Want Reform? Get Ready to Rumble

<p>If Gov. Pat Quinn and the Illinois General Assembly are serious about saving money by changing the pension benefits of current state workers, they will probably need to pick a nasty and costly court fight with labor.</p>

If Gov. Pat Quinn and the Illinois General Assembly are serious about saving money by changing the pension benefits of current state workers, they will probably need to pick a nasty and costly court fight with labor.
The seeds of today’s Illinois public pension crisis were sowed nearly 40 years ago during a more financially benevolent time when retirement and health care benefits were considered a manageable, even minor, cost of doing the state’s business.

Indeed, delegates to the 1970 Illinois State Constitutional Convention didn’t flinch when they approved a provision that is basically interpreted by lawmakers as guaranteeing Illinois taxpayers will make good on state employee pension benefits.

 


The Illinois Constitution’s Pension Clause
"Membership in any pension or retirement system of the
State, any unit of local government or school district, or
any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be
diminished or impaired."

 


"Back in 1970 when we adopted that provision in the constitution this was not that big an issue," said Dawn Clark Netsch, who was a convention delegate and went on to higher state offices including comptroller. But times have dramatically changed.

The state’s five biggest public pension funds are in trouble and grossly underfunded by $80 billion or more, meaning they cannot meet their obligations without billions of dollars in taxpayer support. And that once-innocuous constitutional mandate is now a topic of super-hot debate—vilified by those seeking to dramatically cut Illinois worker pensions and strongly supported by state retirees, employees and unions fighting to maintain the status quo.

As disclosed in the BGA’s investigation of the General Assembly Retirement System (GARS), the beleaguered taxpayer is on the hook for billions in pension payouts to former state office-holders and lawmakers that far exceed anything the private sector currently enjoys. And the recently passed pension reform law only applies to new employees hired after Jan.1, 2011, not workers or retirees in place before that time.

While GARS is the smallest of the major state pension funds, it is characteristic of the crisis dogging the entire Illinois public pension system—problems that must be solved without demonizing public employees or destroying what they have honestly worked to achieve.

Fixing public pensions goes beyond GARS. Here are some proposed changes the BGA would want discussed as part of a broad reform package:

Limiting public pension payouts for retirees. This would include former members of the General Assembly and statewide office-holders. 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.

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.

Obviously, such reforms are only one element of the huge issue that must still be resolved—namely whether the state can tamper with current workers benefits or begin to replace the present guaranteed pension plans with defined contribution plans.

In an ideal world, such reforms would be attained through negotiating and collective bargaining with employee unions.

While that’s not out of the question, it looks increasingly likely a court battle will have to take place to determine if the state can change existing pension benefits without violating the Illinois Constitution.

State Treasurer Dan Rutherford recently said the courts should determine if current employee pension benefits could be altered.

Echoing that sentiment is former comptroller Netsch, who also contends the time may be ripe for the General Assembly and Gov. Quinn to test that now-controversial Illinois constitutional provision that was voted into law way back when.

To achieve legal clarity, Illinois could pass a pension reform law that would likely end up being a test case in courts, she says.

"One of the things the legislature and governor could do is to take something that is not absolutely punitive—but recognizes the issues—and enact legislation," Netsch says. "Then see what the court decisions are."

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