Illinois State, House Introduce Pension Reform Legislation

Two bills are currently making their way through the Illinois State House and Senate that seek to bring reform to the state’s underfunded pension system.

Sen. Dale Righter (R-Mattoon) has introduced legislation that would require any new employee hired after July 1, 2018 to receive a 401(k)-style defined contribution plan instead of a defined-benefit plan with guaranteed annual increases. This includes state workers, teachers, university employees, judges, and members of the General Assembly.

“It’s no secret Illinois’ pension costs are draining tax dollars from high-priority areas,” Righter said in a statement. “But I don’t think people realize just how bad it is.”

According to Righter, pension costs in both higher education and K-12 education consume approximately 50% of all state spending in these areas, and spending on pensions take up almost a quarter of the entire state budget.

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“That’s billions of dollars that can’t be spent on bettering our classrooms, hiring more teachers and staff, funding important programs, reducing tuition costs to students, constructing new buildings, or reimbursing our education system on time,” he said. “Taxpayers are being forced to subsidize a pension system that we simply cannot afford.”

Righter said that employees in the Illinois state university retirement system are the only employees who currently have the option to choose a 401(k) style defined contribution retirement package instead of a defined benefit pension. Approximately 21,000 employees select that option, he said.

According to Righter, despite Illinois taxpayers having paid more than $75 billion toward pensions between 1996 to 2017, which was $23.7 billion more than had been projected in 1994, the pension funds are still only 38% funded.

Over on the House side of the Illinois state legislature, Rep. Barbara Flynn Currie, (D-Chicago) has introduced a bill that would require state pension plan participants to choose between having future pay increases count toward their pensions, while forgoing the automatic 3% compounded raises in their retirement benefits, or keeping the pension raises, but giving up future pay increases that count toward retirement.

By giving participants a choice, the proposed bill is attempting to avoid conflicting with a 2015 Illinois state Supreme Court decision that ruled that, under the state’s Constitution, benefits promised as part of a pension system for public workers “shall not be diminished or impaired.”

The bill also calls for closing the General Assembly Retirement System to new members, and a buyout plan in which members of the retirement systems can cash in their benefits for a lump sum payment. It also provides $215 million for Chicago teacher pensions, and requires certain participants be required to sign up for a 401(k)-style defined-contribution program.

“It’s based on the idea of an agreement between workers and the government,” Currie was reported as saying in The State Journal-Register. “Whether the consideration is adequate, and whether the people for whom consideration is offered would consider it adequate, is another question.”

Tags: Illinois, Legislation, Pension

Public higher education is paying the price for rising state pension costs, which are contributing to the disinvestment of public universities and colleges, says a new report from think tank The Manhattan Institute.

“Ever-rising pensions and ever-depleting funding for higher education are inextricably linked,” said the report.

The report found that between 2008 and 2015, total state pension expenditures (and liabilities) increased by an average of 61%, while states decreased per-student higher-education spending by an average of 22.4%. It added that state funding for higher education is nearly $10 billion below what it was in 2008, when adjusted for inflation.

It also said that from 2000 to 2016, public universities lost 25% of their state funding per student, while during that same time, tuition and student debt skyrocketed.

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The report blames the budget cuts on increased spending on public-worker pensions. Six states saw their pension expenditures rise by more than 100% in that time span: Pennsylvania (172%), Illinois (166%), North Carolina (158%), South Dakota (144%), North Dakota (143%), and Minnesota (106%).

“Forced to adhere to balanced-budget requirements, many state governments have been confronted with tough fiscal choices,” said the report. “One choice that nearly every state has made is to cut funding for higher education.”

The report also says that the bevy of pension reform bills proposed nationwide will not be enough to fix the problem.

“In the wake of the Great Recession, all 50 states enacted pension reforms of some kind, unfortunately, these reforms didn’t go nearly far enough, and pension debt has continued,” said the report, adding that “public-pension reforms will have only a limited impact on state finances for years to come.”

The report attributed the imbalance to the strong legal protection afforded to pension funds that educational institutions are not entitled to. It said that as a result, altering benefit levels for existing employees or those already retired is “difficult, if not impossible,” while the same is not true for public colleges or universities.

“States are in a difficult legal and political position when attempting to rein in pension costs,” said the report, adding that by contrast education funding “is not set by a legally fortified formula, and the possibility of shifting costs to the federal government implicitly incentivizes states to reduce higher-education spending.”

The report argued that state governments should “reprioritize pension reform” in order to boost higher education “for the good of younger Americans—particularly those from families of modest means—and for the good of the nation’s future economic health.”

Tags: education, Pension, The Manhattan Institute