Nonprofits urge pension reform
Joint Statement from Chicago Civic Groups
January 3, 2012
As organizations dedicated to improving government policies, we are deeply concerned about the Illinois General Assembly’s failure to take up comprehensive pension reform. We strongly urge legislators to embrace the bipartisan pension reform framework established by House Bill 6258.
The pension funding crisis continues to jeopardize the State’s financial stability and economic outlook while threatening the retirement security of State employees. Illinois already has elevated borrowing costs and the lowest credit rating of any state from Moody’s Investors Service. Due to the State’s pension funding pressures, Moody’s warned two weeks ago that the rating could be further downgraded.
HB6258 is the only comprehensive bill with bipartisan support and detailed actuarial analysis that has been introduced. The proposal focuses on reducing the main drivers of pension costs while being sensitive to lower-paid employees and those close to retirement. While not a panacea for the State’s financial problems, we believe HB6258 is a significant step forward for the following reasons:
- HB6258 would reduce the State’s unfunded pension liability by an estimated $28 billion, or 29%, from $95 billion to $67 billion;
- HB6258 would reduce the State’s required General Funds pension contributions in FY2014 by approximately $1.8 billion, or 29%, from $6.2 billion under the current funding plan to $4.4 billion. (This does not include $1.6 billion of required debt service payments on pension bonds.);
- Under HB6258, the State’s General Funds pension contributions in FY2014 would represent an estimated 14% of State-source General Funds revenues, down from 20% under current law;
- Under HB6258, the State’s General Funds pension contributions would peak at approximately $10.8 billion in FY2043, down from roughly $15.5 billion under current law. The share of State-source General Funds revenue consumed by pension contributions would be approximately 23%, down from 33% under current law;
- HB6258 would gradually shift normal pension costs for the Teachers’ and Universities Retirement Systems at a rate of 0.5% of payroll per year to the employers that are responsible for salary decisions: school districts, public universities and community colleges; and
- HB6258 would achieve 100% funding by 2043 and would create a legally enforceable right to compel the State and other employers to make required contributions.
It should be noted that any comprehensive pension reform is likely to face legal challenges that might delay implementation. Although this bill could have made more sweeping changes in some areas, we believe that HB6258 is worthy of support and urge the General Assembly to move forward on comprehensive pension reform without delay. Illinois lawmakers owe it to State employees, retirees and taxpayers to embrace this opportunity for fiscal reform and start securing a stronger economic future for our State.
President, Better Government Association
Andrea L. Zopp
Major Features of HB6258
- Automatic annual increase limited to $750 a year for employees hired before January 1, 2011 (3% of the first $25,000 in pension benefits). Retirees receive no annual increase until they reach age 67 or five years after they retire.
- Phased-in increase in retirement age for employees younger than 45 for those hired before January 1, 2011.
- Two percentage point increase in contribution rate, phased in over two years, for employees hired before January 1, 2011.
- Pensionable salary capped at the higher of Social Security wage base or the employee’s existing salary, for employees hired before January 1, 2011.
- School districts, community colleges and universities would take over the State’s normal pension cost at a rate of 0.5% of payroll per year for normal costs incurred after July 1, 2013, until costs are fully shifted.
- New Teachers’ and Universities Retirement Systems employees join a cash balance plan, with contributions made by actual employers. This plan would also be offered to employees of those systems hired on or after January 1, 2011 but before the effective date of the bill.
- Although HB6258 applies to four of the five State retirement systems, an actuarial analysis was not available for the smallest of the four affected systems.