SPRINGFIELD, Ill. — New state employees in Illinois will have to work to age 67 and won’t get the same, generous annual pension increases in retirement under a law Gov. Pat Quinn signed Wednesday that he claims will save the state $220 billion.
SPRINGFIELD, Ill. — New state employees in Illinois will have to work to age 67 and won’t get the same, generous annual pension increases in retirement under a law Gov. Pat Quinn signed Wednesday that he claims will save the state $220 billion. Quinn inked legislation he said would stabilize underfunded state retirement systems and save $400 million just this year to use toward closing a monstrous deficit. But he risked his political standing with labor unions who argue the pension reform pushed through the Legislature does nothing to solve existing problems with what is one of the nation’s worst-funded retirement programs, but merely cuts what already are unremarkable retirement payments. In return, he said it bolsters his case for an income tax increase to help whittle down a $13 billion deficit. "It protects taxpayers and it protects the retirement of thousands of public employees and teachers," Quinn said after signing the bill in his state Capitol office, surrounded by Republican legislative leaders as well as those from his own Democratic party. "This will bring a new era of financial responsibility to our state, save billions of dollars for the taxpayers, and make sure we have a solvent public pension system." The plan raises the retirement age to 67 after ten years of service from age 60 with eight years. It also reduces an annual increase of 3 percent, compounded, to half the inflation rate or 3 percent, whichever is less, in simple interest. "This is for people who are going to be 67 well into the future. And besides, 67 is not that old," said 61-year-old Senate President John Cullerton, the Chicago Democrat who sponsored the measure. The law applies to people hired after Jan. 1. The proposal was widely seen as necessary because the state’s five pension systems are underfunded by $80 billion after decades of governors and legislators shorting the accounts of annual contributions. Quinn’s budget director, David Vaught, said the state will have to pay $220 billion less through 2045 than it would under the old rules. "This was a way to create long-term pension stability that we could afford, instead of long-term pension instability that crowded out other state spending for years to come," Vaught said. The American Federation of State, County and Municipal Employees, the largest state workers union, argues the law does nothing to cut down the unfunded retirement-fund debt, nor help erase the current state deficit. "Politicians created a mountain of pension debt, but this bill doesn’t provide a penny to pay it down," AFSCME executive director Henry Bayer said in a prepared statement. "It cuts modest pension benefits but does nothing to address the state’s severe budget shortfall." Bayer argues the typical retiree gets a $20,000 annual pension. He says state employees have faithfully paid their contributions into retirement funds even when the state was skipping. Surrounding states’ benefits are more lucrative, so teachers, for example, will choose to go elsewhere rather than sign up in Illinois, where they face the prospect of 45 years in the classroom before they get full benefits, AFSCME says. Quinn said he doesn’t know what his action will cost him in terms of union support in this fall’s election, but said "the public will be appreciative of someone, a governor who never flinched from doing something really meaningful." It also should make voters more comfortable about supporting a tax increase. Quinn has proposed a 1 percent increase in the income tax rate to avoid deep cuts to education. By reducing future benefits, the state will save $400 million in the budget year that begins July 1, Quinn said, pointing out he doesn’t plan to take bundles of savings upfront from a 35-year plan. A popular provision of the pension law is an end to "double-dipping," where a retiree collects a public pension but takes another full-time job on a government payroll. Part-time jobs are allowed, however, so teachers, for example, may continue to substitute teach. The measure also limits the top salary on which a pension may be based to $106,800. There previously was no limit on income used to determine a pension. And a pension will be based on the highest salary earned in eight of the employee’s final ten years, instead of the four highest salaries in the last decade. Copyright 2010 The Associated Press.
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