Illinois may take on massive public pension boost with no clue on costs

Several bills that enhance Tier 2 state worker pension benefits, reduce retirement ages, allow for large end-of-career lump-sum payments and other pension sweeteners are moving through the Illinois General Assembly. They appear to be heading for a vote.

Lawmakers in Springfield could be gearing up to vote on a series of bills that would provide large benefit increases to members of Illinois’ state pension systems – without looking at the price tags.

Lawmakers admit they have no clue how much the proposals to fix the state’s less-generous Tier 2 pensions could cost taxpayers. They don’t know how proposed changes would affect the more than $142 billion in unfunded pension liabilities that currently hamstring the state’s budget.

Lawmakers and former Gov. Pat Quinn changed Illinois’ government pensions after the Great Recession to deal with decades of unsustainable growth in benefits and insufficient contributions. Tier 1 is the original plan, and Tier 2 is for workers who started after Jan. 1, 2011. They must work longer and get smaller benefits, but the federal government mandates benefits at least equal Social Security and Tier 2 may be close to running afoul of those “Safe Harbor” laws.

The main proposed fix, House Bill 4873, was passed out of committee on April 4. A pension note included with the bill reads: “An actuarial study is being conducted on the major provisions of HB 4873, as amended by HA 001. An updated impact note will be issued when the study is complete.”

Lawmakers should not take the bill to a vote without first receiving the results of the actuarial study. Without these results, there is no definitive way to know exactly how much these changes will cost taxpayers on an annual basis, or how much debt will be added to the state’s unfunded pension liability.

Passing a pension bill without knowing the costs is incredibly dangerous to taxpayers in Illinois, as benefits cannot be reduced without amending the state’s constitution.

The Civic Federation has also opposed the passage of pension legislation amending Tier 2 pension benefits without first having received the results of an actuarial study.

As for the details of the major proposed benefit changes in the bill, HB 4783 would:

• Increase the Tier 2 pensionable salary cap to match the Social Security wage base by 2029.
• Increase the current Tier 2 simple cost-of-living adjustment from the lesser of 3% or one-half of inflation to a guaranteed 3% increase of the original annuity annually.
• Consolidates the General Assembly Retirement System and the Judges Retirement System into the State Employees’ Retirement System, effective Jan. 13, 2027.
• Changes Tier 2 retirement ages for participants in the state pension systems from age 65 with 10 years of service to 62 with 35 years of service; 64 with 20 years of service and 67 with 10 years of service.
• Changes Tier 2 retirement ages for downstate police and fire systems from age 60 to age 55 with 20 years of service.
• Creates a Deferred Retirement Option Plan for state systems, allowing those who work past retirement age to choose to collect a large lump-sum payment upon retiring.
• Allows certain state employees to receive creditable service towards pensions under the state’s alternative formula for pensions.

The annual cost of these changes for taxpayers and the effect they will have on the state’s unfunded pension liabilities is currently unknown. In an interview with Crain’s Chicago Business last year, state Sen. Robert Martwick, D-Chicago, the chair of the Senate’s Special Committee on Pensions, admitted while he didn’t have an exact number, the cost of changes to Tier 2 pension systems for taxpayers would be “billions.”

Several other bills that would make changes to pension benefits are also currently moving through the General Assembly. House Bill 3765 is expected to be a “shell bill” to be amended by a gut-and-replace amendment – a tactic that allows lawmakers to skirt the official reading requirements and filing deadlines for legislation – whose language will be replaced to carry out many of the provisions outlined above. House Bill 4508 would reduce the retirement age for police personnel covered by the State Universities Retirement System from 60 to 55. House Bill 3519 and House Bill 3520 also include provisions to allow for certain Department of Juvenile Justice and Department of Corrections personnel to earn creditable service via the state’s alternative formula for pensions, in addition to benefit increases such as increased COLAs, changes to pensionable salary and retirement age.

Illinois’ worst-in-the-nation pension crisis already costs taxpayers more than $11.6 billion annually, more than 20% of the state budget. These changes will undoubtedly exacerbate the problem.

Lawmakers have no good reason to rush these potentially monumental changes. At the very least, they have the responsibility to know – and to tell taxpayers – how much these proposed changes will cost before taking a vote.