Pension changes debated for current employees
As Illinois struggles with its continuing financial crisis despite a new income tax increase, legislation has been proposed in the Illinois General Assembly that would change pension benefits for current state employees.
Last spring, a new law changed pension benefits for employees hired after Jan. 1, but past proposals to alter benefits for current employees had been stalled by debate over whether such changes are prohibited in the Illinois Constitution.
“Public employee pensions have been untouchable, but when the budget situation gets so bad that everything is on the table, it provides an opportunity for people who’ve been waiting to make changes,” said Nicole Kazee, assistant professor of political science and the Institute of Government and Public Affairs.
“In many ways, this has become a political lightning rod because the state’s liabilities going forward are so massive,” she said.
House Speaker Michael Madigan recently said questions of constitutionality in changing pension benefits for current state employees should be determined by the Illinois Supreme Court, not the legislature.
“What we’re saying is that there’s a benefit plan up in place up until today, but starting tomorrow, there’s going to be a new benefit plan that’s not going to be as rich as the old,” Madigan said in a Feb. 16 television appearance. “Whether the Illinois Supreme Court approves this idea, that’s a matter for the court.”
Two House bills now in committee approach pension changes from different directions, said Kappy Laing, executive director of the university Office of Governmental Relations.
House Bill 146 would put a $106,800 cap on the salary level for calculating an employee’s pension, with subsequent increases of 3 percent or one-half the annual percentage increase in the consumer price index.
House Bill 149 offers current employees a choice between two pension plans that increase their contributions, Laing said.
The bills apply to employees in six pension plans, including the General Assembly, Illinois Municipal, State Employees, State Universities, Downstate Teachers and Judges funds.
Another bill in the Senate, SB 1318, would repeal tuition waivers for university employees.
The problem of pension underfunding has been building at least since the early 1980s, said David Merriman, professor of public administration and economics and associate director of the Institute of Government and Public Affairs.
“The state wanted to continue spending, but politicians and the general public objected to a tax increase. Basically, it was a way of borrowing,” Merriman said.
Downturns in the stock market compounded the deficit, he added.
“Nonetheless, the pension funds are in no immediate danger there’s enough money to pay benefits over at least the next decade. The problem is that beyond that, there will not be enough given the present level of funding.”
The pension deficit “is by no means the state’s only problem,” Merriman said.
“The vast majority of the state’s fiscal problem is due to spending for health care, human services, K through 12 education and declines in revenue in recent years due to the economic downturn.”
However, cutbacks in state employee pensions are a more politically attractive option than other areas, he said.
“If you cut pensions, you could lose senior employees, you may get a lower quality of employee, you might have to pay higher wages to offset lower benefits but those effects are not immediate and obvious, so in the political discussion, they can be dismissed as irrelevant,” he said.
The current controversy in Wisconsin, where up to 40,000 demonstrators have come to Madison in protest of the governor’s plan to cut salaries, benefits and bargaining rights for state employees, is a more drastic scenario than what might occur in Illinois, Kazee said.
“But when something happens in a nearby state, it does tend to shift the conversation,” she said. “The environment (in Illinois) will be more favorable for some kind of reform.”
A number of UIC employees have expressed concern about HB 146, said Merrill Gassman, president of UIC United, the campus chapter of the State Universities Annuitants Association, and professor emeritus of biological sciences.
“The temperament on campus is very much against the bill,” he said.
“I’ve had a number of people write to me privately and indicate their intention to move ahead with earlier-than-expected retirement. Whether they’ll follow through, I don’t know.”
However, these bills are still in the first-draft stage, Laing cautioned.
“Remember, it’s very early in what will be a long conversation. These are just ideas on the table.”