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* Alex Nitkin has a solid piece on the future of Tier 2…
An influential state legislator is digging up what he calls a fiscal time bomb his predecessors buried more than a decade ago, arguing the General Assembly can’t wait any longer to defuse it. But experts and city officials are warning of collateral damage if he doesn’t slow down.
State Sen. Robert Martwick (D-Chicago) is proposing legislation he says would “fix” a 2010 law that aimed to stem Illinois’ pension crisis by cutting back retirement benefits for future public employees. Researchers have since warned that the measure likely went too far, potentially depriving workers of benefits they’re entitled to under federal law. […]
The 2010 [Tier 2] law dramatically narrowed retirement benefits for public workers who would come on the job after Jan. 1, 2011. Instead of reaping compounded interest on their pension payouts every year from retirement until death, as older workers had, pensioners in the new “tier” would only see nominal annual bumps. It also placed a cap on how high benefits could reach and lowered the standard for how annual payouts are calculated.
The result was a significantly smaller cost outlay for governments once “Tier 2” pensioners start to fully vest their pensions and retire. That hope is why many actuarial projections show Chicago and Illinois starting to make real progress toward shoring up their pension funds starting about 2030.
Even as they crafted the pension rollback legislation in 2010, lawmakers heard warnings that the Tier 2 calculus could someday invite costly legal challenges. If pension payments are too small, public workers could sue their employers on the back of a federal rule that pension payments must exceed the income that workers would otherwise earn from Social Security payments.
The story then goes on to talk about a bump to Downstate first responder pensions when the pension funds were consolidated, and efforts to pass similar legislation for Chicago first responders (who were promised the change years ago when the casino bill was passed) and for Cook County workers.
* Conclusion…
Legislators will seek out further analysis as they explore “fixes” for other Tier 2 pensioners, like teachers and department staffers, all across the state, Martwick said.
“I would posit that they all need to get done,” he said.
* But it’s difficult to argue with this warning from the Civic Federation…
Benefit enhancements are likely necessary to meet Safe Harbor requirements, but the solution should be thoroughly vetted, actuarially sound and the most cost effective of all possible options. The Civic Federation urges legislators and the Governor to demonstrate the need for the specific Tier 2 enhancements before taking any binding legislative action. The State cannot afford to take a step backward by unnecessarily increasing Tier 2 pension benefits. The Illinois General Assembly must ensure that the financial impact of any proposed Tier 2 changes is fully evaluated by pension actuaries and publicly disclosed before any action is taken. Until a complete analysis is done, there should be no urgency to pass these supposed Safe Harbor “fixes.”
posted by Rich Miller
Monday, May 15, 23 @ 11:26 am
Sorry, comments are closed at this time.
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Wise warning, but pols will do political most of the time.
Comment by Norseman Monday, May 15, 23 @ 11:48 am
Tier One isn’t as lavish as some folks like to portray. Three percent has been below inflation the last few years so Tier One pensioners are losing buying power. So the years when three percent exceeds inflation simply balance out these years and pensions basically just track inflation over the long term. Social Security recipients get increases and people don’t scream about that.
Comment by Big Dipper Monday, May 15, 23 @ 12:36 pm
From the article:
“Martwick and his allies also say the sharp cutback in benefits in 2010 deserves some blame for state and local governments’ post-pandemic struggles to recruit new teachers, police officers and other public workers.”
I’m in his district but being that I’m not a cop or firefighter I don’t get to inhabit Rob’s fantasyland. I do know enough teachers to know the pension has nothing at all to do with the inability to fill spots.
Really doubt it has anything to do with police or fire issues either.
Comment by Larry Bowa Jr. Monday, May 15, 23 @ 12:49 pm
What pension crisis?
Comment by Boone's is Back Monday, May 15, 23 @ 12:58 pm
=I do know enough teachers to know the pension has nothing at all to do with the inability to fill spots.=
Then you do not know enough teachers. It is a part of the problem. More so with retention of Tier 2 people than with hiring but both are part of the same problem.
Comment by JS Mill Monday, May 15, 23 @ 1:01 pm
CivFed is arguing for the absolute smallest possible pension that’s legally allowable. Just to be clear. They want public pensioners to get the least amount of money that federal law allows. Maybe that’s good, whatever, but I think it’s good to remember we’re talking about hundreds of thousands of people’s savings, here.
Of course that’s true to some extent with every budget item, there’s always real life impacts, it’s just easy to forget that when we’re haggling over numbers on a page.
Comment by Perrid Monday, May 15, 23 @ 1:13 pm
You mean working 35+ years in a prison or mental health facility for a pension that will make you lower middle class isn’t the enticement some thought.
I’ll be.
Comment by Flyin' Elvis'-Utah Chapter Monday, May 15, 23 @ 1:13 pm
===The Illinois General Assembly must ensure that the financial impact of any proposed Tier 2 changes is fully evaluated by pension actuaries and publicly disclosed before any action is taken. Until a complete analysis is done, there should be no urgency to pass these supposed Safe Harbor “fixes.” ===
While there is no immediate urgency to pass the Safe Harbor fixes, there is the problem that the tier 2 pensions aren’t very attractive or competitive options to entice public employment.
Comment by Candy Dogood Monday, May 15, 23 @ 1:15 pm
=== for a pension that will make you lower middle class isn’t the enticement some thought. ===
It might take a few more legislative sessions for the legislature to catch up with the idea that state jobs aren’t political graft that people are excited to receive in exchange for contributions or unpaid political work, but are in fact positions that have to be filled through a competitive labor market where the people who have the qualifications we need and the dedication we need in our civil service positions will have better options, especially if we try to nickle and dime them like we’re Wal-Mart but with worse PR and more on the job deaths each year.
Comment by Candy Dogood Monday, May 15, 23 @ 1:34 pm
The State pension systems are accretions of fixes over generations, and will need time to untangle, which most legislators do not have. CivFed advocates, with their lavish pay packages, golden parachutes, and Rauner-sized retirement income streams, are not the people for solutions, either. Why not hire a few 75-day pensioners from the State retirement systems to proposed solutions?
Comment by Ares Monday, May 15, 23 @ 1:41 pm
I could be wrong, but if memory serves me, this is the “reform” that made retirement age for teachers 67 years old.
If this is the case, the powers that be might want to re-evaluate that as well. Not only is it not reasonable to expect teachers to teach and teach effectively until 67, it ’s crazy to think that its a good idea. Good teaching is hard work, both cognitively and physically.
If you were a college student, would you sign up for 42 years of teaching?
Comment by Retired School Board Member Monday, May 15, 23 @ 2:19 pm
I see 2 different problems being discussed. 1. attracting employees and retaining them. 2. Making sure the retirees can’t sue and win in court for Federal safe harbor reasons.
They are both serious problems. In the old days, one of the things that attracted people to state jobs was that yes, wages were low, but pensions were good so that was worth something. There was also a job security thing that the state was less likely to lay you off.
So now the state is still offering low wages, the pension is no longer attractive, and most of the professional people I know have adjusted to layoffs by keeping some assets on hand just in case to supplement UIC.
Comment by cermak_rd Monday, May 15, 23 @ 2:57 pm
Survivor benefits are actually better under tier 2
Survivor benefits for Tier I members’ dependent beneficiaries are: no less than 50 percent of the retired member’s benefit.
Survivor benefits for Tier II members’ dependent beneficiaries: will be 66.66 percent of the retired member’s benefit.
Comment by Donnie Elgin Monday, May 15, 23 @ 3:01 pm
Also on the horizon is the cost to property tax payers when the the Feds send a bill for Social Security contributions to local school districts and community colleges for their Tier 2 participants. Not to mention the employees who will start seeing the deduction show up on their paychecks. Talk about a ticking time bomb…
Comment by Pot calling kettle Monday, May 15, 23 @ 3:03 pm
===actually better under tier 2===
Half of more is not better than 66.6 percent of less.
Comment by Rich Miller Monday, May 15, 23 @ 3:10 pm
==Tier One isn’t as lavish as some folks like to portray. Three percent has been below inflation the last few years==
Pensions are under no obligation to keep up with inflation. Their only job is to cut you a check until death do you (or your survivor) part.
If you can identify a state pension that is indexed to inflation like social security, I’m all ears. To my knowledge, none exist.
Comment by City Zen Monday, May 15, 23 @ 10:40 pm
== If you can identify a state pension that is indexed to inflation like social security, I’m all ears ==
The 3% AAI is not indexed like you asked. However, on a historical average of the CPI, it comes out right at 3%.
I’m sure the reason the authors of the Tier 1 pension system chose an AAI because it can easily be budgeted to, whereas a trailing increase indexed to inflation is unpredictable on a year to year basis.
Comment by RNUG Tuesday, May 16, 23 @ 11:44 am