The four legislative leaders have announced an agreement on pension “reform.” As a result, the General Assembly will return to session on Dec. 3 to vote on the measure. Based on the details that I have heard so far, I will not be voting for this legislation; however, nothing has been put into bill form at this point – so it can and probably will change before then.
Needless to say, I am extremely skeptical of any legislation that comes seemingly out of nowhere with very little time to digest it before a vote. Legislation, like this - needs to have a proper vetting. The enormity of the problem, the likely outcomes and the thousands of retirees and active employees deserve to be treated like adults and given a copy of the legislation well in advance.
Since Wednesday, I have seen at least two inaccurate accounts of what is to be contained in the legislation: one from a reputable news organization and another from the President of the University of Illinois in an e-mail to staff. Not to mention, that I’ve received numerous emails from scared and confused constituents. So while I apologize for interrupting you on a Holiday weekend, given the general confusion in the media and otherwise “good” sources like the U of I President’s email, I thought it best to send this email in an attempt to get you some information that I believe is the best information available at this point and until the final agreement is released, it remains subject to change.
First, the cost of living adjustment (COLA) will be the lesser of 3% simple interest multiplied against $1,000 for each year of service (up to 35 years) or your current annuity multiplied by 3% simple interest. This formula establishes a new “baseline” for future COLA’s. Each year this new baseline will increase by the actual rate of inflation. So for example, if you worked 30 years and inflation rates are at 4%, your new baseline would be $30,000 and would adjust upward by $1200 at the end of the year – the 3% simple interest COLA would then be applied against $31,200 for the next year’s COLA.
Further, the maximum salary against which pensions will be computed will be capped at roughly $110,000 and will adjust upward with inflation each year. While most of you reading this won’t be anywhere near this, for those who are, there is some talk that current employees and employee contracts would be “grandfathered in” but without seeing it in writing, the extent of this “grandfather clause” cannot be confirmed, nor is it clear whether this provision applies to those already retired or not.
Similarly, the “alternative formula” and so-called “money purchase plans will be restructured to be more in-line with the regular plan. For money-purchase plans, this will be accomplished by lowering the effective rate of interest. Again, how this impacts people who are already retired and/or whether a “grandfather clause” will be put into place for those close to retirement remains to be seen.
Further, for current employees 45 years of age and younger, the age of retirement eligibility will be pushed back up to five additional years - phased in at 4 additional months for each year they are short of 46 years in age. So no change for those over 46, then four additional months for each year back to 30 years of age...30 and under will not be able to retire until 5 years past their current plan.
Finally, active employees will also pay one percent less towards their retirement. These provisions apply to all Tier 1 employees, those hired before January 1, 2011.
As of now, I will not be voting for this legislation. I have serious reservations about this legislation and until I see the final package in written form I, unfortunately, have very little other details to share save for one: the funding guarantee.
This bill adopts the weaker long term funding guarantee on future pension payments meaning that future general assemblies could skip future pension payments. For the record, I was a “no” on the Blagojevich era pension skip vote – realizing the long-term devastation that it would cause our state’s taxpayers, the pension systems, and the employees and annuitants. I cannot fathom how something could be called a “reform” that leaves in place the very mechanism (skipped payments) that caused the “lion’s share” of this mess in the first place.
As language develops, I will send more updates. I am sorry to interrupt your Thanksgiving weekend with family and friends, but the urgency of this issue I believe warranted it.