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6 KEY
REASONS TO SAY ‘NO’ TO IDENTICAL PENSION BILLS IN THE ILLINOIS HOUSE
Illinois Policy Institute/Ted Dabrowski &
John Klingner
Illinois
state Rep. Barbara Flynn Currie has introduced a pension bill that is
unfair to new and current workers, is potentially unconstitutional,
bails out Chicago Public Schools’ pensions, and perpetuates Illinois’
broken pension system.
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 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.
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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 has introduced a real pension reform bill in the Senate.
Ives has done the same in the House.
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.
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