Cook County pension ‘fix’ could cost Illinois billions, fail to fund retirements

Cook County pension ‘fix’ could cost Illinois billions, fail to fund retirements

The proposal by state Sen. Robert Martwick is intended to fix a technical problem with the Tier 2 pension system, but Martwick said he doesn’t know how much it could cost taxpayers. He said it could be “billions.”

State Sen. Robert Martwick, D-Chicago, proposed what is being called a “fix” for Cook County pensions, but the impact to taxpayers is unknown and his plan could be devastating for systems already struggling with extremely high debt.

The proposal, Senate Bill 1690, would make changes to the Tier 2 pensionable salary cap.

The cap for Tier 2 employees is currently $123,489, while the current Social Security wage base used to determine future Social Security benefits is $160,000. Federal law requires pension systems that substitute their pensions for Social Security to pay at least equal benefits – meaning the Tier 2 cap could be at odds with federal law.

The implementation of Tier 2 capped annual increases in pensionable salary at the lesser of either 3% or one-half of inflation. Because the Social Security wage base grows in line with inflation, a significant gap has grown between Cook County’s and Social Security’s maximum covered salary figures. That has put the county in danger of running afoul of the federal mandate that they at least match Social Security as well as put it at risk of being sued by beneficiaries alleging they are receiving a legally inadequate pension.

Lawmakers don’t know whether Tier 2 is currently in violation of federal law or what changes are necessary to bring the system in line with the federal mandate. That’s because the state has never commissioned an analysis of Tier 2 pension systems to determine if or when Tier 2 pensions may violate the mandate. Lawmakers also don’t know how much their proposed “fix” would cost taxpayers.

The proposal might intend to correct a flaw from prior legislation, but it could come with a hefty price tag. Martwick admitted not knowing how much the supposed “fix” could cost taxpayers, but conceded it could be billions if the fix is applied to every other pension system that has enacted Tier 2 – something he said he believes “every pension fund in Illinois will have to adopt…”

When Tier 2 was implemented, many raised questions on its sustainability because of future costs and issues with keeping up with Social Security’s benefits.

Because Illinois’ public pensioners don’t participate in Social Security, the state’s pension systems will need to keep up with Social Security benefits. However, lawmakers should not blindly commit taxpayers to increased pension costs without knowing the price tag, especially with the Illinois Constitution’s pension protection clause that makes walking back any pension benefits incredibly difficult, no matter how extreme.

Perhaps more importantly for retirees, taxpayers, and state and local governments in Illinois is that these changes are not a “fix” for the state’s pension woes. The changes to Tier 2 will only add to the overall cost of pensions.

Cook County, along with Chicago, has some of the worst-funded pensions in the nation. The Cook County Employees’ Annuity Benefit system currently holds $11.8 billion in pension debt. Illinois’ five state-run retirement systems currently have $140 billion in pension debt. While the final figure remains unknown, the proposed changes to Tier 2 benefits will inevitably add to that debilitating debt.

The only long-term solution to Illinois pension crisis is constitutional pension reform, which in Illinois must come from a constitutional amendment approved by the legislature to appear on the ballot. Most Illinoisans support responsible reforms to the state’s pension system.

Rather than selling blank-check legislation as a “fix” to the state’s pension problems, Illinois lawmakers should do the right thing and let the people vote on pension reform.

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