WE ARE ONE CHICAGO
Mayor Emanuel’s Proposal for City of Chicago Municipal Employees’ and Laborers’ Retirement Systems
SB 1922, HA 3 – OPPOSE
The City’s proposal severely weakens retirement security and unfairly burdens workers and retirees
COLA Cuts: The City proposes moving Tier 1 workers and retirees onto a Tier 2 cost-of-living adjustment formula, in addition to eliminating three years of COLA increases for current retirees. This is a drastic cut.
Compounding is critical to protect retirees from inflation, especially for city employees and retirees who don’t receive Social Security. The burdens of these cuts are all the more problematic because the City is now in the process of requiring retirees to pay significantly more for their health insurance coverage. Social Security payments are annually adjusted for inflation so that recipients do not lose ground to the rising cost-of-living in retirement, but the City’s proposal effectively guarantees that retirees will lose significant ground to inflation every year.
By imposing COLA cuts on this scale, the City risks losing its exemption from Social Security.
Employee Contributions: The City would hike employee contributions by 2.5%, forcing employees to pay more for an inferior benefit.>
The City’s proposal is unconstitutional
The City’s proposal would increase employee contributions by 2.5%, forcing employees to pay more for a slashed benefit. This comes on top of cutting COLAs deeply.
SB 1922, HA 3 does not contain an ironclad funding guarantee and could still lead to underfunding
While the plan purports to include a higher contribution from the City, the plan does include sufficient guarantees that the City will end its practice of underfunding the pension systems in order to address other budgetary needs. The bil’s funding guarantee is weak and does not absolutely compel the retirement systems to require the city to make pension payments. Even if the retirement systems choose to try to compel payments, the bill does not require courts to adhere to the pension payment schedule. In sum, SB 1922, HA 3 has loopholes that leave open the possibility for circumventing the payment schedule and does not fix the real problem of chronic underfunding.
The City’s proposal puts seniors near the poverty line
The following example indicates the damage done to their retirement security for an employee retiring from the municipal employees’ fund in 2015 receiving the average annual pension of $33,500 ($2,791/month). Under the City’s proposal and based upon the City’s actuarial forecast, in 20 years that retiree’s pension will only be worth $22,700 ($1,891/month) in real dollars, which is less than 150% of the federal poverty level for a two-person household. That represents a 30% cut in his or her pension. If retirees live longer than 20 years after retirement, the cut will be even more dramatic.
Making matters even more difficult for senior citizens, by 2017, the City will completely stop paying for retiree health insurance, increasing the impact of the COLA cuts. Premiums for a married couple will be more than $1,000/month, eating up a huge portion of their pensions.