Illinois pension reform bill approved by legislature

December 3, 2013 (SPRINGFIELD, Ill.)

The measure is estimated to save roughly $160 billion over three decades.

The House voted 62-53 Tuesday in favor of the plan, which the Senate approved just minutes earlier. It now goes to Gov. Pat Quinn, who has said he will sign it. Lawmakers in the two Democrat-controlled chambers took up the plan after years of inaction on a problem that other states have addressed. It has damaged Illinois' credit rating and diverted key funds from schools and social service agencies.

Supportive lawmakers hope their votes will end years of fiscal instability and continued credit downgrades caused by Illinois $100 billion dollar unfunded pension debt.

"This is hard for a lot of people in our state so it's not something that I feel joy about," said State Rep. Elaine Nekritz, D-Buffalo Grove.

"There's a bit of relief but you know our work is far from done. There's a lot more work to do," said Sen. Kwame Raoul, D-Chicago.

The deal-- brokered by House Speaker Michael Madigan-- purports to save taxpayers $160 billion in pension payments stretched over the next 30 years.

"There's a balanced mix of benefit reductions and new funding," said Madigan.

The measure cuts retiree cost of living increases but lowers the amounts current employees contribute. It guarantees the state makes its contributions on time, sets up voluntary 401ks and raises retirement ages.

"This bill did not explain where the funds are going to go and what's to stop Governor Quinn from spending another couple of billion dollars," said Sen. Kirk Dillard, Republican candidate for governor.

Union leaders say the bill violates the state constitution which says public worker pensions shall not be diminished.

"We think this is the triumph of politics over the rule of law and therefore we will be in court," said Dan Montgomery, Illinois Federation of Teachers.

"There's some provisions in the bill that were added by the Republicans that make it less constitutional, there's no question about that," said Sen. John Cullerton, Illinois Senate President.

Governor Pat Quinn, who promises to sign the measure, said he did not know if pension reform would help his re-election effort.

"I hope people know that I work hard every day for the common good," said Gov. Quinn.

Legislative leaders say the plan will save the state $160 billion over 30 years by cutting retirement benefits for hundreds of thousands of workers and retirees.

Labor unions oppose the measure and say they plan to file a lawsuit arguing it's unconstitutional.

Mayor Rahm Emanuel issued a written statement on Tuesday that said: "Today, the Illinois General Assembly cleared a major hurdle by passing pension reform for the state's four retirement systems. Now state workers will have the certainty that pensions they paid into and are counting on will be there for them when they retire, and taxpayers can feel confident that they won't have to shoulder the burden alone. However, the work is far from finished. The pension crisis is not truly solved until relief is brought to Chicago and all of the other local governments across our state that are standing on the brink of a fiscal cliff because of our pension liabilities. Without providing the same relief to local governments, we know that taxpayers, employees, and the future of our state and local economies will remain at risk."

How proposed pension deal could affect retirees

Public employees could see significant reductions in long-term retirement income under a proposed bill that Illinois legislative leaders are pushing as a way to solve the worst-in-the-nation pension crisis. One of the biggest cuts would come from a change in annual cost-of-living adjustments. The proposal would change the COLA increase from the current rate of 3 percent compounded annually on the full annuity benefit. Retirees instead would receive increases at that rate only up to a certain amount of annuity benefit.

Joann Washington-Murry monitors the placement of kids in foster care and adoption for the state. It's a job that's given her a lot of joy in the last 20 years. And she thought a good pension as well.

"I was hoping to retire in four years and now I may have to rethink that," said Washington-Murry.

Washington-Murry expected to retire with a $25,000 a year pension. Under the new law, her union estimates she'll lose $1,042 of that per year. Over 20 years, it adds up to more than $81,000 in lost pension benefits.

"That's a part of the mortgage, the food, the lights, the gas, it's everything my pension will help pay in my retirement," said Washington-Murry.

An average retired teacher with 30 years of service received an initial benefit of $67,000 a year. After 20 years retired, the current program gives that teacher just over $121,000 annually. The new system brings it down to a little more than $91,000.

What do state workers gain in all of this? For one: The promise of politicians more fully funding their pensions.

"The pension funds, which are the last safeguards for people who have pensions, now have a right to sue the state if the state doesn't make it's contributions," said Lawrence Msall, Civic Federation of Chicago.

"I do not trust them to do what they say because their history shows they cannot honor agreements they sign," said Washington-Murry.

The Center for Tax and Budget Accountability has developed a formula to calculate estimated changes in retirement income over the years if the bill passes, based on the best information available right now, pension specialist Amanda Kass said.

Here are three scenarios:

Employee 1: Retired teacher, 30 years of service
Initial annual benefit: $67,000
Annual pension benefit after 20 years of retirement: $120,680 a year under the current pension system; $91,000 under the proposed changes
Cumulative 20-year decrease: $282,632

Employee 2: Retired Department of Children and Family Services caseworker, 20 years of service
Initial annual benefit: $50,000
Annual pension benefit after 20 years of retirement: $90,306 under current system; $63,000 under proposed changes
Cumulative 20-year decrease: $261,215

Employee 3: Central Management Services data processor, age 43, planning to retire in 15 years with 30 years of service
Initial annual benefit: $72,000
Annual pension benefit after 20 years of retirement: $130,000 under current system; $85,400 under proposed changes
Cumulative 20-year decrease: $441,700

Rauner allegedly lobbied lawmakers to vote against pension reform

"You have people who are trying to utilize this moment for their own, personal political gain and that's shameful," said Sen. Kwame Raoul (D-Chicago).

Senator Raoul was talking about Republican candidate for Governor Bruce Rauner and reports the wealthy businessman has lobbied House and Senate members to vote against the pension reform bill. The allegations have angered not only Democrats but also leaders of Rauner's own party.

"I think it's very unfortunate," said Sen. Christine Radogno (R). "In fact, I think it's unconscionable that anybody would use this issue for pure political gain."

"We can't play politics with this," said Sen. Bill Brady, Republican governor candidate. "This is meaningful reform. We need to pass this today."

"I think everybody who wants to see Illinois get better should support this bill and for those who don't see it that way they can explain their own actions," said Sen. Matt Murphy (R-Palatine).

A recent poll suggested Rauner is leading the four candidate Republican primary field. A spokesman neither confirmed nor denied that Rauner had worked against the pension bill, but added the measure is "like slapping a band aid on an open wound."

"Rauner is making a big mistake," said Rep. Michael Madigan, Speaker of the House. "He's making a personal mistake and he's making a political mistake."

Madigan, who claimed credit for mediating the bi-partisan pension deal, predicted Rauner would pay a heavy political price with Illinois voters.

"They'll remember that this is a guy that when there was a good solid agreement, ready to pass, was working against the agreement for his own political purposes," he said.

Unions blast pension overhaul plan

A coalition of unions opposed to a pension overhaul say it's a dark day for Illinois citizens and public servants.

The We Are One Illinois group said in a Tuesday statement that teachers, caregivers and police stand to lose potions of their life savings. The coalition says it has no choice but to challenge the bill's constitutionality.

The House and Senate approved a pension reform package Tuesday that's estimated to save roughly $160 billion over thirty years.

Proponents say the time to act is now as the state's roughly $100 billion pension problem sucks up spending from other areas like education.

Still, the union coalition blasts the proposal calling it a "pension-cutting" bill.

The group says it represents 1 million public employees.

A busload of workers from Chicago headed to Springfield to make their voices heard. The changes in the legislation will affect thousands of people. Gov. Pat Quinn said he supports the plan, but opposition has been mounting. About 50 Chicago Public Schools teachers who are against the plan left from Chicago's West Side at approximately 6:20 a.m. They said they believed the plan was unfair, and they wanted lawmakers to hear their concerns.

It purportedly reduces retiree cost-of-living adjustments and allows current workers voluntary 401ks. Although Chicago teachers technically would not be affected by the current bill, because their pensions are funded differently, they are afraid that their retirement accounts are next on the chopping block.

"We want to support other unions whose pensions are placed under attack. I'm here because I realize that if this is allowed to happen to them, the Chicago teachers will be next, and we are already feeling that the mayor has already asked that we be included in this pension bill, and we are absolutely opposed to that," bus passenger and Chicago teacher Patricia Boughton said. Lawmakers debate pension reform bill

House Speaker Michael Madigan opened floor debate Tuesday afternoon. Illinois has the nation's worst-funded state pension systems.

"The message is this is not a one-sided bill. There will be changes here, much-needed changes, but this bill is a well thought out, well balanced bill that deserves the support of this body, the state Senate and the approval of Gov. Quinn," House Speaker Michael Madigan said at the start of the House debate. "Something's got to be done. We can't go on dedicating so much of our resources to this one sector of pensions."

Public employee unions, who oppose the bill, vowed to quickly take legal action. They say the legislation is unfair to workers and retirees who for years made faithful contributions to retirement systems but now will see benefits cut because of government mismanagement. They also argue parts of the measure are unconstitutional.

Illinois' unfunded pension problem is considered the worst in the nation, primarily because lawmakers failed for decades to make the state's full payments to the funds. The massive unfunded liability has led the major credit rating agencies to downgrade Illinois' rating to the lowest of any state in the nation. It's also siphoned money from education, roads and other areas.

Yet for years, lawmakers have been unable to agree on how to fix the problem.

The measure approved Tuesday emerged last week following negotiations by a bipartisan pension conference committee and then meetings of Illinois' legislative leaders. They say it will save the state $160 billion over 30 years and fully fund the systems by 2044.

It would push back the retirement age for workers ages 45 and younger, on a sliding scale. The annual 3 percent cost-of-living increases for retirees would be replaced with a system that only provides the increases on a portion of benefits, based on how many years a beneficiary was in their job. Some workers would have the option of freezing their pension and starting a 401(k)-style defined contribution plan.

Workers will contribute 1 percent less to their own retirement under the plan. Legislative leaders say they included that provision, as well as language that says the retirement systems may sue the state if it doesn't make its annual payments, in hopes of boosting the measure's odds of surviving the unions' anticipated court challenge.

Quinn and the legislative leaders reached out to a number of lawmakers over recent days, urging them to support the bill.

In addition to the labor unions, some Republicans said they opposed the bill because it didn't cut benefits enough. Other opponents said there wasn't sufficient time for lawmakers and the public to review it.

The Associated Press contributed to this report.

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