On Thursday morning, President Ken Swanson and GR Director Jim Reed were joined by the IFT, President Ed Geppert and GR Director Steve Preckwinkle in a meeting with Senate President Emil Jones to talk about the budget crisis and increasing revenue for the State of Illinois.
We then gave him our take on how things have progressed and reiterated our positions on the proposal that have been advanced. Additionally, we shared our conversations with him about our conversations with members in both chambers around a tax increase.
We did ask if he thought the Governor might move off of his position on an income tax increase if he got a little health care. He didn’t answer it directly but said that he had convinced the Governor to change his position on gaming.
We asked how we could be helpful to him and his caucus. He indicated that there would be a series of hearings next week on education. We have subsequently been asked to testify on several of those panels.
Finally, The Legislative Education Caucus met on Friday July 13th to discuss, prioritize and develop strategies to implement educational accountability reforms.
Committee Action
On July 9th, IEA Lobbyist Will Lovett testified before the Senate Pensions and Investments Committee. The committee convened a subject matter hearing on the stability of the five state pension funds. Mr. Lovett’s testimony was presented alongside Steve Preckwinkle and Nick Yelverton, both of the Illinois Federation of Teachers. His testimony was preceded by Eden Martin, president of the Commercial Club of Chicago and the Civic Committee of the Commercial Club of Chicago. Mr. Martin made pointed arguments advocating for the reduction of employee benefits and put forth the idea of a defined contribution plan (401k Style plan) for new hires. Excerpt’s from IEA’s presentation is below:
“Decades of pension underfunding by the State is why we are here today. It is not the type of pension plan in place, or the level of benefits offered.
Census data from 2001 and 2002 states the average monthly pension payment to state government employees nationally was $1,374. At the same time, the average Illinois payment was $1,426, a difference of just $52.”
The employer’s normal cost for the TRS specifically, is about 8.0% and over the next few years will drift downward to 6.62%. The national average is 12.5%.
Our members contribute 9.4% of their salary to pay for their retirement along with almost 1% more to pay for health insurance for retirees. This is one of the highest contribution levels in the entire nation. Our members have always paid their required amount to fund their benefits. They have endured a 1% increase in contributions in 1998. A 0.5% increase in 2002 has now climbed to almost 1%.
We must stress that teachers do not receive Social Security. This is a huge distinction between teachers and people in the private sector. Seventy-eight percent of those that rely on a state funded pension do not receive Social Security. Their state annuity is their only stable source of retirement income. This is one of the reasons the IEA opposes a defined contribution plan. The state saves a significant amount of money by NOT having to contribute 6.2% of salary to pay for Social Security. The current defined benefit plans’ efficiency and effectiveness provides a lifetime of consistent income. TRS is in the top quartile of investment performance amongst its’ peers in the 1-, 3-, 5-, and 10- year periods while only costing 0.3% in administer.
The current pension system is affordable. The problem is that in past, the state has not had the fiscal discipline and
revenue to contribute the required yearly payments for benefits earned each year, (the “normal cost”) plus make interest payments on accrued unfunded liability. The employer’s normal cost for all of the state pension funds is estimated to be $1.3 billion. That is the true cost to the state if there was never pension underfunding. As many of you are well aware, the current funding plan requires the state to contribute $2.05 billion for the FY 08 budget.
The lease of the Lottery and the issuance of pension obligation bonds both have problems as stand-alone proposals. This type of cash infusion would be beneficial but there are issues that need to be addressed to make them work. They need to be looked at within the entirety of the budget. Some questions are how will the $650 million in education dollars from the Lottery be replaced? How will the bond payments be structured, where does the money to pay the bonds come from, will the retirement systems be put in a position to immediately start spending the influx of cash, and what is the funding plan going forward?”
The Governor’s pension obligation bond proposal has finally been introduced and is waiting to be amended to
HB 3755, which is currently on 2
nd reading in the House. The proposal is contained in House Amendment #1 to HB 3755.
Bill Introduction
HJR-CA 24 (Madigan, D-Chicago) This bill proposes to amend the Legislature Article of the Illinois Constitution concerning the passage of pension bills. It provides that any bill that would increase the benefits of members of any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof may become law only by a vote of two-thirds of the members elected to each house of the General Assembly. Effective on being declared adopted in accordance with Section 7 of the Illinois Constitutional Amendment Act.
GA Glossary
Pension Obligation Bond- When permitted by state legislation, the pension bond is generally issued by the plan sponsor or pension system entity and is backed by tax revenues. Proceeds are immediately made available to pension fund managers for investment.