Illinois Governor Vetoes Chicago Pension Bill

Illinois Gov. Bruce Rauner vetoed a bill aimed at staving off the impending insolvency of two Chicago pension funds, saying it would have created a “five-year pension funding fiscal cliff,” and raise taxes for the city’s residents.

The bill was passed unanimously by the Illinois Senate in January, and had been championed by Chicago Mayor Rahm Emanuel, who lashed out at Rauner for quashing the measure.

“Instead of helping secure the future of our taxpayers and middle-class retirees, the governor chose to hold them hostage,” said Emanuel spokesman Adam Collins in a statement.

According to the Governor’s office, Chicago’s pension funds face a combined deficit of approximately $30 billion, and Illinois state pension funds are underfunded by $130 billion.

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The Chicago Municipal Employees’ Annuity & Benefit Fund (CMEAB) is a defined benefit, single-employer plan, and is projected to have a funded ratio of 27.6% for 2017. That figure is forecast to dwindle down to insolvency by 2025, according to the CMEAB’s most recent annual report for the year-ended 2015. Its net pension liability more than doubled between 2014 and 2015 to $18.62 billion.

Meanwhile, the $1.24 billion Laborers’ & Retirement Board Employees’ Annuity & Benefit Fund of Chicago had an overall funded ratio of 53% as of the end of 2015. For 2017, the plan was projected to have a funded ratio of 46.6%, and is expected to become insolvent by 2027.

The killed bill would have allowed members of both pension funds who were hired between 2011 and 2016 the option to pay more in employee contributions, in exchange for the ability to retire two years early at the age of 65. It would have also allowed new members to the system to retire two years earlier while also increasing their employee contributions.

“This is another kick-the-can approach to pension funding that landed Chicago in fiscal crisis in the first place,” Rauner said. “This bill will create an unsustainable funding schedule that will lead to tax increases without solving the real problem.”

Rauner is backing legislation sponsored by House Republican Leader Jim Durkin, and 25 other Illinois House Republicans, which he said would save state taxpayers between $1 billion and $2 billion.

The proposal would require members of the Teachers’ Retirement System (TRS), the State Universities Retirement System of Illinois (SURS), the State Employees Retirement System (SERS), the General Assembly Retirement System (GARS), and the Chicago Teachers Pension Fund to either exchange their tier 1 cost-of-living adjustments (COLA) for the right to have future raises to be counted as pensionable, or keep their COLA but not have future raises count as pensionable.

It would also provide a one-time normal cost payment to the Chicago Teachers’ Pension Fund of $215.2 million for fiscal year 2017; close new member participation in GARS, offer Tier 1 TRS, SURS, SERS and GARS employees the option to participate in a defined contribution (DC) plan, and create a voluntary Tier 3 Hybrid defined benefit/defined contribution plan for new Tier 2 employees under TRS, SURS, and certain SERS members who do not participate in Social Security.

“Taxpayers around the state will save billions by making structural changes to our state pension system,” Rauner said.

By Michael Katz

The New Jersey state legislature has passed a bill that would allow police and firefighters to manage their own pension plan, transferring control from the state.

The proposed legislation, which now goes to Gov. Chris Christie, would transfer management of the Police and Firemen’s 24 Retirement System from the state’s department of the treasury to the plan’s board of trustees.

The employee representatives to the board will be made up of three active policemen and three active firemen. Of those six members, one policeman and one fireman will be active members of the retirement system and elected by the active members of the system. Among the remaining active policemen and firemen, one policeman will be appointed by the president of the New Jersey State Policemen’s Benevolent Association, and another will be chosen by the president of the New Jersey State Fraternal Order of Police. One fireman will be named by the president of the New Jersey State Firemen’s Mutual Benevolent Association; and the other will be appointed by the president of the Professional Firefighters Association of New Jersey.

In addition, the board will contain one retiree from the system elected by the system’s retirees.

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Among the employer representatives to the board, the governor will appoint four trustees, who either hold, or have held, an elective public office as a mayor, member of a municipal council, or member of a board of chosen freeholders, or is employed, or has been employed, by a municipal or county government as an administrator, manager, or chief financial officer to represent the interests of local government employers.

The governor will also appoint one trustee who holds, or has held, a management or supervisory position in the executive branch of state government at the level of division director or above to represent the interests of the state government.

According to the bill, the board of trustees would have all the functions, powers, and duties for investment or reinvestment of money, and the purchase, sale or exchange of any investments or securities under the control and management of the board. The division of investment in the New Jersey Department of the Treasury currently performs those functions and duties.

The board of trustees would also have the authority to establish a process for the review, approval, and appeal of applications for retirement, and modify the system’s member contribution rate. It can also set a cap on creditable compensation, create a formula for calculation of final compensation; and establish an age at which a member may be eligible for the benefits for service or special retirement. It also allows the board to reinstate cost-of-living adjustments for retirees.

Additionally, the bill requires the board of trustees, at the end of six years following the bill’s enactment, to conduct a review of the performance and funding levels of the retirement system.

By Michael Katz