April 25, 2012

Governor Proposes Drastic Pension Changes

Governor Patrick Quinn Friday, April 20, unveiled his plan to alter
State Universities Retirement System (SURS) and other pensions.
GOVERNOR PATRICK Quinn Friday, April 20, unveiled his plan to alter State Universities Retirement System (SURS) and other pensions by raising the retirement age, increasing employee contributions, and threatening to withhold retiree health care for those who do not accept the new plan. The proposal is limited to the SURS traditional benefit plan and does not impact employees in SURS self-managed plans.

  • Raising the retirement age from 55 to 67.
  • Increasing employee contributions by three percentage points.
  • Reducing cost-of-living adjustments to three percent or one-half of the Consumer Price Index, whichever is less.
  • Upon retirement, a member's COLA will not begin until five years after retirement, or age 67, whichever comes first.
  • A strong guarantee written into State law that requires the State to pay its full annual contribution to SURS and the other pension systems. No detailed language of this guarantee has been provided as yet, however.
WHAT THE plan does not change:
  • The basic 2.2 benefit formula that is based on service credit and final average salary.
  • The alternative "money purchase" formula for members with service prior to 2005, a formula that is based on total contributions.
  • Post-retirement work rules.
  • Creditable earnings – there is no cap on earnings applied to a pension.
  • Survivor benefits.
"FORCING PUBLIC servants to choose between two sharply diminished pension plans is no choice at all," Illinois AFL-CIO President Michael Carrigan told the Southtown Star.  "It is a clearly illegal attempt to solve the problem caused by past governors and the Legislature solely on the backs of teachers, caregivers, and other public workers.

"CONSIDERING THAT the subject at hand is the ability of hundreds of thousands of Illinoisans to support themselves in retirement, we believe the proposals are insensitive and irresponsible," Carrigan said, adding that labor was not invited to Quinn's pension working group.

THE STATE constitution prohibits cutting pension benefits for government workers and opponents of the Governor's plan are prepared to go to court to fight any cuts. Quinn aims to get around the constitutional prohibition by making the cuts "voluntary."

IF STATE employees do not want to opt into this new plan, the Governor instead would let them stick with the current plan, but then they would forfeit their retirement health-care coverage. The Illinois constitution does not guarantee healthcare in retirement. Those who opt to stick with the current plan also would see no benefit from any pay raises they get between the enactment of the new law and retirement.

IF UNIVERSITY personnel opt for the new plan, with its higher employee contributions and later retirement age, they would get health benefits in retirement and any pay raises they get would also increase their pensions.

THE NEW health plan would not be as generous as the current one, Quinn said. State employees who have worked 20 years currently pay no health insurance premium in retirement. This may be changed so that retirees would pay a premium.

PEOPLE WHO already have retired would not be affected.

QUINN SAID he assumed the law would eventually wind up in court.

THERE IS no timetable or deadline for action on this plan, or a date when the changes would take effect if enacted. The legislation will be the subject of debate in the Illinois General Assembly, and changes in the final legislation can be expected as compared to the Governor's current plan.

"LET ME stress that this is only a proposal, and no legislation has been introduced," said Dr. Robert A. Easter, President-Designate of the University of Illinois. "We will closely monitor its progress through the legislative session.

"WE ALSO will be actively engaged in proposing adjustments and amendments to the proposal to minimize the financial impact on our dedicated employees and protect retirement benefits earned. Approval of the proposal by the legislature in its present form is uncertain.

"I FULLY appreciate the concern you may have about your retirement system and the impact these proposed changes may have on you and our great University," Dr. Easter concluded. "We will keep you informed as this proposal moves forward for legislative consideration and do everything possible to protect the retirement benefits you have earned."

ALMOST ALL sides, including credit rating agencies like Moody's that have downgraded the State's bond rating, acknowledge that pension liability stems from Illinois using its pension fund like a bank account – using money earmarked for pension obligations to instead pay down other debts or fund State programs, and, in doing so, shortchanging public employees.

RALPH MARTIRE, Executive Director for the Center for Tax and Budget Accountability, a Chicago think tank, wants the State to treat pension debt like it would bank debt or any other outstanding obligation.

"WE NEED to treat it for what it is – real debt – and pay it back through real debt payments," Martire said, like front-loading interest payments and back-loading principal payments. But, Martire said, "this is not being discussed."

FOR MORE information, contact SURS at (217) 378-8800 or the UIC Office of Human Resources at (312) 355-5230.

Contributing to this article were Abdon M. Pallasch and Dave McKinney of the Southtown Star, Matthew Blake of Progress Illinois, and Merrill Gassman of SURS.

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