House Bill 6258: A Comprehensive Solution for Illinois’ Pension Problem
Overview: House Bill 6258 aims to end the long, bitter impasse over pension reform at the state Capitol by combining what has been proposed by business, labor, legislators and civic groups with some new ideas. The bill makes necessary changes to some benefits to preserve the health of the systems going forward but also provides new protections, including a historic guarantee that the state will never again shirk its funding obligations.
Stabilizing the System: Reforms for Tier 1 Members (public employees hired before 2011)
- Cost-of-living adjustments apply only to the first $25,000 of the employees’ pension
- That limit is reduced to the first $20,000 for employees eligible for Social Security
- COLAs are delayed until the employee turns 67 or five years after retirement, whichever comes first
- This applies to all employees and retirees who are currently receiving COLAs
- Retirement age is increased by:
- No increase for employees age 46 and older
- One year for employees age 40 to 45
- Three years for employees age 35 to 39
- Five years for employees age 34 and younger
- Employees would be required to contribute more toward their pensions by:
- One percent during the first year the legislation is in effect (not before Fiscal Year 2014)
- Two percent thereafter
- Pensionable salary – the amount of salary that counts toward a pension – is limited to the higher of the Social Security wage base or the participant’s salary when the legislation becomes law
Predictability, Fairness, and Local Control: Reforms for Tier 2 Members (public employees hired since 2011)
- All new employees in the Teachers Retirement System and State University Retirement System are placed in a cash balance plan
- Employees are guaranteed a minimum defined benefit but employers have predictable costs and are protected from investment risk — this combines the best features of defined contribution (or 401(k)) plans and defined benefit plans
- Local school districts can negotiate the generosity and cost of the benefit with employees
- TRS and SURS employees hired before the effective date can choose to remain in Tier 2 or join the cash balance plan
- COLAs for General Assembly Retirement System members will match those of Tier 2 members in the other pension systems
Ensuring the Benefit Will Be There: Employer Contributions and Funding Guarantees
- Schools and colleges/universities will assume employer costs at a rate of 0.5 percent of payroll per year, with the state still responsible for all previously incurred costs
- Employer contributions will be on a 30-year level-funding plan to achieve 100 percent funding
- Employer contributions will be enforced through court action or intercept of other state funds
- Revenue currently being used to repay pension obligation bonds will be used to pay down our unfunded liability once the pension obligation bonds are paid off
- This amounts to $693.5 million per year beginning in Fiscal Year 2016, plus an additional $900 million per year beginning in FY 2020, plus $1.1 billion per year beginning in FY 2034
3 thoughts on “New Pension Bill Fact Sheet”
There are much fairer ways to do this rather that condemn retirees to the risk of poverty as they age. Here are three options that should be considered before this draconian measure is voted on/
1. Tax all present retirees at the state income tax rate, but keep benefits the same
2. Tax services as well as goods
3. Tax internet sales at their source.
The latter is critical. These companies are driving out local business because they have a huge tax advantage.
With a couple of qualifications, I agree with Walter. Item 1 is right on. That is fair and would, in itself, make a significant difference. With respect to Item 2, that is a good idea but will be regressive unless it is coupled with a Constitutional amendment passed by the state legislature and subsequent adoption by the voters in 2014 to permit the legislature to replace the current 5% flat tax with a graduated tax when the 5% expires in 2015. If we do not do that, broadening the sales tax will only make our state taxes more regressive. With respect to his item 3, that is a great idea but will require Federal legislation. It is out of the states’ control.
But in general, I agree that the truly scary part of this proposal is the limitations on COLA’s. We are in a low-inflation environment right now, but that is far from guaranteed in the future, and those limitations would truly be draconian in a high-inflation environment.
The plan could be worse. But notice who does NOT feel any pain: high income residents of Illinois.
The plan is strikingly regressive in its impact, since the costs will be borne (ultimately) by:
– current and future retirees, getting less than they were promised, while paying more
– property owners paying school district taxes [since school districts will increasingly pick up the State’s tab]
– students and parents paying tuition to state universities and colleges [since universities will increasingly pick up the State’s tab]
If you are a resident of high-income Evanston, for example, then you will pay only a trivial increase in property taxes. If you are resident in modest-income Urbana, then the increase will be significant. And that wealthy resident of Evanston, who could have afforded to pay more in state income taxes so that the State could meet its obligations, will NOT be required to do so under this proposed plan.