Tuesday, April 17, 2012

Daniel Biss Proposes Pension Reform:
House Bill 6149 and House Bill 6150

Author: Daniel Biss
Title: Pensions: proposals and town hall meeting April 30
Publication: Daniel Biss Email Newsletter
Date Published: April 17, 2012

Dear Friend,

As you know, I've been spending a huge amount of time working on our state's enormously challenging pension problem. This work has most recently manifested itself in two bills that I've filed, as well as a Town Hall Meeting that I'll be hosting on Monday, April 30, at 7pm, at the Glenview Police Station, 2500 East Lake Avenue.

The first bill, House Bill 6149, sets up a new type of plan, known as a cash balance plan, for future public employees. Like our current systems, a cash balance plan is a type of defined benefit plan; however, its benefits are tied closely to contributions and investment returns, the risk is shared between the state and the employee, and costs are predictable. You can read a one-page description of the bill here and an additional list of frequently asked questions here.

This bill constitutes an attempt to solve a very basic problem: on the one hand, the state has demonstrated a clear inability to properly manage traditional defined benefit plans -- we consistently underfund them, we repeatedly fall victim to actuarial error, and we create loopholes that can be and frequently are abused in ways that are both offensive and expensive. On the other hand, switching to a 401(k)-type defined contribution system would create a huge cash flow problem for the pension funds and would leave our public employees, the majority of whom will not receive Social Security, without any guaranteed retirement security. A cash balance plan splits the difference in that it provides a guaranteed minimum benefit for every employee but has predictable and manageable cost and is not susceptible to abuse.

The second bill, House Bill 6150, creates a Benefit Buyout program for current employees, giving them an option to forgo future benefits in exchange for an immediate cash payout. Current employees could choose to increase their retirement age, or choose to forgo future automatic increases in their pensions. Actuaries would then calculate the savings to the state and the employee would get an immediate check for one-third the savings. You can read a more detailed one-page description of the plan here.

The idea behind this plan is that research shows that some employees value immediate compensation more than they value deferred compensation. HB6150 would give them the option to take a portion of that compensation while saving the state an enormous amount of money, making it a tremendous win-win cost-saving opportunity.

These bills do not by themselves solve our state's pension challenges -- nor does it make sense to pretend that as a freshman legislator I'll be able to single-handedly close the book on one of the most substantively, politically, and legally challenging issues we face. However, as a number of groups have convened to address this increasingly urgent problem and many policy proposals seem to be on the table -- including some very sensible and innovative ones -- I think that House Bills 6149 and 6150 represent a genuine and valuable addition to the discussion.

As always, I tremendously value your feedback, and I'd love to discuss these pension ideas with you, either one on one or especially if you're able to join us at the Town Hall Meeting on Monday, April 30 at 7pm at the Glenview Police Station. I anticipate a robust and constructive discussion and it would mean a lot to me if you were able to join us. Thank you as always for your input.

Daniel Biss
State Representative | 17th District

District Office:
P: 847 568 1250 | F: 847 568 1256
3706 Dempster | Skokie | IL 60076

Note: If you missed the links in the post, above, check them out here:

House Bill 6149
one-page description of the bill here
frequently asked questions here

House Bill 6150
one-page description of the plan here

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  1. The State has a portable retirement plan. People who elected this plan got a lower interest rate just so they could take a lump sum payment. How does HB6150 affect these people? How will the treatment of people on the portable and traditional plans be made equitable?

    Has anyone calculated if SURS has the funds to remain solvent if a large number of members retire in the next 13 months?

  2. See also: "Rep. Biss Holds Town Hall Meeting on Pensions" by John Laesch, at The Progressive Fox blog. http://www.progressivefox.com/?p=3348