Every Illinoisan needs pension reform.
Some government workers need it to avoid seeing their future pension checks slashed. Others want more control over their retirements. Taxpayers need pension reform to get tax relief and more budget certainty. And Illinois’ most vulnerable need it to protect funding for the core government services crowded out by rising pension costs.
Unfortunately, state Rep. Barbara Flynn Currie, D-Chicago, has introduced legislation that would only delay the day of reckoning brought on by Illinois’ pension crisis.
House Bill 4045 is not real pension reform. Its true purpose is to find some short-term budget savings while leaving the state’s pension crisis unchecked. House Republican Leader Jim Durkin from Western Springs has proposed an identical bill, House Bill 4027.
Illinoisans looking for real reform will instead want to support bills sponsored by state Rep. Jeanne Ives, R-Wheaton, and state Sen. Dale Righter, R-Mattoon. These bills offer a solution that’s constitutional, provides workers the retirement security and flexibility they deserve, and gives taxpayers certainty about retirement costs.
But before talking about the real solution, here are six key reasons to oppose the Flynn Currie bill:
- It’s unconstitutional. The Flynn Currie deal will fail because the legislation tries to take benefits away from existing workers.While it’s possible that current workers may see reductions in their benefits through an eventual bankruptcy or a change to the Illinois Constitution’s pension protection clause, trying to take away benefits through legislation won’t work.The problem is the Flynn Currie proposal does just that. Its “consideration” model doesn’t offer existing workers a choice between the existing plan and something different of similar value.Rather, the plan offers current workers two options that are both inferior to what they receive today. But the Illinois Supreme Court has already ruled against similar plans in the past. There’s little doubt that the “consideration” model in this bill would also be found unconstitutional.
It’s wrong for lawmakers to count on a bill that could in two years be declared unconstitutional in its entirety. Illinois will have wasted time and money on a failed deal.
- It perpetuates pensions. One would think that with all the havoc politician-controlled pensions have wreaked on the people and budget of Illinois, the last thing politicians would include in “reform” for new employees would be more pension plans.But this bill perpetuates pensions. It requires new state workers to choose between the current Tier 2 pension system and a Tier 3 hybrid plan that includes a pension.In either case, workers’ retirements would still be under politicians’ control, the state’s pension liabilities would still grow, and taxpayers would still be on the hook for the plan’s failures.
That’s unsustainable for both taxpayers and the state. The only way the state’s pension crisis will end is if lawmakers move away from pensions entirely and enact full 401(k)-style plans.
- The bill forces new workers to subsidize older workers and retirees. The Flynn Currie bill is a bad deal for new workers because it perpetuates the Tier 2 benefit plan. Tier 2 is an unfair and immoral system that forces new workers to contribute more to the pension systems than what they’ll get out in benefits.For example, new teachers contribute 9 percent of their annual salary to their pension fund. But the benefits they accrue (the normal cost) are only worth 7 percent of their salary. They actually lose 2 percent of value annually.In other words, younger workers are forced to subsidize the retirements of older workers and retirees.
Tier 2 is a ticking time bomb. According to the Teachers’ Retirement System, its fundamental unfairness could be grounds for the plan to be overturned in court. If that happens, the subsidy Tier 2 members provide to older workers and retirees would end, and the unfunded liabilities of Illinois’ pension plans would jump.
- It only expands access to 401(k)-style plans to 5 percent of workers. On the surface, the Flynn Currie bill offers a way out of the broken pension system for new workers. It creates a 401(k)-style plan for Tier 1 workers to join if they so choose.However, that 401(k) option is limited. The bill gives only 5 percent of existing Tier 1 workers the chance to exit the pension plan. A vast majority of workers will still be trapped in the pension system, no matter how many want to leave.The ability to join a 401(k)-style plan shouldn’t be restricted to an arbitrary percentage of workers. All workers should have the option to escape the broken pension system.
- It has little math to support it. Flynn Currie hasn’t published any details on the math behind her bill. She’s demanding lawmakers vote on the plan with little proof of its supposed savings. In fact, no new numbers have been published on the consideration model since Senate President John Cullerton introduced it two years ago, when the details of the model were substantially different.
- CPS bailout. The bill also includes a $215 million state bailout of the Chicago Teachers’ Pension Fund for 2017. State taxpayers would be forced to bail out Chicago Public Schools leaders and their decades of mismanagement. The school district would not have to reform anything.
Real reform exists
The Flynn Currie proposal is a hodgepodge of bad ideas thrown together in the name of passing “comprehensive” pension reform.
Illinoisans deserve better from their lawmakers.
Fortunately, some lawmakers have offered real solutions.
Righter’s and Ives’ bills would help state government workers take back control of their retirements. Under these lawmakers’ proposals, new state workers would be enrolled in a 401(k)-style plan. And current workers would have the option to join as well.
Righter’s and Ives’ proposals are smartly designed. All concerns about constitutionality, viability and fairness are addressed because their bills are based on the state’s optional 401(k)-style plan for state university workers – a plan that has existed in Illinois for nearly 20 years and has over 20,000 members.
A 401(k)-style plan gives workers control over their money. Each worker’s personal retirement account is portable. Workers can take their retirement funds wherever and whenever they want. And the plans don’t depend on funding IOUs from House Speaker Mike Madigan, Chicago Mayor Rahm Emanuel or Gov. Bruce Rauner.
Most importantly, their proposals begin an end to the pension crisis that has been building in Illinois for decades.
Righter and Ives don’t reinvent the wheel with their proposals, they simply expand the proven state university plan to all state workers.
That’s far better than the unconstitutional, unfair and unproven Flynn Currie pension proposal.