Illinois House Passes Pension Reform

House lawmakers in Illinois have passed the first step toward significant reform of the state's woefully underfunded pension system, but the controversial move would limit cost-of-living increases.
by | March 22, 2013

House lawmakers in Illinois have passed the first step toward significant reform of the state's woefully underfunded pension system, but the controversial move would limit cost-of-living increases.

The Illinois House on Thursday voted 66-50 to curb cost-of-living-adjustments (COLAs) for current and future retirees (except judges), sending the measure to the Senate for approval. The plan is estimated to save as much as $100 billion in taxpayer dollars over 30 years owed to the pension systems and to immediately cut the unfunded liability by as much as $20 billion, according to the Chicago Tribune. Illinois pensions’ combined unfunded liability is roughly $97 billion.

The passage marks the first significant action lawmakers have taken to reduce the state’s unfunded liability. Illinois pensions combined are only about 40 percent funded, among the lowest rates in the nation. Last week the state reached a settlement with the Securities and Exchange Commission in which the federal agency said Illinois had committed securities fraud because it misled bond investors about its pension liabilities.

Still, the bill faces a contest in the Senate and an almost-certain challenge in the courts if signed into law. Dan Montgomery, president of the Illinois Federation of Teachers, called the vote "disastrous," telling the Tribune that teachers, who generally don't receive Social Security payments, would see a decrease in purchasing power. Montgomery also dismissed estimates of savings with the legislation because the bill is "blatantly unconstitutional" and will be thrown out in court, meaning the state will "save nothing," the Tribune reported.

The measure would end the 3 percent COLAs awarded to pensioners annually. Those increases are compounded each year, which exponentially increases the initial raises over time. The new proposal would mimic practices in other states which offer the same monetary increase each year by limiting pension COLAs to the first $25,000 of a retiree’s income. It would also require a worker to be 67 years old at retirement or be retired for at least five years to be eligible for the COLA.

The Senate has typically batted down bills that propose changes to state workers’ retirement age, but House Republican leader Tom Cross told the Tribune he believes the House passage of this latest measure could force senators to rethink their opposition.

"Anytime one chamber passes something of this significance, it changes the dynamic,” Cross said told the paper. “I think it sends a strong message over to the Senate that it can be done, it needs to be done.”

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