Pension system suffers ‘systematic underfunding,’ lobbyists say

dollar signThe problem with the state pension system isn’t the amount of benefits state retirees receive, but the way the system has been funded since the 1930s, two lobbyists told UIC faculty members Friday.

Nick Yelverton, political director for the Illinois Federation of Teachers, and John Miller, legislative director for the University Professionals of Illinois Local 4100, addressed the state pension problem during a forum hosted by UIC United Faculty.

Last year, the state made $5.8 billion in pension payments, but only $1.8 billion went toward benefit payments to retirees, Yelverton said. The remaining $4 billion “is the amount we’re paying on the pension credit card,” he said.

“These are legacy costs for penalties since the inception of the pension system in the 1930s,” he said. “There’s been systematic underfunding from the very beginning, which has culminated in the situation that we now have with this difficult pension payment.”

Many of the proposed changes have focused on retiree benefit payments rather than looking at the larger picture — the debt, they said.

“Four billion of the $5.8 billion payment is state debt, plain and simple,” said Miller, associate professor of communication at Western Illinois University.

Several pension plans have been proposed in Springfield, but the recent focus has been on Senate Bill 1673, proposed by House Speaker Michael Madigan, Yelverton said. The plan offers two retirement options for employees who joined the university before January 2011:

• a plan that includes state-sponsored retiree health care and lower annual cost of living increases than those now offered. The COLA would start at age 67 or five years after retirement, whichever occurs first; it would be the lesser of 3 percent or half the consumer price index, calculated on the original annuity.

• a plan that offers the same annual cost of living increases now available, 3 percent annual COLA on a compound interest basis, without participation in the state-sponsored retiree health care program.

The proposed legislation would not increase the pension contribution by employees or change the effective retirement age.

“A choice between pension health and your health insurance is a choice that we believe is no choice at all,” Yelverton said.

Last week, state legislators proposed a new plan, House Bill 6258. The bill would raise current employee contributions by 2 percent, increase retirement age for current employees younger than 45 and change retirement cost-of-living adjustments.

“This bill provides a framework that is nothing more than discussion,” Yelverton said.

“It’s fatally flawed, grossly inadequate and unfair.”

When state legislators return to Springfield Jan. 3, changes to the pension system may be on the agenda — or the issue could be pushed off until budget talks in May, Yelverton said.

“The solution must be constitutional, sustainable and fair with no diminishment of the current benefit,” he said. “The state payment must be affordable and achievable over time.

“We’ve done nothing more than show up for the next day at work and now we’re being blamed for the past inappropriate action of past governors and state assemblies.”

State employees should reach out to their local legislators to share their thoughts on proposed pension legislation, Miller said.

“They need to hear your stories and know what this actually means to you,” he said.

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