SPRINGFIELD — State government workers, teachers, university employees and lawmakers could see their annual pension increases scaled back but might not have to pay more toward their retirement or work longer under an emerging plan aimed at stabilizing vastly underfunded public pension systems.
Following months of behind-the-scenes negotiations, House Speaker Michael Madigan outlined parts of what he thinks can pass before the Legislature's Thursday adjournment deadline. It's short of what Democratic Gov. Pat Quinn called for last month, and it's unclear whether the new version would wipe out an estimated $83 billion pension debt.
There's a lack of consensus at the Capitol on raising the retirement age from 65 to 67 for many government workers, so that's out. And there's no agreement on requiring current workers to take more out of their paychecks.
As a result, the changes center on offering current and retired workers choices and on ending a long-standing practice of basing cost-of-living increases for retired workers on compound interest.
"We're concerned with the fiscal stability of the pension systems, and we've determined that the biggest cost driver that leads to fiscal instability in the pension systems is the automatic compounded (cost-of-living) adjustment," Madigan said late last week. "So our view is that should be adjusted and we ought to convert it."
Instead of a compound-interest formula that more quickly escalates pension checks, one plan gaining traction would see the state switch to a simple-interest-style system installed a few years ago for new hires. Cost-of-living adjustments would be equal to half the consumer price index or 3 percent, whichever is less.
Take a government worker who starts out with a $10,000-a-year pension. Now, he's guaranteed a 3 percent yearly increase. In the second year, that means his pension base jumps to $10,300. In the third year, it grows to $10,609, then to $10,927 in the fourth year.
Under the new system, each year's pension increase would be calculated on the base and not include increases from previous years. That means for someone who retires with a $10,000 pension, the most it would increase would be $300 a year — less if inflation is under 3 percent.
Democrats have long been concerned that changing pension benefits midstream would violate the state constitution. To that end, lawmakers are moving toward offering government workers choices.
Under one plan being considered, a retired worker could keep collecting 3 percent annual cost-of-living increases based on compound interest but would have to give up access to a retiree health care plan. At the same time, a retired worker willing to take the lower cost-of-living adjustment would have the opportunity to stay in the state's health insurance plan, said Rep. Elaine Nekritz, D-Northbrook, a key pension negotiator.
Current workers also would have choices. Workers willing to accept a lower pension cost-of-living increase would be eligible for whatever health care plan is in place when they retire. In addition, future salary increases would be calculated into the size of their pensions, Nekritz said.
But current employees who want to keep the 3 percent compound interest in their pensions would be unable to count any more pay raises into the salary that their retirement checks are based upon. They'd also lose any state health care when they retire.
Nekritz said another change being considered would delay the start of giving cost-of-living adjustments to retirees. Under that scenario, cost-of-living increases would start at either age 67 or five years after retirement, whichever is earlier.
Lawmakers from both parties who have been involved in a governor's working group on pensions see the proposal as a work in progress but hope finishing touches can be completed over the weekend.
"The situation is very fluid," Nekritz said. "These parameters are under discussion now."
How much the state would save depends on the choices that current and retired workers make. Though some of the changes likely would translate into fewer dollars saved, the Quinn administration is pressing to wipe out the $83 billion debt over 30 years — the target the governor set in April.
"We're making strong and steady progress," said Quinn spokeswoman Mica Matsoff. "Our focus is on delivering bold pension reform that stabilizes the system, eliminates the unfunded liability and ensures that public employees who have faithfully contributed to the system continue to receive pension benefits.
"We continue to examine the many options to achieve the necessary savings, and these discussions are ongoing," Matsoff said.
Also still in play is a move to shift the state's pension costs for teachers outside of Chicago on to local districts, a proposed phase-in that is drawing heavy opposition from critics who say it could cause property taxes to go up. Madigan has argued that Chicago property taxpayers have footed the bill for the Chicago public teacher pensions for decades.
"The goal here is fiscal stability of those systems," Madigan told the Illinois Channel website. "That's the goal. Today, they're a significant drain on the resources of the state of Illinois. … A lot of that drain is caused by employers who are passing on the cost to the state for people that never got a paycheck from the state of Illinois."
Senate Republican Leader Christine Radogno of Lemont remained skeptical of the cost shift, saying it is a "very steep climb."
The negotiations are moving toward choices that have drawn heavy criticism from unions.
Unions have revved up their memberships to push for legislation that they find acceptable. The union with the largest state government employee membership is theAmerican Federation of State, County and Municipal Employees, which issued a "pension emergency" email alert telling members to call legislators.
"Unless there is an agreed bill that puts the pensions on sound footing going forward, nobody wins," said Anders Lindall, AFSCME spokesman.
A coalition of unions has stood behind core principles that call for securing current benefits and making sure the pensions don't seep into heavy debt again, he said.