Editorial: Pension problem demands solution from legislators

2012-12-23T08:00:00Z Editorial: Pension problem demands solution from legislatorsBy The Pantagraph Editorial Board pantagraph.com
December 23, 2012 8:00 am  • 

It’s encouraging to finally see detailed proposals about solving the state’s pension obligation issues.

As most folks know, the pension problem is huge. Illinois’ unfunded pension liability is about $95 billion. To pay the current pension bill each year will take a larger and larger chunk of the state’s general budget. If that happens, it means less money for other state operations such as education, public safety and health. In addition, Moody’s bond rating service has made it clear the state’s bond rating will likely be downgraded if a solution isn’t reached. The state’s Constitution also is a barrier, although opinions vary widely on that issue; it’s almost a guarantee any solution will be challenged in court. Still, it’s easy to say one proposal or another is “unconstitutional.” The need for a solution in the lame duck session that ends on Jan. 9 is crucial.

A little more than two weeks ago, a group of House members proposed a bill — HB 6258 — that set up a framework for solving the problem. The bill would increase the retirement age for state workers, teachers and university employees who are younger than 45, restrict the annual cost of living allowance to the first $25,000 of a pension, increase employee contributions to the pension systems, limit “end of career” salary increases that boost pensions, gradually shift the cost of pensions from the state to school boards and universities, give those local governments more say in pension benefits and allow the pension systems to file suit if the state does not keep up with pension payments.

We Are One Illinois, a coalition of groups representing public employee unions, also announced a proposal last week. The group said employees would be willing to increase their pension contributions by 2 percent if the state was legally required to make all pension payments. The group also advocated closing some $2 billion in corporate tax “loopholes.”

House Bill 6258, according to figures released Friday, would reduce the state’s unfunded pension liability by 29 percent — from $95 billion to $67 billion. It also would reduce next year’s required pension contribution by 28 percent — from $6.7 billion to $4.8 billion. That’s nearly $1 billion less than the pension contribution for the current fiscal year.  According to House members, the plan also would reduce the contributions necessary from school districts and universities as part of the cost shift.

Rep. Daniel Bliss, D-Evanston and one of the bill’s sponsors, said the numbers prove the legislation strikes the “right balance. It provides retirement security for employees while stabilizing the state’s finances.”

The two proposals agree in two key areas. The state should be required to pay its annual pension obligation. That has to be a part of any solution. And the union group is facing reality by agreeing that public employees will have to contribute more to their pensions.

But tax increases are not the answer. Illinois already is known as an unfriendly state toward business, which has a direct impact job creation. What message will increasing corporate taxes by $2 billion send? In addition, it’s simply misguided to portray the tax increases as being paid by corporations. Some of the proposed increases, such as a tax on satellite dish installations, would be paid by consumers. Another union proposal is to remove a tax exemption on farm chemicals, which would have a direct impact on farmers. The fact is most taxes ultimately end up being paid by consumers.

The House sponsors have taken a measured approach to this problem and have allowed others to comment on their legislation for more than a month. That approach is appreciated.

The House proposal isn’t perfect and some changes will need to be implemented. But it’s the most realistic proposal presented to date, and appears to take significant steps toward solving the problem without implementing job-killing taxes. 

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

(11) Comments

  1. parrot
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    parrot - December 24, 2012 11:38 am
    I agree with your comments about the age thing. I retired relatively young but with 31 years of service, for personal reasons. No one already out the door should be punished for following the rules. Merry Christmas to you too and Amen about the lame duck session.
  2. Nshape
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    Nshape - December 24, 2012 11:29 am
    If it's modest, then no, no one should ever mess with your pension. The problem is that an incredible amount of money is going out the window to the people who need it the LEAST. Imagine what some of these people with 100-200K+ salaries were able to do and invest in their working life, and then get 100K/yr for life plus COLA on top of that!! IMO, it is a change that needs to come from within TRS, SURS, etc....NOT from the state or whiny taxpayers who have no clue. For me, I've known or know of too many people in the past years who have died too young, and never got the chance to enjoy retirement. It's just so stupidly counterinuitive to work your life away for a pension that you'd be almost too old too enjoy....all while the best retirement years were spent slaving away just to meet an insane age obligation. Merry Christmas, and here's hoping that the lame duck session doesn't ruin our dreams and goals.
  3. parrot
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    parrot - December 24, 2012 8:27 am
    Rest assured, my pension is not over 100K or 75K (far from it), nor am I living a lavish lifestyle. Limits on people with HUGE pensions does SOUND reasonable, but I have a problem with it, IF they were legally earned according to the rules in effect during the person's career. Once the state starts taking away from people ALREADY RETIRED, there will be no end to them punishing us and taking MORE whenever they screw up and need more money.
  4. Nshape
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    Nshape - December 24, 2012 7:10 am
    Parrot, they need to really go after the high-earning pensioners as 100K+ salaries with compounding COLA is absolutely unsustainable. Making them earn 75K, they can still sustain a lavish lifestyle and it won't put them in the poor house. If they are making that kind of money, then big deal, they might have to cut out a Europe trip or a $1000 expedition to the casino every once in a while.
  5. Nshape
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    Nshape - December 24, 2012 6:58 am
    What really needs to happen is to cap pensions at 75K and revisit every 5 years for inflation. No COLA until 67 and the 2% increase contribution is okay. The age increase is just ridiculous, and I have a major problem with it. It is SO EASY for someone to sit behind a computer and simply type that teachers, police, etc. are all effective when they're 65 and can still do the job. They have no idea that every day is the mental equivalent of playing a football game with all the battles. After so many years, it takes it's toll. And at some point, burnout sets in (job jumpers wouldn't understand this!) and it's just not practical or safe to have someone be that old doing the job, and retirement makes sense. If anyone remembers Brett Favre's last year in Minnesota, then you understand my analogy. Ask anyone with common sense, and they balk at the practicality of having teachers in a classroom at 65.

    For retired workers....anyone making over 75K should have COLA terminated and have any excess over 75K slashed in half. In order to sustain the system, the rules have to change because the newer retired folks are sucking the system dry. The catch-22 here is that they wouldn't want that, yet they'd also agree that going until 65-67 is preposterous.
    This proposal needs to AT LEAST address an early retirement option for ppl like me who will bear the brunt of this age increase. I'm willing to pay a little more, but that's not good enough for some people. Heck, I could say I'll put a million dollar lump sum in, and some ppl would still be like "No, no you need to work til 67 'like the rest of us" which means they just want everyone to share in their misery. A 50-55 retirement plan definitely needs to be part of the ultimate solution.
  6. parrot
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    parrot - December 24, 2012 6:45 am
    This article is very confusing. The media has spun this issue so many ways I don't think anybody knows what they're talking about anymore. Two different proposals were mentioned. HB6258 DOES affect people already retired. The We Are One Illinois proposal does NOT, according to Virginia Yates of AFSCME retirees. These are just two of the plans out there at this point. Who knows what THE plan finally chosen will do to us.
  7. Harcourt
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    Harcourt - December 24, 2012 5:16 am
    Nothing in the artricle says that the COLA change won't be applied to people already retired. It is wrong to sock it to the elderly with the COLA change.
  8. Al Moncrief
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    Al Moncrief - December 23, 2012 11:29 am

    The Colorado Court of Appeals has reversed and remanded an initial District Court ruling that denied the contractual status of public pension COLAs in Colorado. The Court of Appeals confirmed that Colorado PERA pension COLA benefits are a contractual obligation of the pension plan Colorado PERA and its affiliated public employers. A huge victory for public sector retirees in Colorado! The Colorado Legislature may not breach its contracts and push taxpayer obligations onto the backs of a small group of elderly pensioners.
    The lawsuit is continuing. Support pension rights in the U.S. by contributing at saveperacola.com. Friend Save Pera Cola on Facebook!
    In 1977, the U.S. Supreme Court (in U.S. Trust Co, 431 U.S.) clarified that state attempts to impair their own contracts, ESPECIALLY FINANCIAL OBLIGATIONS, were subject to greater scrutiny and very little deference because the STATE'S SELF-INTEREST IS AT STAKE. As the court bluntly stated:
    “A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors."
  9. Nshape
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    Nshape - December 23, 2012 11:07 am
    BLono you are so right! I am pretty much in the same boat as you and am going to either have to drop to Tier 3 or take such a pension hit that I might not get what I paid in. The whole thought process behind this nasty plan is to make people work so long that they have no time to enjoy retirement...they die...and the state looks good despite missing 30 yrs of contributions.
  10. parrot
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    parrot - December 23, 2012 8:29 am
    The We are One Illinois plan is the ONLY thing so far that does not punish people already retired. After months and months of being considered the scum of the earth by the media, there can't even be a break for Christmas weekend? We did nothing wrong. Go after the legislators who misused our retirement funds through the decades.
  11. Blono84
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    Blono84 - December 23, 2012 8:20 am
    I dont think adding the age is right. What about guys like myself who start at 26 and was looking forward to early retirement. I have four years in the pension system, and think if something needs to change it should be based on years of service not age. What about the guys who are 45 and above you just start their job at the state or university. if they start at 45 they can still retire at 55 with ten years of service. To me that is not fair, considering I started before them and have more years worked at the place of employment. Dont change based on age, its needs to be changed for anyone with less than 5 years of service. That would affect younger and older new employees. If you think only young people are getting jobs, your wrong. The avg age of employees that start to work for a state agengy or university is 35 to 50. Because I served in the military got out, and got a great job, now you wanna punish me for it. That is not right.
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