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Illinois governor unveils new pension reform bill

Posted On: Jul. 9, 2015 12:00 AM CST

Illinois Gov. Bruce Rauner announced Wednesday a bill aimed at reducing pension costs at the state, county and city levels.

The bill adopts aspects of Gov. Rauner’s earlier tiered proposal to encourage certain employees to move into Tier 2, which is for employees hired on or after Jan. 1, 2011, or into a new Tier 3 hybrid plan, along with previous legislation aimed at reducing Cook County and Chicago pension costs.

Specifically, the bill adopts all aspects of S.B. 777, an earlier bill that would reduce Chicago’s required pension contributions to the $2.9 billion Chicago Policemen’s Annuity & Benefit Fund and the $1 billion Chicago Firemen’s Annuity & Benefit Fund over five years, starting in 2016 and extend the deadline for the fire and police pension funds to reach 90% funding to 2055 from the current 2040 deadline.

The new bill also would extend the 90% funding deadline for downstate municipal police and fire pension funds to 2055 from the current 2040 deadline and transfer the investments assets of 642 downstate police and fire funds to the $35.6 billion Illinois Municipal Retirement Fund, Oak Brook.

According to documents provided by a spokeswoman for Gov. Rauner, the bill also includes the following:

&bull: Future public safety employees would be enrolled in a hybrid defined benefit/defined contribution plan.

&bull: Certain members of state pension funds, the $10.2 billion Chicago Public School Teachers’ Pension & Retirement Fund and downstate public safety plans would have to choose between reduced cost-of-living adjustment benefits or excluding future salary increases from pension benefit calculations.

&bull: Cook County employees would have to choose between reduced COLA benefits or excluding future salary increases from pension benefit calculations, or accept provisions of an earlier Cook County pension reform bill, which includes higher employer and employee contributions.

&bull: The state would cover “normal costs” for Chicago teacher pensions — the contribution required to cover active teachers now covered by Chicago Public Schools — and CPS no longer would cover part of teachers’ 9% employee contribution.

&bull: Illinois municipalities would be able to file for bankruptcy protection.

Jesse Sharkey, vice president of the Chicago Teachers Union, called the new bill unconstitutional.

“The legal theory (Mr. Rauner) is using has resulted in an unconstitutional mishmash of proposals, which diminish and impair pensions,” said Mr. Sharkey in a statement on CTU’s website Thursday. “Chicago’s public school educators should not have to choose between having an arm cut off or a leg — meaning, we should not have to decide which hard-earned right we must give up in order for the state to make contributions to our fund as it does to others across Illinois.”

Also Wednesday, S&P lowered Chicago’s credit rating to BBB+ from A-, citing the city’s “structural imbalance.” A negative outlook also reflects S&P’s concerns over large upcoming police and fire pension payments.

In May, Moody’s Investors Service Inc. downgraded Chicago’s credit rating to junk over continuing pension concerns, noting the Illinois Supreme Court's ruling May 8 that the Illinois pension reform law of 2013 was unconstitutional could narrow Chicago’s options for addressing its own pension problems.

Meaghan Kilroy writes for Pensions & Investments, a sister publication of Business Insurance.