Unfair, Unconstitutional Cuts for Chicago’s Municipal Employees’ & Laborers’ Retirement Systems

SB 1922, HA 5 severely weakens retirement security and unfairly burdens workers and retirees
COLA Cuts: SB 1922, HA 5 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-ofliving, but SB 1922, HA 5 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.

SB 1922, HA 5 is unconstitutional
Like previous attempts to unilaterally cut pensions, SB 1922, HA 5 illegally cuts benefits, even though the Illinois Constitution specifically states that pension benefits are a contractual right that cannot be diminished or impaired. A legal challenge will lead to years of budget uncertainty, doing little to address credit rating agencies’ concerns. Further, if litigation overturns the bill, Illinois will have kicked the can down the road and jeopardized its fiscal situation and the pension systems’ solvency. It may even owe back-payments to the pension systems.

SB 1922, HA 5 could still lead to underfunding – it contains no revenue and only a weak funding guarantee
The plan does not include sufficient guarantees that the City will end its practice of underfunding the pension systems in order to address other budgetary needs. SB 1922, HA 5 contains no new revenue, meaning there is no guarantee that the city can meet the payment schedule. Further, the bill’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 decide to try to compel payments, the bill does not require courts to adhere to the pension payment schedule. In sum, SB 1922, HA 5 has serious loopholes. It lacks revenue, can result in the city circumventing the payment schedule, and does not fix the real problem of underfunding.

SB 1922, HA 5 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.

The amendment offers a reduced, paltry 1% simple COLA to those with pensions of less than $22,000, but this is far less than the average pension. Even the average pension received by women in the municipal fund, who comprise 60% of the fund and earn less than overall average, still wouldn’t qualify. Furthermore, for the few who will receive it, this inadequate COLA is an ineffective guard against inflation, particularly considering these retirees have low annuities in the first place and do not receive Social Security.

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.

SB 1922, HA 5 would exempt the impact of pension changes from collective bargaining, denying rights to workers
The collective bargaining exemption in this amendment would make it illegal to attempt to bargain over pensions, including the right to bargain over the impact of the cuts in employees’ pensions contained in this bill.