December 4, 2013

From the desk of Sean M. Smoot, Director & Chief Counsel

Yesterday, public sector employees, including a number of our members, suffered a major legislative defeat when the Illinois Senate approved the Conference Committee Report for SB 1 by a bare majority of 30 votes. Immediately thereafter, the so-called “pension theft” bill was approved again by a very thin two vote margin of 62 votes. Leaders in the House and Senate, along with Governor Quinn, twisted legislator’s arms to the breaking point, and most assuredly made promises of political favors, to garner the minimum thresholds for approval. Governor Quinn will likely have signed this terrible bill into law by the time you read this report.

A summary of the bill (SB 1 CCR):

Benefit Change Provisions

NOTE – Benefit changes affect four of the five state-funded pension systems: SERS, TRS, SURS, and GARS (excludes judges). These changes do NOT impact downstate or Chicago police and fire funds.

• Increases the retirement age on a graduated scale. Those under 45 would have to work an additional four months for each year under age 45;

• Reduces COLA’s by applying increases to a formula ($1,000 x years of service). For example, a 25-year employee would receive a compounded COLA on $25,000 of their pension. Any pension amount above that would not receive a COLA;

• Some COLA’s will be skipped for current employees. The skipped COLAs will be staggered so they don’t occur in consecutive years. Employees over 50 would lose one COLA. Employees from ages 47-49 will lose three COLAs. Employees from ages 44-46 will lose four COLAs; employees from age 43 and under will lose five COLAs;

• Employee contributions will be reduced by 1%.

• A salary cap based on Social Security will be imposed. This cap will limit the salary amount used to calculate an employee’s pension. The 2013 cap is $109,971 and will increase by the lesser of half of CPI-U or 3%; and

• Creates an optional defined contribution (401k style) plan for Tier 1 active members.

Funding and Actuarial Provisions

• Establishes supplemental contributions beginning in FY2019 that are “in addition to” and not “in lieu of” annually required contributions;

• Introduces a fairly weak “funding guarantee” that allows the retirement systems to litigate in the Illinois Supreme Court for full annual and supplemental employer contributions;

• Includes a change to the actuarial funding schedule to achieve full-funding by the end of FY2044; and

• Changes the some actuarial calculation methods starting in FY2016.

Collective Bargaining and Health Care Provisions

• All pension matters, except pension pickups, are removed from collective bargaining; and

• Prohibits the State pension systems from using pension funds to pay healthcare costs.

IMRF Changes (Does NOT reduce IMRF general benefits)

• Prohibits new hires from having vacation and sick time included as pensionable salary; and

• Prohibits future employees of several statewide local government associations from enrolling in IMRF.