SPRINGFIELD - When state lawmakers return to
Springfield on Tuesday, they'll try to hammer out fixes to a statewide
construction program and are expected to continue battling over the
But hovering over the zinc-plated Capitol dome will be
the ghost of a promised payment that haunts every budget negotiation.
That ghost is the very real $4 billion Illinois is supposed pay into
its retiree pension systems this year.
Gov. Pat Quinn proposed in his March budget speech that
Illinois only make a half payment to its retirement funds next year,
effectively promising to pay the rest of the money later on in order to
free up immediate cash for current state spending. Quinn's budget was
not approved. House Speaker Michael Madigan pushed a full-funding
proposal through the House, but that measure never got a vote in the
If spent over the next year, the $4 billion at stake
could minimize spending cuts or reduce the size of a proposed income
tax increase. But the long-term consequences of skipping a payment are
far worse than any tax increase now, critics claim.
"The impact of skipping those payments is profound. It
puts the retirement systems, which are already the nation's
worst-funded, onto very dangerous ground. We believe that skipping
payments this year would make it nearly impossible for the state to get
back on a reasonable payment schedule next year or any year in the
future and would endanger the very survival of the pension systems,"
said Anders Lindall, a spokesman for AFSCME Council 31, a union that
represents many state workers.
Illinois has five separate pension systems that provide
retirement income and health-care benefits to retirees who were
non-Chicago teachers, university employees, state workers, judges and
the General Assembly. By skipping payments over the years the funds now
owe more than $54 billion than they had on hand June 30, 2008, the most
recent date for which data is available. Investment losses over the
past year have likely pushed that unfunded liability higher.
"If the state doesn't pay in what it's required this
year, as the governor has proposed, as others have proposed, let's skip
this payment, the liability will only grow," Lindall said. "You could
wipe pensions entirely for all future hires but not reduce what you owe
for past benefits by a single penny."
That's because the Illinois Constitution says a state
pension is a contractual relationship, "the benefits of which shall not
be diminished or impaired." So no matter what happens in the future the
state is going to have to pay that money sometime.
Quinn, and others, have proposed establishing a
two-tiered pension system where new hires would receive fewer benefits
than current workers. The Illinois Policy Institute, a nonpartisan
research organization dedicated to supporting free market principles,
suggests a "defined-contribution" plan, similar to a 401(k) account,
would reduce the state's contribution to employee retirement benefits.
"While tackling public employee pay and benefits is
unlikely to prove popular with public employee unions, no serious
attempt to rein in Illinois' budget should ignore this critical issue,"
the policy institute writes in its "2010 Budget Solutions" guide.
Reducing state employee pay, requiring state employees to pay more for
health care and reducing retirement benefits could all help Illinois
balance its budget without a tax increase, the IPI said in the report.
However, an independent analysis of Quinn's two-tiered
proposal concluded that while it would produce moderate savings through
2025, it would actually end up costing taxpayers $95 billion more than
the current system through 2045.
That doesn't matter to Jim Tobin, head of the National
Taxpayers United of Illinois, an anti-tax group based in Chicago. He
says "gold-plated" state government pensions are a huge problem and
that current employees should help fix it by paying 5 percent more into
the pension funds.
"Making them pay five percentage points more out of
their salaries for their own pensions would reduce unfunded state
liabilities by $20 billion," Tobin said. "That's the primary problem in
Illinois and that's the primary reason Quinn wants to increase the
Quinn has proposed a temporary hike in the state income
tax, raising the rate from 3 percent to 4.5 percent for two years. The
business income tax would increase from 4.8 percent to 7.2 percent. The
Illinois Senate approved a different plan for a permanent hike, setting
the state's income tax on individuals and businesses at 5 percent and
applying the sales tax to services like oil changes and hair cuts that
aren't currently taxed. The House never voted on that plan.
"Basically that's why they put Quinn in the governor's
mansion," Tobin said, echoing one of the conspiracy theories put forth
by former Gov. Rod Blagojevich. "They want to raise taxes on the middle
class to subsidize the wealthy retired state government employees."
Tobin claims 3,194 state government retirees are paid more than $100,000 in pension benefits every year.
However, Lindall counters that his data shows that the
average benefit for a state worker is about $20,000 a year, and about
$34,000 a year for a retired teacher. In addition, retired teachers do
not receive Social Security payments so their state pension is their
only government provided income, Lindall said.
"It's disingenuous and it's irresponsible and it's
absolutely transparent when right-wing ideologues try to confuse the
issue and direct public anger at teachers, at child protection
investigators, nurses, social workers, people who have given their
working lives to the essential public services that we all depend on,"
Lindall said. "Anyone who believes that a $20,000 pension for a retired
state employee is breaking the bank is misinformed or they have an
How much state employees pay into pensions
State employee pensions are funded by three sources:
employee contributions, state contributions and investment income. In
several years the state has skipped or made a partial payment of its
contribution. Employee contributions are deducted automatically from
paychecks. Here is how much employees pay into each retirement system
and their benefits.
Teachers Retirement System
Contributions: 9.4 percent of annual salary
Members do not receive Social Security
Annual retiree pay: 2.2 percent of final average salary for each year worked, up to 75 percent of final average salary
State Employees Retirement System
Contributions: 4 percent of annual salary for members
covered by Social Security; 8 percent of annual salary for members not
covered by Social Security
Annual retiree pay: 1.67 percent of final average
salary for each year worked for members covered by Social Security, up
to 75 percent of final average salary; 2.2 percent of final average
salary for each year worked for members not covered by Social Security,
up to 75 percent of final average salary
State University Retirement System
Contributions: 8 percent of annual salary
Annual retiree pay: 2.2 percent of final average salary for each year worked, up to 80 percent of final average salary
Judges Retirement System
Contributions: 11 percent of salary
Annual retiree pay: 3.5 percent of final salary for
first 10 years of service and 5 percent of final salary for each year
after 10, up to 85 percent of final salary
General Assembly Retirement System
Contributions: 11.5 percent of salary
Annual retiree pay: 3 percent of final salary for
each of first four years of service, plus 3.5 percent of final salary
for each of the next two years of service, plus 4 percent of final
salary for each of the next two years of service, plus 4.5 percent of
final salary for each of the next four years of service, plus 5.0
percent of final salary for each year of service in excess of 12 years,
up to 85 percent of final salary
Note: All pensioners receive an annual 3% cost of living adjustment.
Source: Commission on Government Forecasting and Accountability