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.

“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.”