Monday, December 10, 2012

"Legislators Propose Innovative New Legislation on State Pension Reform"

Title: SUAA Mini Briefing:"Legislators...
Date: December 5, 2012

HB6258 was introduced this morning with a 10:00 a.m. press conference led by Representatives Nekritz (D-57) and Biss (D-17). These two Representatives were not alone in the unveiling of yet another but possibly more comprehensive bill to address pension reform. Others standing up before the audience were Representatives David Harris (R-66), Chris Nybo (Lame Duck R-41), Kelly Burke (D-36), Kelly Cassidy (D-14), William Cunningham (D-35), Robyn Gabel (D-18), Ann Williams (D-11), Linda Chapa LaVia (D-83), William Davis (D-30), Sara Feignholtz (D-12), Jehan Gordon (D-92), Greg Harris (D-13), Elizabeth Hernandez (D-24), Charles Krezwick (Lame Duck D-37), Karen May (Lame Duck D-58), Deborah Mell (D-40), Cynthia Soto (D-4) and Michael Zalewski (D-21).

From the first it was made clear that this is not a perfect piece of legislation however it offers new ideas and it is a new start for continuing the pension reform talks. The leaders complimented themselves on being bold and pragmatic. Everyone in four of the five state funded pension systems would have to sacrifice; judges are omitted. In return the benefits would be sustainable and affordable. However, there is no actuarial support at this time.

The bill will be refined over the next month - everyone's input is welcomed.

It is believed that more Republicans will become co-sponsors. The interest for some in the audience was who was not in appearance to show support of this legislation. That too could come over the course of the next month.

The most obvious question that provided a bit of a stumble and with no clarification was the COLA on the first $25,000 (or $20,000). However, the answer seems to be that the COLA will be compounded. Therefore, on the first year COLA would be $750; the second year would be 3% of $25,750 or $772.50; third year would be $26,522.50 or $795.68 additional and so on.

The best part and most notable of this new legislation is (bravo for the Representatives recognizing) the omittance of the choice between COLA and access to health insurance.

Concerns are how the higher pension contributions will change the defined benefit amounts upon retirement. What is the actual impact on reducing the state's unfunded liability?

Rep. Nekritz believes the "plan . . . will survive a legal challenge because it contains a guarantee the state will make its obligated pension payments in the future. The major reason for the current pension debt is the state's failure to make payments into the system."

HB 6258can be found (all 228 pages) on the General Assembly's website. There will be several analysis's coming over the next month.

In addition you can review the following for certain focuses of the bill:

Overview: House Bill 6258 aims to end the years-long quagmire over pension reform at the state Capitol by combining the best parts of previous reform plans with some new ideas. The bill puts in place necessary limits on pensions to preserve the health of the systems moving forward, but it also provides historic new protections to help ensure the state does not again shirk its funding obligations.

Tier 1 Members (state employees in the current state pension systems)

Cost-of-living adjustments would apply only to the first $25,000 of the employees’ pension
o That limit is set at the first $20,000 for employees eligible for Social Security
COLAs will take effect as of the effective date of the bill when the employee turns 67 or five years after they retire, whichever comes first
o This applies to all employees and retirees who are currently receiving COLAs
Retirement age increases as of the effective date of the bill by:
o No increase for employees age 46 and older
o One year for employees age 40 to 45
o Three years for employees age 35 to 39
o Five years for employees age 34 and younger

Employees would be required to contribute more toward their pensions by:
o One percent for the first fiscal year the legislation is in effect (that would be Fiscal Year 2014 at the earliest)
o Two percent for each year 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

Tier 2 Members (state employees in the alternative system created in 2010)

All new employees in the Teachers Retirement System and State University Retirement System would be in a cash balance plan
o Employees and employers both contribute to the pension cost and both have protections on benefits paid and costs accrued – a combination of the best pieces of defined benefit and defined contribution plans

TRS and SURS employees hired before the effective date this bill would become law 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

Employer Contributions

Schools and colleges/universities will assume employer costs for benefits in the TRS and SURS systems now paid for by the state, with that responsibility shifting to them at a rate of 0.5 percent of payroll each year

TRS and SURS employers will pay the specific pension cost of any employee’s salary they increase, to prevent a school from increasing a superintendent’s salary and then having other schools share in the cost of paying that increase once they have the responsibility of paying the pension costs for their employees

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 if payments are not made as required under the new funding plan

Revenue now being used to pay pension obligation debt will annually go to pay the broader pension deficit down once the pension obligation bonds are paid off
o This would mean $693.5 million per year going to pay off pension debt starting in Fiscal Year 2016, and $900 million per year starting FY 2020
While the legislators are calling for action during the Lame Duck session in January, there has also been word that the newbie's will be the ones voting on any pension reform. Nothing is for certain. Being prepared is the best we all can do.

Both the House and the Senate have adjourned until 2013. The House is scheduled to be in on Thursday, January 3 through Tuesday, January 8 (including the weekend) with an additional date of Thursday, January 10.

Senate is scheduled for Wednesday, January 2 through Tuesday, January 8 (including the weekend).

Swearing-in ceremony of the 98th General Assembly will be at Noon on Wednesday, January 9.

The We Are One Illinois coalition is possibly planning Pension Preservation rallies for January 3 and 4 at the Capitol. More information to come.

The House and Senate calendars for the 98th General Assembly are posted on the SUAA website.
Click to see the House Calendar or Click to see the Senate Calendar

District and Springfield office information for all legislators is not available either and most likely will not be until late January or early February. Half of the Capitol is being remodeled thus making space more cramped.

Look for updates and responses to the newly presented legislation as it becomes available. If you have any comments or constructive ideas that could be shared to legislators regarding HB 6258 please either contact the sponsors of this bill or send them to

SUAA's Legislative Steering Committee will also be taking a look at this legislation. There will be pension reform therefore it is important to make constructive contributions to the conversation.

SUAA will be working with the stakeholders throughout the Lame Duck session.
Make a daily habit of looking at the SUAA website for various articles of interest and updates on legislation.

Alerts will be forthcoming - as necessary. Dick Lockhart and Linda Brookhart will be following closely as January begins to unfold. John Carr will be available on a somewhat limited basis as he will be a new dad within the next few weeks.

For a well-rounded education on HB 6258 other reports can be found, of course, in newspapers, on the union websites, Illinois Policy Institute, Governor's website, Civic Federation, Civic Committee, Illinois State Chamber of Commerce, Capitol Fax blog, Illinois Channel and various other sites.

As we prepare for the holidays stay safe, stay happy, stay alert and most of all Stay Tuned!

"Bill Aims to End Long Impasse on Illinois' Most Critical Issue Before Legislature Adjourns" Press Conference in its entirety can be found at