Tuesday, January 29, 2013

Social Security (Anti-Poverty)
Versus SURS (Income Replacement)


      A few comments vis-a-vis the apparently unpopular WEP or social security Windfall Elimination Program.

      Before getting to the explanation of why this provision can be defended, it is important to understand the difference between social security Old Age and Survivors Insurance and our pension system.  Social Security was never intended to be a "pension" program; it was intended as an anti-poverty program for older Americans and in that sense has been wildly successful.  (If you go to their Website or look at the annual statements from them (SS) you will see that they are quite explicit about this not being a pension program).

      SURS is intended as a pension system, i.e., a plan that will provide income replacement in retirement that is more or less directly calibrated or proportional to the income you earned while you worked.  Social security payments are not proportional to your earnings level; they are "bottom-loaded" meaning that people who had average lifetime earnings of $30,000/yr. will get a much higher rate of payout than people averaging $100,000/yr.  This is completely consistent with the goals of an anti-poverty program.

      So, let's come to the case of a typical UIC professor who (until now) had a fairly predictable SURS pension, proportionate to his or her earnings.  But, let's assume that this individual through other employment had somewhat modest levels of income from prior employment, consulting, or whatever that averaged out to $20,000 per year.  If Social Security ignored that individual's SURS pension, she would look like someone who had been a low-wage worker her entire life and who would be very deserving of the inflated pay-out rate that social security provides to people at the bottom of the income scale.  But, this is not the case--the individual is not at risk for old-age poverty and by some definition of fairness ought to get a reduced social security payout.  That is what the WEP attempts to do.

      It is important to recognize that there are folks who  are in between the two worlds imagined by the social security WEP policy.  That is, they have careers that include stints of employment covered by social security and employment with the university.  In many cases, they barely miss the criteria established by social security to escape the WEP, falling just short of the 'years of substantial earnings' requirement, but their university pensions are too small to adequately make up the difference caused by a WEP diminished social security check.  In these instances, I'd say that the WEP policy needs to be modified in way that makes it less dichotomous; perhaps there would be some sensible sliding scale of offsets that would not wreak so much havoc on people in those situations.  I think that social security does something akin to this with regard to adjusting beneficiaries' checks by how much they earn if they are still working.  Absolute cut-offs don't seem to make any sense to me.

      But the bottom line remains that it is very important to be clear in distinguishing an anti-poverty program from an income replacement program.  It is quite alarming in reading the Biss/Nekritz proposal to see that they fall into this very same confusion.  Limiting COLA increases to the first $25,000 of annual retirement stipends makes sense if you are dealing with an anti-poverty program.  However, SURS is not such a program and their COLA restriction is completely nonsensical in this regard, and only can be explained by Willie Sutton logic--we're going after the pensions of higher earning people because that (like a bank) is where the money is.

      And make no mistake, reneging on a deal to provide deferred compensation from a fund which you (the state) have borrowed recklessly from, is a form of theft.

Bill Bridges
Professor Emeritus
Department of Sociology

Originally posted to the academy listserv on January 9, 2013.

Senate Bill 1

Synopsis As Introduced

Amends the General Provisions, General Assembly, Illinois Municipal Retirement Fund (IMRF), State Employee, State Universities, Downstate Teacher, and Judges Articles of the Illinois Pension Code. Contains a Part A, which is intended by the General Assembly as a stand-alone reform of the General Assembly, State Employee, State Universities, and Downstate Teacher Articles of the Illinois Pension Code and takes effect upon becoming law. Contains a Part B, which is intended to provide alternative provisions that take effect only if and when a corresponding portion of Part A is determined to be unconstitutional or otherwise invalid or unenforceable. In Part A, caps pensionable salary, temporarily suspends and reduces the amount of automatic annual increases, requires the systems to be 100% funded by 2043, and increases required employee contributions. In Part B, requires persons to make an election either to accept reductions in the amount of, as well as delays in eligibility for, automatic annual increases or to forgo certain healthcare benefits and future increases in pensionable income. Effective upon becoming law, except that specified portions of Part B take effect upon the date following the date upon which certain contingencies occur.

Title: SB0001
Introduced by Sen. John J. Cullerton
Date Cited: January 29, 2013
Link to Full Text:  http://tinyurl.com/bj73za7

Wednesday, January 9, 2013

They Failed (Again) - Thanks to YOU

Despite the last minute, desperate antics surrounding pension reform legislation in the Capitol today, the 97th General Assembly adjourned late this afternoon without voting on blatantly unconstitutional pension legislation that could have decimated the retirement savings of active employees and current retirees. Clearly, bill sponsors could not get the required votes to pass their bad proposal. That is because of YOU.

As the IFT has been proud to say many times before, this victory is the result of the activism and dedication of our members. This session, thousands of you called, visited and e-mailed your lawmakers and came to Springfield to rally and lobby, especially in recent days. In huge numbers, you made your voice heard and stood up for the pensions you have paid for and were promised.

Your extraordinary efforts combined with those of tens of thousands more members of We Are One Illinois coalition unions statewide, making all the difference. Together you sent a clear message to lawmakers that “A Pension Is A Promise.”

IFT President Dan Montgomery joined coalition leaders in Springfield to strengthen your powerful voice and to promote the coalition's message. In numerous meetings with lawmakers, through testimony in committee and in press conferences that garnered media attention statewide, Montgomery and other leaders urged lawmakers to do the right thing for Illinois' middle class public servants.

But this fight is far from over. We know that public employee pensions will remain the target of unfair, unconstitutional attacks in the days ahead. Thanks to the power of union solidarity and your activism, we are confident we will continue to prevail. IFT members and all public employees WILL be heard.

The members of the 98th General Assembly will be sworn in tomorrow afternoon in Springfield, and the next session begins in earnest in early February. The IFT and leaders in the We Are One Illinois coalition are already planning next steps in the ongoing fight to find long term, fair and constitutional solutions to the pension crisis that include SHARED sacrifice. So-called "solutions" that place the debt entirely on the backs of dedicated, middle class public servants who have paid their fair share will continue to be simply UNACCEPTABLE.

Thank you for everything you have done, and will continue to do, to protect your retirement security and that of ALL Illinois’ public workers. Watch the IFT Web site and your inbox in the days ahead for updates from Springfield and to learn what you can do next to ensure that state keeps its pension promise.

Publication: IFT-AFT Email
Publication Date: January 9, 2012

Monday, January 7, 2013

Amendment 10 to SB1673 Passes Committee
(Includes SURS Summary)

First a great big thank you to all who have contacted or tried to contact their Representative. We do realize that the phones are somewhat paralyzed due to all of the calls. So for those of you who did not make contact do appreciate your efforts just as much.

Amendment 10 to SB1673 passed the House Personnel and Pensions Committee earlier today. The votes were as follows:

Yes – Nekritz, Biss, Currie, May, Schmitz, Senger
No - Burke, Poe, Morrison

It is thought that there will be another Amendment added; quite possibly on the House Floor.

At this time, it is still possible that Amendment 10 will be heard yet today as there is still lots of time left for House activities.

Please read the SURS synopsis of Amendment 10 below:

SB 1673 (HA #10)
Tier I Employee and Tier I Retiree Reform
House Amendment #10 to SB 1673 applies to members of the General Assembly Retirement System (GARS), the State Employees’ Retirement System (SERS), the State Universities Retirement System (SURS), and the Teachers’ Retirement System (TRS).

The following analysis is SURS specific.

Automatic Annual Increase Reform
Tier 1 participants and Tier 1 retirees shall not receive an automatic annual increases to their retirement annuity until January 1, 2020. Beginning January 1, 2020 and each January 1st thereafter, Tier 1 retirees age 67 and over shall receive an automatic annual increase that is equal to 3% compounded on annuities up to $25,000. Members receiving annuities in excess of the cap on automatic annual increases shall receive an automatic annual increase of $750.

Pensionable Earnings Limitation
Pensionable earnings shall not exceed the Social Security Wage Base (wage base is $113,100 for FY 13). Tier 1 participants that are receiving earnings exceeding the social security wage base as of the effective date are grandfathered and will be limited to their annual earnings rate on the effective date. Participants subject to a collective bargaining agreement or employment contract shall be exempt from this limitation until the expiration of the existing agreement or contract. No calculation of benefit shall include earnings in excess of this limitation.

Tier 1 Employee Contribution Increase
Tier 1 employee contributions shall increase by an additional 1% of earnings in Fiscal Year 2014, and by an additional 1% of earnings in Fiscal Year 2015 so that such participants shall be contributing 10% (11.5% for alternative formula participants) of earnings for Fiscal Year 2015 and each year thereafter.

Change to the State Contribution Schedule
The State shall be required to adhere to a funding schedule that provides an annual contribution sufficient to cover the employer’s normal cost plus an annual amount to amortize the unfunded liability so that SURS is 100% funded by 2043. Then, in Fiscal Year 2044 and each fiscal year thereafter, the State shall contribute an annual amount to maintain a funding status of 100%.

Additional State Contributions beginning in Fiscal Year 2020
Beginning in Fiscal Year 2020, $1 billion will be transferred from the General Revenue Fund into the Pension Stabilization fund on an annual basis. Such transfer will serve as an additional contribution to the required State contribution provided under Section 15-155, and the transfer shall be made each fiscal year thereafter until the 5 State Retirement Systems are 100% funded. This annual transfer of $1billion is available due to the expiration of debt service payments to pension obligation bonds issued in Fiscal Years 2010 and 2011 to fund the State Retirement Systems.

State Funding Enforcement
Beginning July 1, 2013, the state shall be contractually obligated to contribute to the System in each state fiscal year an amount not less than the sum of the state's required contribution. The obligation is a contractual obligation protected and enforceable under Article I, Section 16 and Article XIII, Section 5 of the Illinois Constitution.

Notwithstanding any other provision of law, if the state fails to pay in a state fiscal year the amount guaranteed under this subsection, the system may bring a mandamus action in the circuit court of Sangamon County to compel the state to make payment, irrespective of other remedies that may be available to the system. In ordering the state to make the required payment, the court may order a reasonable payment schedule to enable the state to make the required payment without significantly imperiling the public health, safety, or welfare.

Prohibition of Non-Public Employers
Employers that are not defined as an employer under the SURS articles shall be excluded from enrolling new employees in SURS. Those employees of such employers that are already SURS participants shall remain participants. SURS is given the authority to determine whether or not a person is an employee. SURS members shall not be eligible to receive service credit for a leave of absence for service with a teacher organization if that leave of absence begins on or after the effective date.

The changes made by this amendment to Acts other than the Pension Code are severable from the other changes made by this Act. The changes made by this amendment to an Article of the Pension Code are severable from the changes made by this amendment to another Article of the Pension Code. However, the changes made by this amendment in an Article of the Pension Code that relate to (i) automatic annual increases, (ii) employee or member contributions, (iii) State or employer contributions, (iv) State funding guarantees, or (v) salary, earnings, or compensation are mutually dependent and inseverable.

Source: Email to SUAA membership
Author: Linda L. Brookhart
Link: www.suaa.org

Weekend Cut Short!

The introduction of Amendment 9 to SB 1673 brought about much scurrying from those of us who have been involved these first few days of the Lame Duck session. By now most all of you have read in the newspapers about the content of the Amendment.

By the time you read this leadership will have met to determine what language is to actually be taken forward in a new or additional Amendment to SB 1673.

Thus far we know that Amendment 9 is identified as HB 6258 with some inclusions from Rep. Fortner's bill. The highlights for today's discussion are most likely:
  • Cost-of-living increases delayed until age 67 (or 5 years after retirement) 
  • Cost-of-living freeze for the next five to six years
  • Limit on cost-of-living increases to the first $25,000 ($20,000 if a person is a SERS retiree who receives Social Security due to contributions made to Social Security through their State employment)
  • A 2% increase in contributions phased in over two years with a guarantee that the State would make its required contribution
  • Phased-in increase in retirement age for employees younger than 45 for those hired before January 1, 2011
  • Cost shifting to local school districts removed - this would most likely be revisited at a later time
  • An employee's pension would be based on his or her salary upon passage of the bill or the wage base for Social Security, whichever is higher
  • The requirement of certain amounts to be transferred from the State's general revenue fund to the pension stabilization fund - if the State tries to skip payments, the retirement systems could go to court to enforce the law
  • A cash balance plan would be created for employees who began work after January 1, 2011 or referred to as "Legacy Tier II participant" - a new cash balance plan participant is a person hired on or after July 1, 2013
  • The deletion of tying the cost-of-living allocation to health insurance remains in place
  • According to the Tribune "the proposals could result in shaving as much as $30 billion off the state's pension debt. The state has $5.7 billion devoted to pension funding this year and $6.7 billion for the next budget year . . ."
While the next few days will be quite trying we would ask all of you to stay on alert. Calling your
representative with concerns regarding their position on the new proposed pension legislation will give the SUAA lobbyists an idea of who to contact face-to-face at the Capitol.

What we know for sure is that a new Amendment will be proposed after today's talks.
Representatives will be at the Capitol starting at 2:00 p.m. on Sunday, January 6th. Calls can be
received at their Springfield Office.

The Senate is not scheduled to return until Tuesday, January 8th.

You are welcome to provide comments and concerns to the State office by email. John, Dick and Linda are currently monitoring the activity and will be reporting as activity progresses.

SUAA Mini Briefing
January 5, 2013
Link: http://tinyurl.com/ast7ymz

Sunday, January 6, 2013

Lame Duck Session

Remember the big hype about Lame Duck session? The Senate and the House were going to meet from Wednesday, January 2nd through Wednesday at noon, January 9th, and yes, even through this weekend. Accordingly there were a number of issues that needed to be wrapped up before the new General Assembly would take office. At least the onlookers thought that there was much work to be done.

Now here it is Friday and the only activity was the We Are One Rally which was quite low-key as the Senate went home last evening and the House will not arrive until Sunday. The ralliers for today must have been greatly disappointed just as many were yesterday. Speaking of yesterday's rally, pictures can be found on the SUAA Facebook page.

The Senate did pass HB 5210 (Amendments 1 and 2) Wednesday which is a trailer bill to HB 1447 previously passed in the Senate as the Spring Session came to and end. However while there seems to be a lot of talk regarding this pension fix for two of the pension systems - Illinois General Assembly (GARS) and State Employees Retirement System (SERS) - the House did not take any action on HB1447. It was referred to the House Rules Committee (not on order of concurrence) at the end of Spring Session where it remains according to the bill's activity.

When the House returns on Sunday will an amendment be added to HB 1447 which will then need to be sent back to the Senate for passage or will the amendments added to HB 5210 suffice? Confused? Need a refresher? Read on! Remember these bills DO NOT affect the State Universities Retirement System (SURS) or the Teachers Retirement System (TRS) or the Judges Retirement System (JRS). In addition, these two pieces of legislation together could be considered a test case for pension changes going forward.

HB 1447 - Senate President Cullerton's sponsored legislation "provides that Tier I employees and Tier I retirees must make an irrevocable election either: (1) to accept changes in eligibility for, and the amount of, automatic annual increases in retirement annuity or (2) to avoid those changes. Provides that a person who elects the first choice may have any future increases in income included as compensation and is entitled to certain healthcare benefits. Provides that a person who elects the second choice forgoes those benefits. Includes an in-severability provision." This legislation is much like the content provided in SB1673 for all pension systems, again, except GARS.

HB 5210 - Amendments 1 and 2 contains relatively minor technical changes to the Illinois Pension Code. The amendments include ‘severability’ clauses that will become law if the Illinois Supreme Court rules part of 2013 pension reform is illegal. The amendments also change the time frame for implementing parts of another bill (SB 1447) currently in the House Rules Committee that reforms the State Employees Retirement System (SERS) and the General Assembly Retirement System (GARS). These amendments in HB 5210 only become law if the Illinois House of Representatives passes HB 1447 next week. In that case, the Illinois Pension Code will be amended to require (i) the election period established in House Bill 1447 of the 97th General Assembly to run from July 1, 2013 to November 30, 2013 (rather than from January 1, 2013 to May 31, 2013), (ii) those elections to take effect January 1, 2014 (rather than July 1, 2013), and (iii) to postpone the implementation of the new schedule of State contributions established in that bill.

Severability clauses are also commonly found in legislation, where they state that if some provisions of the law, or certain applications of those provisions, are found to be unconstitutional, the remaining provisions, or the remaining applications of those provisions, will, nonetheless, continue in force as law.

The purpose of HB 5210 is to ensure if the Supreme Court rules the irrevocable election process forced on SERS and GARS members is unconstitutional, other aspects of pension reform will nonetheless remain legal.

What can we anticipate for Sunday when the House returns? No one is predicting as there continues to be quite a number of issues up in the air. Has Speaker Madigan really been working the Governor to pass some type of pension reform? Or will it be decided to go with HB 6258?

Interestingly several civic groups came out in support of HB 6258 - Nekritz/Biss pension reform. Chicago Tonight, January 3, provides a complete interview on the pros and cons. Those groups that are supportive are: Metropolitan Planning Council, The Civic Federation, Chicagoland Chamber of Commerce, better Government Association, Illinois Chamber of Commerce and Chicago Urban League.

HB 6258 is possibly not constitutional and it does not provide a revenue fix but leaving these aside the pluses are: would reduce the State’s unfunded pension liability by an estimated $28 billion, or 29%, from $95 billion to $67 billion; would reduce the State’s required General Funds pension contributions in FY2014 by approximately $1.8 billion, or 29%, from $6.2 billion under the current funding plan to $4.4 billion. (This does not include $1.6 billion of required debt service payments on pension bonds.); the State’s General Funds pension contributions in FY2014 would represent an estimated 14% of State-source General Funds revenues, down from 20% under current law; the State’s General Funds pension contributions would peak at approximately $10.8 billion in FY2043, down from roughly $15.5 billion under current law. The share of State-source General Funds revenue consumed by pension contributions would be approximately 23%, down from 33% under current law; would gradually shift normal pension costs for the Teachers’ and Universities Retirement Systems at a rate of 0.5% of payroll per year to the employers that are responsible for salary decisions: school districts, public universities and community colleges; and would achieve 100% funding by 2043 and would create a legally enforceable right to compel the State and other employers to make required contributions.

Another report will come at either during or the end of Lame Duck Session - the Tribune had an article on the front page this morning relating to the pension "fix". It is well worth reading. . . Happy weekend!

SUAA Mini Session
January 4, 2013
Link: http://tinyurl.com/bzwsa5b