by: Ted Dabrowski, Illinois Policy Institute
Illinois Speaker Michael Madigan’s pension proposal (House Amendment #1 to Senate Bill 1) perpetuates Illinois’ crisis. The plan locks in the unmanageable defined benefit plan, guarantees the crowd out of core government services and continues the irresponsible pension payment ramp.
Madigan’s plan keeps politicians in control of state employee pensions. By failing to get rid of defined benefit plans, it keeps taxpayers on the hook for bailouts of a broken retirement system.
Worst of all, it creates a new guarantee obligation that prioritizes pension funding above the education of school children, providing health care for the poor and the provision of public safety for neighborhoods across the state.
Ultimately, the plan fails to provide what Illinois so desperately needs: comprehensive pension reform that ends the state’s pension crisis.
Plan punts on reform and straps taxpayers with guarantee
- Maintains current defined benefit system: The plan maintains the unmanageable defined benefit pension system, failing to address the root cause of Illinois’ pension crisis.
- Doesn’t include a defined contribution component: The proposal fails to introduce 401(k)-style retirement plans for government workers. This robs individuals from having the freedom to control their own retirement savings.
- Locks in a funding guarantee: The plan creates a contractual obligation for the state to make required funding contributions to the pension systems, prioritizing pension payments above core government services. It’s irresponsible for the state to guarantee the costs of defined benefit plans – especially when these costs are, by definition, unstable and unpredictable.
- Continues the irresponsible pension ramp: The plan locks in the state’s ballooning pension contributions and pushes even higher pension payments onto the backs of future generations.
- Ignores local pension accountability: The plan fails to address a significant driver of Illinois’ pension crisis – the fact that the state makes pension contributions to the Teachers’ Retirement System, or TRS, on behalf of school districts even though teachers aren’t employees of the state.
Elements of the plan that fall short of reform
- Employee contributions: The proposal would force Tier 1 workers to contribute an additional 2 percent of their salary to the failed pension systems.
- Additional state contribution: The plan requires the state to contribute an additional $1 billion annually to the pension system beginning in 2020 once the state pays down its pension obligation bonds. This requires the state to allocate even more resources to an unreformed pension system going forward.
- COLA reform: The proposal fails to suspend COLAs until the pension systems are 100 percent funded. Compounding cost of living adjustments are the biggest lever for reducing Illinois’ unfunded liability. The plan only partially reduces COLAs.
- Retirement age: The plan raises the retirement age, on a sliding scale, for current Tier I members who are under 45 years old. There is no change for those 45 years of age or older. This fails to align the retirement age for many government workers with that required by Social Security.
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