. "Senator Biss and Rep. Nekritz' caucus staffs received the governor's proposal weeks ago to review, and the administration believes there is ample time to review and pass the governor's pension plan."
Nekritz disagreed. "Every time we have considered pension reform proposals in Springfield, we have relied on detailed analysis from the retirement systems on how the changes would affect their retirees to guide our decisions," Nekritz said. "The governor's plan should be no different. With the very real questions out there about Tier 2's viability, we must take these steps to prevent decisions that could make our pension problem much worse."
A key concern raised by the two lawmakers is whether the Tier 2 benefit level will eventually fail a federal requirement that the state provide a retirement plan with benefits comparable to Social Security which state employees don't pay into or receive any benefit from. Some experts have suggested the Tier 2 plan may fail the test, so increasing the number employees receiving those benefits would only serve to drive up future costs, the lawmakers warned.
The rookie Republican governor's proposal to eliminate a more than $6 billion 2016 deficit in his first budget through deep spending cuts without any new revenues, and his reliance on pension reforms that are likely to face a legal challenge, have raised the ire of Democrats, who control the General Assembly.
"Putting savings from any of these proposals in fiscal 2016 seems to be an absolute fantasy," Biss said.
Ilinois has the lowest ratings of any state at the A-minus level, with negative outlooks across the board due to budget, liquidity, and pension pressures.