Governor Quinn – Pension Proposal 2012
FOR IMMEDIATE RELEASE
April 20, 2012
Governor Quinn Proposes Bold Plan to Stabilize the Public Pension System
Plan Eliminates Unfunded Liability by 2042; Changes Will Save Taxpayers Billions
CHICAGO – Governor Pat Quinn today announced a bold plan that secures public workers’ retirement while fixing the state’s pension problem that has been created over decades of fiscal mismanagement. The proposal is expected to save taxpayers $65 to $85 billion based on current actuarial assumptions. The changes will lead to greater certainty in Illinois’ business climate, respond to concerns from ratings’ agencies regarding the state’s unfunded pension liability and support the continuation of the state’s capital plan that is putting hundreds of thousands of Illinois residents back to work. The Governor’s proposal follows weeks of discussion by the Governor’s pension working group.
“Unsustainable pension costs are squeezing core programs in education, public safety and human services, in addition to limiting our ability to pay our bills,” Governor Quinn said. “This plan rescues our pension system and allows public employees who have faithfully contributed to the system to continue to receive pension benefits. I urge the General Assembly to move forward with this plan, which will bring a new era of fiscal responsibility and stability to Illinois.”
Illinois’ pension system is now under-funded by $83 billion due to decades of inadequate funding by past lawmakers and governors, and the promise of increased benefits without sufficient revenue to pay for those benefits. Under Governor Quinn, as annual required contributions increased dramatically, the state paid exactly what the law required into the pension systems. The fiscal year 2013 payment, $5.2 billion, now makes up 15% of general revenue fund spending compared to 6% a few years ago.
The Governor’s proposal provides for 100% funding for pension systems by 2042 and makes the following changes to the current plan:
- • 3% increase in employee contributions
- • Reduce COLA (cost of living adjustment) to lesser of 3% or ½ of CPI, simple interest
- • Delay COLA to earlier of age 67 or 5 years after retirement
- • Increase retirement age to 67 (to be phased in over several years)
- • Establish 30-year closed ARC (actuarially required contribution) funding schedule
- • Public sector pensions limited to public sector employment
In consideration for the changes above, employee pay increases will continue to be counted in the calculation of their pension and employees will receive a subsidy for their health care in retirement. The state can no longer provide current levels of both pensions and retiree healthcare to employees upon retirement. Currently 90% of retired state employees pay nothing for their healthcare costs. States comparable to Illinois in size and demographics provide little to no assistance for retiree healthcare costs.
The Governor’s plan also calls for phasing-in the responsibility for paying normal costs of pensions to each employer, including school districts, community colleges and public universities.
This plan reflects the discussions of the working group. The working group continues to work in an effort to find full consensus on all elements of the proposal. Members of the pension working group include Sen. Mike Noland, Sen. Bill Brady, Rep. Elaine Nekritz and Rep. Darlene Senger.
Related Materials
Pensions Fact Sheet
Public Pension Stabilization Plan
What the Ratings Agencies Say About Illinois
Governor’s Proposed Pension Changes VS. Proposed Changes on OpenPensions.Org for Cook County
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I strongly doubt Quinn’s plan will stand up in court. Yes, retiree health benefits (unlike pensions) are not constitutionally guaranteed. But the notion that the State of Illinois can selectively cut health care benefits punitively only for those members of a retirement system who refuse to waive their constitutional rights and accept a greatly reduced pension is dubious, to say the least. By way of analogy, this would be like saying that the Federal Government can selectively cut you off of Medicare, audit your tax returns every year, etc. etc. etc. if you exercise your constitutional right to freedom of religion. The State can cut retiree health benefits for all retired employees, just like the Feds can cut Medicare, but not selectively in retaliation for refusing to waive a constitutional right. And if this provision in Quinn’s plan is struck down by the courts, the whole plan falls apart, because no rational employee will choose to accept a lower pension than they are guaranteed by the Illinois Constitution.
Indeed, even if the plan is not struck down, the expectation that 75% of employees will choose to waive their constitutional rights and accept a lower pension, in return for a “promise” not to eliminate their retiree health benefits, is preposterous. What is to prevent a future governor or legislature from reducing or eliminating their health benefits anyway? Does the Governor really believe that 75% of state employees are fools?
An increase in employee contributions, and a delay in retirement age just make sense: the contribution is too low compared to the benefit, and people are living longer.
The proposal to reduce the COLA below inflation is cruel and punitive: the oldest retirees would be hurt the most, and they would become poorer and poorer as they got older, just as they were most vulnerable!
If we want to reduce pensions, do it upfront and honestly, not by hurting the oldest and most vulnerable: the COLA should be inflation, no more and no less.