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PENSION SYSTEMS UNFUNDED LIABILITY
HB6204 – A COMPREHENSIVE SOLUTION

There has been much concern on the part of State retirees and employees with the proposed pension changes contained in HB1447 and SB1673 to solve the State’s financial problems. These bills include provisions that would require retirees to “choose” between continuing to receive the current annual 3% compounded cost of living adjustment (COLA) and having access to the State’s health insurance program. In making the “choice”, one or the other of these two pension benefits would be taken away.

While the Legislature and the Governor have struggled with aspects of this legislation and the timing for voting on it, they have thus far seemed focused on the “choice” as a means for fixing the unfunded pension liability. This will result in a diminishment of retiree pension benefits for a problem that was not caused by retirees.

We have recently become aware of a legislative bill that offers a good alternative to the damaging proposals contained in HB1447 and SB1673. This legislation is contained in HB6204 which was submitted during the special session of the General Assembly held on August 17, 2012.

Like any piece of legislation, HB6204 is subject to change. The following are some of the major features included in it:

1. The five State pension systems will be 100% funded by year 2045. In contrast, the proposals in HB1447 and SB1673 would result in the pensions being 90% funded by year 2045.

2. A Pension Stabilization Fund will be established to receive the payments required to fund the pension systems. To assure that the payments are made by the State as required, these payments will be defined as a “pension benefit” to provide them the protection that is afforded to pension benefits by the language in the Illinois Constitution.

3. The State Comptroller and State Treasurer will be authorized and required to make annual payments to the Pension Stabilization Fund on behalf of the State based on a prescribed formula. The retirement systems will be empowered to sue the State in the event that a required payment is not made to the Pension Stabilization Fund.

4. Funds currently allocated in the State’s annual budget to pay off three bonds issued for the purpose of funding the retirement systems will continue to be used for pension funding after each bond is paid off. Those three bond payments total approximately $2.8 billion dollars per year.

5. Employees will be offered an option to transfer to a self-managed defined contribution plan administered by their retirement system. This may save $400 million per year and reduce the total unfunded liability $10-20 billion dollars depending on how many employees participate.

6. Employees who choose to remain in the traditional defined benefit plan will be required to contribute the greater of: a) the normal cost of the defined benefit plan; b) 6% of their salary.

7. A salary cap will be established for a current employee’s participation in the current pension program which is a defined benefit plan. That salary amount will be adjusted over time but is currently set at $109,000. Any amount of salary above that will be used to determine the amount of pension contribution to be made to the defined contribution plan portion of the employee’s pension annuity account.

8. Current retirees will continue in the current defined benefit plan without changes. A reduction in the current annual COLA will not be needed.

Contact your elected officials to express support of HB6204 or similar legislation that may be proposed. The combination of changes proposed in it offer a reasonable and effective approach for addressing the unfunded pension liability issues. The costs are distributed in a balanced and fair manner between employees and the State while making the five pension systems 100% funded.

To see a 17 slide presentation prepared by Representative Mike Fortner, go to www.fortner.ilhousegop.org/wp-content/uploads/2012/07/Pension-Plan-HB6204.pdf.

To see the full text of HB6204, go to www.ilga.gov/legislation/97/HB/09700HB6204.htm.