Editorial: Cullerton has promising plan to fix pensions

2013-10-08T07:00:00Z Editorial: Cullerton has promising plan to fix pensions pantagraph.com
October 08, 2013 7:00 am

There may be a solution to the state’s $100 billion unfunded pension liability.

     This is Illinois, so we caution against getting too excited, but Senate President John Cullerton said last week he’s working to build support for a bill that would save $138 billion over 30 years. Cullerton, in a discussion with the editorial board of The (Springfield) State Journal-Register, said estimates show the plan would have state pensions fully funded by 2043.

Cullerton cautioned that the legislative pension reform committee formed last spring to work on the issue has helped to develop the plan, but has yet to reach agreement.

There are still details that need to be considered, but from what has been revealed the proposal looks promising.

The proposal would reduce active employee contributions by 1 percentage point. That reduction seems counter-intuitive but it is put into the plan in an attempt to meet constitutional requirements that pensions not be reduced.

The cost-of-living adjustments received by retirees, currently set at 3 percent, would be changed to half of the Consumer Price Index. The adjustments would have a minimum of 1 percent and a maximum of 4 percent. Cullerton said that’s important “because if there is inflation, there could be an actual opportunity for people … to get more than they’re getting now.”

The proposal lands between two bills that were the center of the debate during the spring session. Cullerton backed Senate Bill 2404, which would have required employees to choose between cost-of-living adjustments and health insurance. That bill would have saved the state about $58 billion over 30 years and was criticized by many for not going far enough.

The other bill, Senate Bill 1, would have saved $163 billion over 30 years and was supported by House Speaker Michael Madigan, D-Chicago. Cullerton criticized that bill as being unconstitutional.

Cullerton said that the proposal on the table is “less unconstitutional than Senate Bill 1.” He expects the unions representing public employees to oppose the proposal he’s pushing and that it will be challenged in court. Cullerton said if that happens he would be willing go back to his original bill, change it to get more savings, and push it through.

Pension reform will undoubtedly be on the agenda for the fall veto session, which begins Oct. 22. The proposal being backed by Cullerton, from what we know, is an encouraging compromise. It will not totally satisfy any of the interested parties in the pension reform debate, which is one indication that it’s headed in the right direction.

The proposal has a long way to go before it becomes a bill and then a law. It will need the support of the pension reform committee and it is difficult to pass any bill without the support of Madigan. Legislators, many who have been reluctant to take any significant positions, will also have to support some form of pension reform.

A decision on the pension issue has been delayed for far too long. Cullerton’s proposal appears to be a reasonable compromise and it deserves further discussion.

Copyright 2015 pantagraph.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

(35) Comments

  1. Chadwick Snow
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    Chadwick Snow - October 11, 2013 7:48 pm
    That's the nature of government, it is a monopoly. But governments compete for quality employees with the private sector. Traditionally, they have skimped on the wages and deferred compensation by pushing fairly rich defined benefit pensions.
  2. Chadwick Snow
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    Chadwick Snow - October 11, 2013 7:44 pm
    There actually are mechanisms to segregate funds. Illinois has hundreds of trust funds that direct specific taxes for specific purposes. Now, it is true that governors borrow that money and leave IOU's. But they are separate and that can be enforced legally.
  3. Chadwick Snow
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    Chadwick Snow - October 11, 2013 7:39 pm
    In this case the IOU is found in the 1970 Illinois Constitution. Now, before you say "I never voted for that" - : it doesn't matter. We're all bound by constitutional and legislative provisions that we didn't vote for nor agree with. The remedy in this case is, if the overwhelming majority of the electorate agrees, is to amend the constitution, Then all bets are off. That is unlikely to happen in this state anytime soon. In the meantime, the state government can't diminish or impair benefits that are contained within Illinois government pension programs.
  4. Chadwick Snow
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    Chadwick Snow - October 11, 2013 7:34 pm
    That would be virtually all of them, including Republican legislators. For years, the budget was an 11th hour rush deal with a no new taxes pledge (Remember Governor Rod?) Those budgets were voted on with overwhelming majorities, left in the Governor's lap to deal with, and the General Assembly all left town.
  5. Nshape
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    Nshape - October 10, 2013 8:35 pm
    Viva, I didn't realize how substandard my wages were until I got an account on glassdoor.com. HOLY CRRRRRAP! A couple years in the private sector and I would have the world at my fingertips. With that website, the general public can no longer hide behind their mound of cash saying how well-compensated state workers are.
  6. Nshape
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    Nshape - October 10, 2013 8:31 pm
    Very understandable point. Thing is, we're the people with whiplash from looking up at the private sector people who make 40%-200% more than us. If we were raking in 100K+ at our jobs, then yes, we are constituting a major tax burden. But for me, as long as I am in my current position, I will never be more than a blip on your radar of taxpayer burden.
  7. NormalNews
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    NormalNews - October 10, 2013 2:01 pm
    This is what state employees get for blindly letting the unions take a slice out of their paychecks and letting the unions purchase corrupt Democrat legislators who didn't keep their promise of putting their retirement money into the proper account. Instead the legislators spent that money propping up other unions with questionable state spending on a myriad of tax wasting projects. Personally I think every legislator who voted to divert the funds over the past decades should be held personally accountable, then fined or jailed and their pensions removed.
  8. rusty618
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    rusty618 - October 10, 2013 1:25 pm
    Retire very young? A state employee cannot retire until they meet the Rule of 85 (years of service plus age). That is usually around age 55, but will be at minimum pension benefits. Full pension benefits cannot be reached until 45 years of service. And yes there are many professional jobs in the private sector that pay much better than similar state jobs.
  9. David Koch
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    David Koch - October 10, 2013 10:57 am
    I didn't agree to the various policies the Federal government has agreed to at times...but I don't get to pick and choose the wars and decisions my government has made. The only input I have is at the election booth. If you don't like the results...well you could move to Mississippi...they don't pay their public employees well at all..perhaps that environment is more to your liking.
  10. David Koch
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    David Koch - October 10, 2013 10:54 am
    You do have the option to move. Illinois is not North Korea...the boundaries are open.
  11. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 09, 2013 8:00 pm
    The difference is that State Farm workers are paid by people volunteering to buy a share of ownership in that mutual company. If people don't want to pay State Farm employees, the buy from Allstate or GEICO.

    What you did with working for the state was be part of a monopoly where you had no profit motive and the taxpayers of Illinois were forced to pay you whether they used your services or not.
  12. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 09, 2013 7:55 pm
    I don't hate any state employees or retires. It's just that I DIDN'T PROMISE YOU THE THINGS YOU WERE PROMISED! I'm not that old but in my few adult years thus far I could see the writing on the wall. You were promised the Earth and the Moon thrown in for $1 and it ain't going to happen. The numbers never added up.

    My #1 concern is my own future. When you boil down your argument you put you against me. I can have a job that earns me money to save for my own retirement, or I can have that money taxed out of my paycheck to pay for yours. Do you honestly think that you could stand face-to-face with me and say "You owe me a retirement check"? You would NEVER come to my house, crack open my safe, and steal cash money from me. You would NEVER meet me at the bank, stick me up, and take cash money from me. So what on Earth makes you think that you have some sort of contractual obligation that allows you to just stay at home and have the Treasury YOINK an extra slice out of my paycheck to give to you? If you and I are both staring at the same $5 bill that is paid to ME for MY WORK, what makes you think that you get first dibs on the Subway foot-long by saying "You owe me"?
  13. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 09, 2013 7:47 pm
    What Mike Bell portends to do can't be enforced. There isn't any mechanism that can force the extra 67% income tax hike to only go one thing. We have seen the results when Quinn promised us it would be "temporary" and used to pay the backlog of bills that the state owes. Now the citizens of Illinois are being taxed more money, and the bills still aren't getting paid. So when faced with one promise (higher taxes but we promise it will pay ABC or XYZ) that has been shown to not be fulfilled in the past, why should we believe it will happen in the future? The taxpayers can have every expectation that the extra tax revenue will be spent and things will be no better off. So if given the choice, I think most people would like to keep that extra money in their own savings to do things that they want to do like plan for their own retirement.
  14. parrot
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    parrot - October 09, 2013 2:45 pm
    Ted, I'm sorry you hate state employees and retirees so much, but I know what I know.

    According to your philosophy, nobody should EVER believe anything they are told in any kind of business or employment setting, much less any dealings with the federal or state government, right?

    I have stated repeatedly that whatever is done with pension "reform" to current employees, and yes, this includes Illinois State University, don't think they are telling you the truth either. Thirty-four years ago I never would have thought any of this could happen. It is incomprehensible to you now, but time flies. You will be there before you know it. Get out while you can!

    Having said that, the state did make contractual/constitutional commitments to me and thousands of others. If you the "taxpayers" can't tolerate us, please know that you, or someone in your family, may at some time or in some way need the state to keep its word. What goes around, comes around.

    With that, I am done responding to this editorial.
  15. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 09, 2013 1:23 pm
    You do know that if you assess such a tax, any financial transactions will just be shuffled to occur in cyberspace "outside" the borders of Illinois, right?

    Look at what Apple does with iTunes: all iTunes App, Song, and Movie purchases are booked to an Apple subsidiary in Reno, Nevada. Why there? Nevada has no corporate income taxes so any purchases via iTunes anywhere in the US are said to occur "in Nevada" so that Apple escapes taxes.

    What makes you think that financial service companies won't set up a computer server in Nevada so the transactions take place "there" instead of in Illinois?
  16. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 09, 2013 1:20 pm
    We have had discussed this before. You weren't "trying to guess whether [your] employer was lying." YOU KNEW they were lying, or at the bare minimum you should have know they were lying.

    The discussion about pensions in Illinois is going to be a very sobering discussion along the lines of the horrible truth when I have to tell people about Social Security. Social Security is one of those things that was constantly sold to people as a lie and DOES NOT belong to anyone. If you read the back of your SS card it says something like "This card belongs to the Social Security Administration and must be returned if we ask for it." Your SS number isn't yours, it's merely a number assigned to you. Your SS taxes aren't yours, it is money taxed out of your pay by Congress. Your SS benefits aren't anything contractually obligated to you, they are nothing more than a benefit paid by Congress that can be modified or revoked at any time.

    So your pension is going to be similar. It was promised to you but that promise depends entirely upon tax revenue taken from someone else to pay you.
  17. parrot
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    parrot - October 09, 2013 11:51 am
    You ARE right--in part. The ENTIRE compensation package DID include a decent pension, and that was the draw, NOT the paycheck amount. So...since you realize pension WAS part of the compensation package, why would you expect me to give up any part of it with a smile on my face? As far as what state workers are worth, we all know state workers as well as State Farm workers and workers anywhere else that aren't worth much. Most responsible adults try to do well on the job if they want to keep it.
  18. Al Moncrief
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    Al Moncrief - October 09, 2013 10:31 am

    A pension reform bill in Illinois will not pass court muster if a "less drastic" reform is available to the Legislature. Numerous "less drastic" public pension remedies are indeed available to the Illinois Legislature. The Illinois Legislature could simply extend its recent income tax hike to pay down the state's pension debt. This solution has the advantages of unquestionable morality and constitutionality. It is perfectly legal and moral for governments in the United States to pay off their accumulated debts.

    The State of Illinois could impose a financial transaction tax that would be collected by the exchanges in the state. Dozens of nations around the world impose such a "FTT." A one dollar tax per transaction (a fraction of the level of such assessments in place in other countries) would raise billions, have an inconsequential impact on the securities industry, and allow the State of Illinois to actually pay its accumulated debts. The FTT would actually be paid by those industries that created the financial crisis in 2008-09, driving down public pension funding ratios. The Illinois Supreme Court should take note of the fact that the imposition of a small FTT to meet Illinois' contractual obligations is manifestly a "less drastic" option than the breach of Illinois state contracts. IF THE STATE OF ILLINOIS BREAKS ITS PENSION CONTRACTS, THIS BREACH OF CONTRACT WILL HAVE BEEN A CHOICE RATHER THAN A "NECESSITY." Illinois public employees did not cause the pension crisis, they have made uninterrupted pension contributions, unlike the State of Illinois.

    The State of Illinois could consider reforming its state tax system, closing corporate tax loopholes that cost the state billions, and re-amortizing the state's pension debt over its life 50-70 years. (See Ralph Martire's public pension refinancing plan.)

    The Illinois Legislature could also consider lowering the rate of FUTURE accrual of pension benefits in the state by reducing the public pension "multiplier" on a PROSPECTIVE basis (for pension benefits not yet accrued.) See Professor Amy Monahan's paper: "Public Pension Reform: the Legal Landscape." She is Professor of Law at the University of Minnesota School of Law, and the foremost expert in the U.S. on public pension contractual obligations.

    (Note that Eric Madiar, Illinois Senate President Cullerton's legal counsel argues that such a reform is not permissible under the Illinois Constitution's pension protection provision. However, it seems counterintuitive that any RETROACTIVE public pension reform, such as a COLA-taking, might be considered legally preferable to a PROSPECTIVE pension reform, such as a multiplier reduction.)

    Let's be clear . . . taking "fully-vested," contracted, earned, and accrued public pension COLA benefits from current Illinois retirees is the MOST DRASTIC idea that has been put forth. Touch current retiree contracted benefits . . . be sued . . . arrive back at Square One in a couple of years.


    Cullerton's legal aid Eric Madiar believes that Colorado's recent theft of fully-vested, accrued public pension COLA benefits is likely unconstitutional. So, why is Cullerton going down this path in Illinois?

    From “Public Pension Benefits Under Siege”:

    “The adoption of the contractual approach by Colorado . . . however, make(s) it more likely that pension reform efforts (the COLA provisions of SB 10-001) will be found unconstitutional.”

    A PDF of the Madiar paper is available on the website of the National Conference of State Legislatures at the following link:


    Support public pension contractual rights in the U.S., contribute at saveperacola.com! Friend Save Pera Cola on Facebook!
  19. Al Moncrief
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    Al Moncrief - October 09, 2013 10:30 am
    Extend the Illinois Income Tax Hike? Certainly Preferable to Breach of State Contracts.
    "Republican Illinois House candidate Mike Bell said Thursday he would consider keeping the Illinois income tax at its current level if the extra revenue is used to meet long-term obligations of public pension systems.

    'I would look at extending or keeping the tax … that we have now if it would be used for the unfunded liability,' Bell said as he prepared to make his formal announcement entering the 96th House District race. 'I would look at it.'”

    'I believe the bond we have with retirees should be kept, and I would not want any reduction for those. … That’s a sacred bond between pensioners, retirees and the government. They trusted the government to have that pension when they retired. Now they’re retired.'"

  20. vivalavinyl
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    vivalavinyl - October 09, 2013 10:21 am
    To Parrot: substandard wages? compared to what? when taking into account your entire compensation package, i.e. salary, benefits and pension, plus ability to retire very young, I would say state workers have been compensated far above what they are worth or provide for that compensation.
  21. Treefrog
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    Treefrog - October 09, 2013 9:51 am
    I think everyone's missing the bigger picture. Back in the '80s the plan was created to fully fund the State's pensions with in 30 yrs. However, the General Assembly over the years has ignored it skipping required payments to the funds, or underfunding them. Now, a new proposal to fully fund it by 2045? The problem is not the plan. It is the people in Springfield charged with managing the peoples money. And to make a claim that this "is the least unconstitutional plan" should in no way be getting cheers from anyone, let alone an Editorial Board. Shameful.
  22. parrot
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    parrot - October 08, 2013 8:03 pm
    So I bought in too early?? I went to work when I did. The benefits were explained over and over again for 31 years. Nobody works blindly for 31 years trying to guess whether their employer was lying. You talk about people buying their first Motorola? We all get screwed, but some more than others. If I was only losing $599 I would be praising God! Nobody NEEDS a "Motorola." That was your choice. I chose a decent retirement in exchange for substandard wages. The state could have come out on top if I had died before I retired. Either we follow the constitution or live without any laws to protect anybody at anytime, right?
  23. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 08, 2013 7:22 pm
    News flash bro: sometimes people who bought in early get worse deals! The people buying the first Motorola RAZR phone paid $599 and they didn't complain (much) when the last owners were getting it free with a new contract. Maybe a bad analogy, but such is life. When changes have to be made there will always be people cheesed off that they got screwed somehow.

    How about having it go both ways? Yes, maybe you paid in more but you got a higher COLA for the years you were retired.

    OFFER: the state recomputes what your COLA would be with the new rates set, and also recomputes what your contributions would have been over the years with a lower payroll withholding rate. Then the state combines to either pay out a refund or you owe a payment to the Treasury. If you want things retroactive one way with the lower payroll deductions, you also have to go along with the lower COLA retroactive . . .
  24. Nshape
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    Nshape - October 08, 2013 7:06 pm
    This is the most agreeable pension (or anti-pension, ha!) editorial in 2 years. The key is how do you make it manageable without taking the rug out from under people who have heavily invested their lives in these public-sector jobs. I know that even if the state had made it's payments for the past 30 years that growing number of 150-250K administrators and 120K veteran teachers retiring and getting a 3% cola would be unsustainable at some point. It is a fine line between taking a slight hit or having nothing at all. This pension committee plan and the Cullerton plan seem like the best compromise. The Madigan plan would have made employees slave to the system, and that whole working until 67 BS would have created situations where teachers would be taking long leaves for major health concerns or even passing away during a school year. You can't in good conscience put employees in a situation where they have between 0-5 good years left after putting in 45 yrs. These other plans might cut back on the money a little bit but still allow for a quality retirement, which is what pensions are all about in the first place.
  25. parrot
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    parrot - October 08, 2013 4:11 pm
    Gary, I hope you are right re: existing retirees. This is an extremely complicated issue, compounded by the way the Pantagraph and other media report it. It doesn't make any difference what any of us thinks might be a solution. The blowhards in Springfield will do what they will do, and hopefully, the courts will uphold the constitution.
  26. garyklass
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    garyklass - October 08, 2013 2:55 pm
    Clearly it is not meant to apply to existing retirees. Moreover it reduces contributions immediately while reducing the payouts in the future.

    These are the least unconstitutional solutions:
    1. require a 2% contribution from the direct employers
    2. cap the (future) salaries eligible for pension earnings at $100,000. From now on neither the state, the direct employers or the employee would have to contribute on earning over 100,000, and no pension benefits would be earned.

    This (2) a) saves the state money immediately that it can restore to the system, b) saves the direct employers some of that 2% c) prevents many from boosting their pensions with padded salaries just before retirement.
  27. justagoodoleboy
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    justagoodoleboy - October 08, 2013 1:59 pm
    So Paragraph do you blindly back any plan as long as it screws the state employees?
  28. Ted Kennedy's Swim Instructor
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    Ted Kennedy's Swim Instructor - October 08, 2013 10:36 am
    "Less unconstitutional . . . "

    In other news, my wife is halfway pregnant.
  29. Chadwick Snow
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    Chadwick Snow - October 08, 2013 9:51 am
    I don't see the Cullerton proposal as passing constitutional muster. Current retirees are not impacted by the reduction in contributions, yet, paid in at the higher rate and will be receiving a reduced COLA. In order for this to work, the state would have to pay a lump sum to current retirees equal to the difference between their prior contributions in excess of the new rate with interest; a hefty price tag. The reform has to leave current retirees alone, arrive at a hybrid benefit for those currently paying into the system - based upon the number of years in the system - and change the system for new hires.

    I believe that the commission is resigned to the fact that this will go to court and is simply seeing if this proposal will make through the state Supreme Court.
  30. Billy B
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    Billy B - October 08, 2013 9:50 am
    I quoted the math from Robert Rich's guest editorial that was in the Springfield State Journal-Register at:
  31. Harcourt
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    Harcourt - October 08, 2013 9:44 am
    This COLA reduction is a bit harsh. I would favor Madigan's bill, and an important reason for that was that the COLA cut was less harsh. I think increasing the retirement age for current teachers is a good idea. I am personally affected.
  32. parrot
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    parrot - October 08, 2013 9:21 am
    Billy B, thanks for doing the math. It's amazing that thanks to the media people think we are living in luxury and our pensions should be slashed. You would think they would get enough pleasure out of the new insurance premiums that were imposed July 1, and now the dependent audit and Medicare advantage being rolled out and forced on us. I don't expect non-state employees/retirees to understand any of this since the state is doing a rotten job of explaining it even to us. But it's nasty, it's real, and it's here.

    Another thing I should have mentioned is Cullerton's concept of "less unconstitutional." Is that being taught in law school these days or is it just another way of saying "let's screw the retirees any way we can get away with it?"
  33. Billy B
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    Billy B - October 08, 2013 8:25 am
    I meant to say "The proposed reduction in the COLA would give state retirees considerably LESS inflation protection than those in Social Security have received."
  34. Billy B
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    Billy B - October 08, 2013 8:18 am
    Here is an example of the effect the proposed COLA reduction would have on state pension system retirees, from Robert Rich, retired UIUC professor and former Director of The University of Illinois Institute of Government and Public Affairs. The proposed reduction in the COLA would give state retirees considerably inflation protection than those in Social Security have received.

    "The Consumer Price Index has gone from 97.6 in 1982 to 229.6 in 2012. The cost of living has more than doubled over this 30-year period. In other words, a person receiving a pension of $9,760 in 1982 would need a pension of $22,960 in 2012 to maintain the same purchasing power.
    Over this same 30-year period, a person in the State University Retirement System earning a $10,000 pension is receiving $24,272.62 in 2012 under the current COLA system — a 3-percent compounded annual increase.
    If a person is part of the current U.S. Social Security system and receiving a $10,000 pension in 1982, he would receive $24,175.23 in 2012, reflecting the Social Security system COLA.
    However, if this same person was limited to one half of the consumer price index (the current IGPA proposal), he would be receiving a pension of $15,687.31 in 2012 and would have lost about $8,500 in purchasing power."

  35. parrot
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    parrot - October 08, 2013 7:35 am
    So the Pantagraph and Cullerton think having active employees pay less into their pensions will "MEET CONSTITUTIONAL REQUIREMENTS THAT PENSIONS NOT BE REDUCED?"

    How about people already retired? Do the Pantagraph and Cullerton support leaving us alone since we did pay a higher rate for our benefits, including a portion specifically designated for COLA? Or would they like the state to issue lump-sum refunds for the excess amounts we paid into the system over the DECADES?
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