Capitol Watch – 05.23.12 – Pension reform package starting to take shape

24 May

Daily meetings this week have produced enough movement that a pension reform bill that appears to answer most constitutional questions, offer employees and retirees choices, maintain the solvency of the pension systems and save the state billions over the next three decades now seems possible.

“As school administrators, there still are some questions we need answers to, but I think the pieces are getting close to being in place that could make a deal possible,” said Dr. Brent Clark, executive director of the Illinois Association of School Administrators IASA, who has been involved in meetings with legislative leaders and representatives from the governor’s office.

In a meeting Tuesday, two major items tied to the question of constitutionality were moved to the back burner: increasing the age of retirement and increasing the employee contribution. The remaining item considered to be in a gray area – reducing the cost of living adjustment COLA – now is included as part of an option tied to health care benefits and future increases in pensionable income as opposed to a unilateral reduction in the COLA.

“Those are big because raising the retirement age clearly was unconstitutional in our view and increasing employee contributions while not increasing or even cutting benefits also was questionable in our view,” Clark said. “We said from the start that we would be part of the solution as long as that solution did not cross over into things that were unconstitutional.”

As currently proposed, current employees and retirees would have to select an option between January 1, 2013, and May 31, 2013. The basic choices would be:

  1. Keep their current benefits, including the compound COLA, but not be allowed access to participate in the retiree health insurance plan. Also, future salary increases would be excluded from pensionable income calculations.
  2. Accept the new package – including a simple COLA of the lesser of three percent or one-half of the Consumer Price Index each year on the entire amount of the pension – and have access to the retiree health insurance plans, though the details regarding premiums are not yet known. Future salary increases would be included in the pensionable income calculations.

One controversial item for school districts still on the table is shifting the state’s normal pension cost to local school districts, but the plan currently being discussed is to delay that shift until July of 2013 and then implement it one percent a year, giving districts the chance to plan for and better absorb that cost.

“The big question we do not have an answer to yet is what those normal costs are,” Clark said. “Obviously we cannot support that piece until we know that answer and have time to analyze the budgetary impact. Phasing in the cost shift at one percent per year is absolutely essential, but we need to know with a degree of certainty and be able to quantify the extent of the expected normal costs.”

The situation remains very fluid, but other items on the table as of Wednesday include:

  • The state guarantee to pay its share of the unfunded pension liability annually to make the pension systems fully funded in 30 years or by 2043.
  • A special actuary from the Auditor General’s Office to review the pension systems’ work and make recommendation to the General Assembly as to what payments the state must make each year.
  • School districts being prohibited from making the employee portion of the Teachers’ retirement System (TRS) pension contributions upon expiration of the current contracts and collective bargaining agreements. Many districts now pay all or part of the employee portion as part of negotiated contracts.
  • The Early Retirement Option (ERO) would be permanently extended on an individual basis without significant penalty to the employer, if the employee agreed to take the pension reform deal.
  • Establishment of a cash balance investment opportunity for employees if the employer and employee agreed to participate.
  • The Teachers’ Retirement System (TRS) Board of Directors would be reconstituted to include an equal representation of management and labor because school districts would be paying for the normal cost of the pension system.
  • Other regulatory relief issues pertaining to financial and operational management.

The effects of the bill would be felt July 1, 2013, with the employee election period being from January 1 through May 31 of 2013 as mentioned earlier.

 “Everyone knows that the employees did not create this pension crisis and there are those that say employees should not have to shoulder the expense of putting the pension systems back on sound footing,” Clark said. “But it is what it is and we need to come up with a solution that makes the systems solvent for all current and future retirees and gives school districts a legitimate chance to cope with the fiscal hardships being placed on them.

 “At the end of the day, it’s about being fair to employees and school districts while providing a quality education for children. We think those three things are still possible.”

 Bill would cut ROEs from 44 to 35

 A House committee Tuesday approved a bill that would reduce the number of regional superintendents from 44 to 35. Senate Bill 2706, which already has been approved by the Senate, now moves to the full House. If it passes the House, the only remaining step to becoming law would be the signature of the governor.

 The commission that recommended the streamlining of ROEs also recommended that the regional superintendents be funded out of the General Revenue Fund — something for which the IASA had been pushing — instead of using the Corporate Personal Property Replacement Tax as suggested by the governor. The streamlining effect of the bill means that each ROE now will serve 61,000 citizens as opposed to 43,000 under the old system.

via Capitol Watch – 05.23.12 – Pension reform package starting to take shape.

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