No need for pension panic, UI prof tells state workers

No need for pension panic, UI prof tells state workers

URBANA -- Even with a somewhat grim pension outlook, University of Illinois employees don't need to make decisions in a panic, or even hurriedly.

That's what UI Professor J. Fred Giertz told an overflow crowd of state workers Monday at the Alice Campbell Alumni Center in Urbana.

Despite two recent economic downturns, and unfunded pension liabilities estimated at more than $79 billion, Giertz said, the Legislature is "very timid."

"Don't take (legislative action) as a done deal," he added.

Past contributions are "untouchable" and changes to future rules will be given lengthy notice, he said.

The informational forum was based on a new UI Institute of Government and Public Affairs report, "Public Pension Policy in Illinois: An Introduction to a Crucial Issue."

The report's authors -- institute Director Robert Rich, economists Darren Lubotsky and David Merriman, and law Professor Laurie Reynolds -- emphasized they were not there to advocate for a political position.

The state faces four choices on pension costs, the report says:

  • Renege on past promises.
  • Raise additional revenues to meet these obligations.
  • Cut spending on other government goods and services to meet these obligations.
  • Increase government borrowing.

Reynolds told the crowd about legal issues involving pension reform. She started with an abridged version of the state pension law: "Membership in any pension or retirement system of the State ... shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

The 1970 Illinois Constitution was a radical change from earlier language that did not guarantee state pensions, the law professor said.

Reynolds said there are different possibilities on how that sentence could be interpreted by the Illinois Supreme Court.

One is that the Constitution creates a legally binding obligation between the employee and the pension system itself, but not the state of Illinois, which she called the worst case for pensioners.

In another, the state could recognize its obligation to its employees under the pension system, but a reduction of existing, accrued benefits would be legal.

In what she said was a widely held interpretation, the state has no power to change any benefits, formulas for calculating benefits, or to alter any of the terms and conditions of the pension plan that was in effect on the employee's first day at work.

How the Supreme Court will land on the decision can't be known now, Reynolds said.

Giertz said changes to pension plans have stalled in legislative committees.

However, the speakers noted these recent changes to the state's pension program: The retirement age is now 67, increased from 60; benefits are now based on the eight highest years of pay in the past 10 years rather than the highest pay in four consecutive years; cost-of-living adjustments are calculated using simple interest instead of compound interest; the earnings base used to calculate benefits is now capped at $106,800; and cost-of-living adjustments are limited to 3 percent per year or half of the actual inflation rate, whichever is less.

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