Legislators aim to modify pensions with Tier 2 discussions lingering

[May 18, 2024]  By Greg Bishop | The Center Square

(The Center Square) – With Fitch Ratings issuing a report about the impacts of Illinois possibly enhancing Tier 2 pension benefits, some at the statehouse are urging caution to not go overboard.

Fitch said Thursday one proposal at the statehouse aimed at more broadly enhancing Tier 2 pensions benefits, including bringing them on par with generous Tier 1 pensions, could “materially increase the state’s pension challenges and affect Illinois’ credit rating.”

State Rep. Will Guzzardi, D-Chicago, said he’s not aware of legislators wanting to go that far.

“I don’t think anyone is proposing Tier 2 should be reverted to the way Tier 1 is but certainly making sure it’s a good enough benefit to provide for people in their retirement is very important,” Guzzardi told The Center Square.

Guzzardi said consensus seems to be around ensuring that Tier 2 is enough to comply with federal safe harbor laws for retirement benefits. IRS "safe harbor" standards require pensions to be an adequate replacement for Social Security benefits.

Fitch said such policy changes impacting adequacy seem “unlikely to affect Illinois’ credit quality.”

State Rep. Blaine Wilhour, R-Beecher City, said he’s got a bill that would fix that.

“By just saying that if at the end of your career it’s determined when you get your actuarial … if you don’t meet safe harbor, we just make up the difference,” Wilhour said. “That’s the most responsible way to do it.”

Chairperson of the House Personnel and Pensions Committee, state Rep. Stephanie Kifowit, D-Oswego, told The Center Square they are working towards “sound policy that is good for the state of Illinois and good for the employees.”

Members of the Illinois House Personnel and Pensions Committee - BlueRoomStream

“Certainly any proposal will take into account the ratings of the state and not have a negative impact on those ratings,” she said. “It is premature to speculate on the ratings of the state without the committee finishing their due diligence.”

Illinois has received several credit rating upgrades in the past several years, but the state has among the worst credit rating in the country.

Legislators return Monday for the final week of scheduled session. When they return, they could take up changes to pensions for police and firefighters that have first responders at odds with municipal associations.

The House Personnel and Pensions Committee Friday advanced an amendment to House Bill 3765 to create a Deferred Retirement Option Plan for police and firefighters, bring about parity between DROP and pension funds returns and allow reciprocity among units, among other changes.

“It’s not a sweetener,” said Michael Cosentino is with the Fraternal Order of Police Lodge 7. “There’s nothing sweet in this. The only sweet part is retention and right now we have a recruiting problem throughout the whole state for police officers.”

Groups representing municipalities worried about the unknown taxpayer cost. Representing the Northwest Municipal Conference, Taylor Anderson agreed with Consentino that it’s not sweet. He called it a “bitter pill.”

“The real concern is the unknown this creates for municipalities, for the taxpayers, and anytime we open that door, that just creates a lot of uncertainty,” Anderson told the committee.

The measure could be taken up by the House when they return Monday afternoon.

Catrina Petersen contributed to this report.