When it comes to enacting major public pension reform, Illinois must not accept a grade of "incomplete."

That’s the big lesson of the Better Government Association’s investigation into the surprisingly rich retirement benefits enjoyed by many of the area’s estimated 8,000 retired community college administrators and faculty.

Those benefits are provided by the ailing State University Retirement System of Illinois (SURS), which is just 46 percent funded. Ironically, SURS is the best of five major state public pension funds, which are collectively underfunded by $80 billion or more.

This probe of community college pensions—and BGA’s recent Rescuing Illinois Investigation into benefits being reaped by retired office holders (April 28, 2011)—emphasizes that each pensioners’ benefits come with a lifetime guarantee, courtesy of Illinois taxpayers. Under the Illinois constitution, the state must make good on state employee pension benefits.

The BGA, along with numerous other good government advocates and groups, argues the present system is unsustainable and must be changed for the benefit of taxpayers and for the security of those now drawing a public pension or hoping to get one.

Here are some proposed changes the BGA would want discussed as part of a broad reform package:

• Limiting public pension payouts for retirees. No matter what job, or how many positions someone has held while in the state’s employ, pensions payouts should be capped at a fair annual rate as they often are in the private sector. This would include former members of the General Assembly and statewide office-holders.
• Suspending or limiting cost of living adjustments. To immediately lighten the taxpayers’ financial burden, stop or greatly decrease the annual cost of living adjustments (COLAs) for state retirees for a few years or until the pension fund regains significant financial health.
• Prohibit so-called "back loading" or "spiking." End the suspicious practice of state employees getting last-minute promotions with higher salaries shortly before retiring, which then translates into bigger pension payouts when they leave the government workforce. Also, pay for accrued vacation, sick days and personal days upon retirement but do not factor that time into determining pension benefits.
• Consider capping current workers defined benefit pension plans. A defined plan (which is financed mostly by the state) could be phased out and replaced with a defined contribution plan, like a 401k plan, which is primarily financed by employees with a match state-employer contribution. Increase the employee contributions. To lighten the state’s load, have workers pay a little more for their pension and other benefits.

There is a possibility that pension reform will pop up again during the General Assembly’s veto session in October. During the previous spring legislative session, a bi-partisan pension reform effort was floated by House Speaker Michael Madigan (D-Chicago) and House Minority Leader Tom Cross (R-Plainfield).

That attempt followed implementation of a pension reform law that changed the benefit structure for new workers (hired after Jan 1, 2011) but not existing employees.

While Madigan and Cross don’t agree about much, they are increasingly of similar mind when it comes to restructuring the current state pension laws.

In an ideal world, such reforms would be hammered out through collective bargaining with employee unions. Failing that approach, the state may opt to pass a reform law and then go to court, where the constitutionality of the current public pension law would be tested.

No matter what the ultimate approach, state lawmakers need to complete the job they started because one thing is certain: The state’s current public pension plan is in danger of failing.

Robert Reed is BGA’s Director of Programming and Investigations.

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