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General Assembly Narrowly Approves Pension Reform - Quinn Signs Bill

By  Joe McCoy, Legislative Director
Published on Tuesday December 03, 2013
Updated on Monday December 23, 2013 @ 05:58 PM
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Update: Governor Quinn signed the pension reform bill into law on Thursday, December 5 (P.A. 98-0599).

The outcome of the pension reform vote in the Senate appeared dubious for awhile, but a bare majority of 30 votes was finally secured for passage of the Conference Committee Report for SB 1. Shortly thereafter, the bill was approved with 62 votes in the House - just two votes more than a bare majority. It almost goes without saying that several arms were twisted to the breaking point to reach these minimum thresholds for approval of an extremely controversial bill that had fallen under intense criticism from both sides of the political spectrum over the last few days. Governor Quinn will sign the bill into law and the unions will move swiftly to litigate the constitutionality of the new law. Only then will there be certainty about whether the reform framework will survive.

The content of SB 1 is summarized below:

Scope and Savings

  • The bill is estimated to save $160 billion over 30 years and achieve a 100% funding ratio no later than the end of FY2044;
  • The bill is estimated to reduce the unfunded liability by 20 percent and is estimated to reduce the FY2015 pension payment by $1 billion; and
  • Benefit changes affect four of the five state-funded pension systems: SERS, TRS, SURS, and GARS (excludes judges). Does not impact police and fire funds.

Benefit Change Provisions

  • Increases the retirement age on a graduated scale. Those under 45 would have to work an additional four months for each year under age 45;
  • Reduces COLA's by applying increases to a formula ($1,000 x years of service). For example, a 30-year employee would receive a compounded COLA on $30,000 of their pension. Anything above that amount would not receive a COLA;
  • Some retirement COLA's will be skipped for current employees. The missed COLAs would be staggered so they don't occur in consecutive years. Employees over 50 would miss out on one COLA. Employees from ages 47-49 would miss out on 3 COLAs. Employees from ages 44-46 would miss out on 4 COLAs; employees from age 43 and under would miss 5 COLAs;
  • Employee contributions would be reduced by 1% as a form of "consideration";
  • A salary cap would be imposed. The cap, based on Social Security, would limit the dollars that can be used to calculate a pension. The 2013 cap is $109,971 and increases at the lesser of half of CPI-U or 3%; and
  • Creates an optional defined contribution plan for Tier 1 active members.

Funding and Actuarial Provisions

  • Establishes supplemental contributions beginning in FY2019 that are "in addition to" and not "in lieu of" annually required contributions;
  • Introduces a "funding guarantee" that allows the retirement systems to litigate in the Illinois Supreme Court for full annual and supplemental employer contributions;
  • Includes a change to the actuarial funding schedule to achieve full-funding by the end of FY2044; and
  • Changes the "Effective Rate of Interest" for the Teachers' Retirement System and the State University Retirement System; and
  • Changes the acturial calculation method from Projected Unit Credit to Entry Age Normal beginning in FY2016.

Collective Bargaining and Health Care Provisions

  • All pension matters, except pension pickups, are removed from collective bargaining; and
  • Prohibits the State pension systems from using pension funds to pay healthcare costs.

IMRF Changes (Does NOT reduce IMRF general benefits)

  • Prohibits new hires from having vacation and sick time included as pensionable salary; and
  • Prohibits future employees of several statewide local government associations from enrolling in IMRF. Future IML hires are included in this group.