Illinois public pensions

Illinois public pensions Pension system Number of pension systems 5 State pension systems: • Teachers' Retirement System • Judges' Retirement System • General Assembly Retirement System • State Employees' Retirement System • State University Retirement System System type: Local pensions Number of local pension systems 451 Pension health Estimated liabilities:* $126,435,510,000 (2011 PEW study) Percent funded: 51% Unfunded liabilities: $61,953,400,000 ($61.9 billion) State employees Number of state public employees: 158,587 Total pension fund members (active and inactive): 798,787 Beneficiaries receiving payments: 299,337

Contents 1 Securities Fraud Charged 2 State budget and pensions 2.1 Pension payments 2.1.1 Crisis 2.1.2 State payments 3 Pension funding 3.1 Worst funded pension system in the country 3.2 State contributions 3.3 Federal bailout 3.4 Bond sale 3.5 SEC inquiry 3.6 Teacher Pension Shortfall 4 Illinois pension plans 4.1 Teachers Retirement System 4.1.1 COLA's 4.2 Chicago Public Schools 4.3 State Universities Retirement System 4.4 State Employees' Retirement System 4.5 Judges' Retirement System 4.6 General Assembly Retirement System 5 Legislative actions 5.1 2013 5.2 2012 5.3 2011 5.4 2010 6 Collective bargaining 7 State pension reforms 7.1 2013 7.2 2012 7.2.1 Pension oddities 8 Litigation 9 Sale of assets 10 Top pension recipients 11 Funding levels 12 Rate of return 13 Local public pensions 13.1 Local Pension Reforms 13.2 County pensions 14 Transparency 14.1 Data availability 14.2 Fund performance data 14.3 Rate of return 14.4 Unfunded liabilities 14.5 Oversight 15 See also 16 External links 17 References

National Taxpayers Union
State budgets Public employee salaries Public pensions States with spending online Collaborative transparency projects Model transparency legislation State Budget Solutions
Action center
Sign up for e-updates Take action

Illinois public pensions are comprised of five state-funded pension systems,^[1] including the Illinois Teachers Retirement System (TRS). The state's unfunded liability is more than three times annual payroll costs.^[2]

Illinois has 158,587 total public employees as of 2010.^[3] In Fiscal Year 2010, the state had a total of 798,787 active and inactive pension fund members, with 299,337 receiving periodic benefit payments. ^[4]

The pension systems generally get their money from three sources: the state, employees covered by the systems and investment income.^[1] TRS also gets money from local school districts.^[1]

The state's pension code is more than 1,000 pages of laws governing how the pension plans are funded, setting benefit levels and laying out criteria for who qualifies. Experts say healthy pension plans require stable, well-structured rules that are rarely altered, but lawmakers in Illinois have altered the code 700 times since 2003.^[5]

According to the United States Census Bureau, the state has 451 locally-administered pension systems.^[6]

Securities Fraud Charged

On March 11, 2013 the Securities and Exchange Commission charged the state of Illinois with securities fraud for "misleading municipal bond investors about the state’s approach to funding its pension obligations."

An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. The SEC report said Illinois "failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition." The state also misled investors about the effect of changes to its statutory plan, the report said. ^[7]

According to the SEC's order, the state established a pension contribution schedule in 1994 that was insufficient to cover the actual and future obligations. The report finds that Illinois misled investors about the effect of changes to its funding plan, particularly pension holidays enacted in 2005. The SEC said although the state disclosed the pension holidays and other legislative amendments to the plan, Illinois did not disclose the effect of those changes on the contribution schedule and its ability to meet its pension obligations. ^[8]

"As a result, Illinois lacked proper mechanisms to identify and evaluate relevant information about its pension systems into its disclosures. For example, Illinois had not adopted or implemented sufficient controls, policies, or procedures to ensure that material information about the state’s pension plan was assembled and communicated to individuals responsible for bond disclosures. The state also did not adequately train personnel involved in the disclosure process or retain disclosure counsel." ^[9]

After 2009 Illinois took steps to provide greater information to investors, the report said. Illinois agreed to settle the charges with the SEC, according to the report. No fees and penalties were assessed. ^[10]

State budget and pensions

On Jan. 3, 2012 Gov. Pat Quinn released a budget proposal, which included an $800 million deficit. In the proposal Illinois in fiscal year 2013 is expected to spend $33.7 billion, about $1.5 billion more than in 2012. By fiscal 2015, Illinois' expenditures will reach $34.2 billion, $2 billion more than the current budget, primarily due to spending on pensions.

The Governor's 2013 budget excludes both pension and borrowing costs in a shift similar to the federal government's classification of "mandatory spending." Without these costs, the budget purports to spend $901 million less than five years earlier. With pension and borrowing costs, however, the budget spends $3.4 billion more than five years ago.^[11]

Education programs face a $400 million cut in next year’s state budget because of increased pension costs, according to preliminary figures released by Gov. Pat Quinn’s office. The new report also shows an expected $265 million reduction under the heading of “government services,” which includes budgets for the General Assembly, courts, statewide officials and agencies under Quinn. ^[12]

The report estimates revenue from state taxes and federal assistance will increase by $600 million for the 2014 budget year that starts July 1. However, it also says pension obligations will increase by $945 million, wiping out the increase in revenues.^[13]

Pension payments

Illinois' pension payment jumps $1.1 billion in fiscal 2013, from $4.2 billion in 2012 to $5.3 billion. By 2015, Illinois will be making an annual pension payment of $5.9 billion. ^[14] By fiscal 2017, the state will be paying $6.2 billion into its pension funds.^[15]

For 2011, the state faced $4.1 billion in pension payments. Between the fiscal year 2012 and 2033, the state will have to pay $25.8 billion for loans borrowed under former Governor Blagojevich, $9.5 billion of which will be interest alone. ^[15] Currently, public pensions costs Illinoisans $12.6 million dollars a day.^[16]

Crisis

Illinois is facing a crisis with its publicly funded pensions. In 2010, the state government was responsible for over $130 billion in pension payments; however, the state only had $46 billion set aside leaving an unfunded liability of $85 billion. ^[17] However, by the end of 2012 the pension debt was estimated to be $96.8 billion. The Commission on Government Forecasting and Accountability attributed the "significant spike" to investment losses by the five state pension funds, insufficient contributions by the state and a decision by the largest fund - Teachers' Retirement System (TRS) - to reduce its long-term assumed investment rate of return to 8 percent from 8.5 percent. ^[18]

In fiscal years 2006 and 2007, the state was set to contribute $4.6 billion to the pension systems. Instead, legislators changed the law to pay only $2.3 billion. ^[19]

Pew Report numbers for 2012 show Illinois is lagging on pension payments. According to the report, Illinois funded about 45 percent of the $138.8 billion it owes long-term. The report shows state leaders consistently failed to make its full pension contribution from 2005 to 2010. State leaders lowered pension benefits for future employees in 2010 and are negotiating a proposal to reduce cost-of-living increases for both current and future employees. ^[20]

State payments

The state payment to TRS in July 2010 was $90 million, but it was supposed to have been $196 million.^[1]

In 2008, the state should have made an required actuarial payment of $3.7 billion, but it contributed less than $2.2 billion.^[2] Gov. Quinn has proposed borrowing the $3.7 billion, but the idea stalled in the Senate where Republicans favor spending cuts instead of more debt.^[21] A nonbinding advisory referendum appeared on ballot in 21 towns that asked voters if the Illinois General Assembly and governor should reform pensions for public-safety employees without further burdening local taxpayers during the 2010 elections. Over 70 percent of the voters responded "yes" to the question, with Burr Ridge supporting the measure at 86 percent.^[22]

The state relied on extensive borrowing to give the impression that its pensions are well-funded, including a $10 billion offering in 2003. The state then skipped contributions into the system for several years, creating additional funding problems. A recent study by Northwestern University projects that Illinois's pension system is among a handful that could run out of money by 2018.^[23] That would create a yearly $14 billion hole, requiring a projected 32% of the state's revenue for pensions.^[24]

Pension funding

Worst funded pension system in the country

The Pew Center for the States reported that as of 2008, Illinois is one of the worst states at contributing to its pension systems.^[25] If Illinois' elected leaders do not address the state's pension woes, the bulk of the state's budget will have to be used to pay for the pensions rather than go towards education or social programs. ^[26] In 2011 the Pew Center updated its report showing Illinois sets aside only 51 cents for every dollar it has promised to pay out. ^[27] There is no danger that Illinois' retired teachers, state employees and university staff will stop getting their pension checks. But the state eventually will have to come up with billions of dollars or find a way to reduce pension costs.^[27] Other mishandlings in the pension system, including salary spiking, compounding COLAs double dipping, also added to the pension shortfall. ^[28]

State contributions

Under a 1995 law designed to bring the systems to 90 percent funding by 2045, the state eventually would contribute enough to cover the normal cost and the principal and interest on the unfunded liability. Unfunded liabilities are not projected to drop until 2035 according to the legislature’s nonpartisan research agency the Commission on Government Forecasting and Accountability. The unfunded liability now stands at $86 billion. In fiscal years 2006 and 2007, the state was supposed to contribute $4.6 billion to the pension systems. Instead, legislators changed the law to pay only $2.3 billion. ^[29]

For the first time in two years, the General Assembly agreed to pay into its pension systems and approved to plan to pay $4.5 billion in FY2012.^[30] The state had previously said that it would pay more into the system, quoting $5.4 billion, approximately 15% of its budget, as going toward pensions, higher than the national average of 4%.^[31]

In fiscal 2012, the state will be required to spend $6.4 billion on pensions, which includes interest on borrowing the state did in fiscal 2003, 2010 and 2011. By 2045, the pension payment is projected to be $22.1 billion, according to the Commission on Government Forecasting and Accountability. ^[32]

Federal bailout

In the governor's proposed FY2012 budget the options for “significant long-term improvements” in its five pension systems included “seeking a federal guarantee of the debt" as well as curtailing public employee retirement benefits, borrowing more and increasing annual state pension contributions.^[33] U.S. Rep Peter Roskam from Illinois said that there was no chance of the federal bailout of the state pension system.^[33] Quinn's office later said a bailout was not necessary. ^[34] In October 2011 Roskam sent a letter to the Illinois General Assembly reiterating there are no federal funds for a pension bailout. Roskam urged the legislature to enact pension reform on their own. "There will be no federal remedy, and so the solution must come from within the State of Illinois," Roskam wrote in his Oct. 17 letter.

Bond sale

The state hoped to raise $3.7 billion through a bond issue the week of Feb. 21, 2011, in an effort to pay off some of the state's pension obligations. The state has tried borrowing to pay off pension obligations previously, and it was unsuccessful. Even if the sale is successful, the money raised will not alleviate the problem. The teacher's pension fund would see $2 billion from the sale, but that pension fund alone is underfunded by $40 billion.^[35]

SEC inquiry

The U.S. Securities and Exchange Commission has launched an inquiry into public statements by Illinois officials about the state's underfunded pension fund focused on public statements concerning an overhaul measure passed in 2010 meant to help shore up the retirement system.^[36]

Teacher Pension Shortfall

Illinois will have to come up with an additional $670 million to fund the state teacher's pension plan after investment assumptions were adjusted to 8 percent, down from 8.5 percent. Other adjustments included the increased life expectancy of retirees. For the 2012-2013 budget the state is paying $2.7 billion into the fund. Without any adjustments, the state would have owed about $2.89 billion in the new budget year that begins next July 1. The new changes increased that state funding to $3.37 billion. ^[37]

Changing the rules so that suburban and Downstate districts pick up the pension tab would cost more than $800 million a year if the shift came all at once, according to TRS. ^[38]

Illinois pension plans

The five state pension plans for Illinois are managed by the office of the Comptroller. Information about the funds and a daily balance in each fund account can be found at the comptroller's website. ^[39] The following chart is a breakdown of the five pension plans as of Jun 15, 2010. ^[40]

Plan	Current Value	Percentage funded	Unfunded liabilities	Total state employees	Avg. pension
Teachers Retirement System	$38 billion	52.1 percent	$73 billion	169,158 active members	$43,164
State Universities Retirement System	$14.3 billion	54.3 percent	$26.3 billion	45,669 active members	$29,267
State Employees' Retirement System	$70.4 million	43.5 percent	$25.3 billion	65,599 active members	$22,593
Judges' Retirement System	$616.8 million	39.8 percent	$1.5 billion	982 active members	$87,398
General Assembly Retirement System	$71.6 million	29.2 percent	$245.2 million	400 active members	$39,643

Teachers Retirement System

The Teachers Retirement System was created in 1939. TRS members include all full-time, part-time, and substitute Illinois public school personnel, but not including those employed by Chicago Public Schools. Chicago teachers are covered by their own pension. According to the TRS website, the pensioner's retirement annuity will not be more than 75 percent of the final average salary.

A member is eligible to receive a monthly retirement annuity when he or she terminates active service covered by TRS and meets the following age and service requirements:

• age 62 with 5 years of service
• age 60 with 10 years of service
• age 55 with 20 years of service
• age 55 with 35 years of service

As it stands now, Illinois teachers get higher benefits, on average, than government retirees in most pension plans around the country according to an analysis by the National Association of State Retirement Administrators. Illinois' average teacher pension for retirees covered by TRS — about $41,000 — ranks seventh highest of the 101 major pension plans tracked by the association. Illinois pensions are not taxed by the state. ^[41]

The Teacher's Retirement System assumes an 8.5% annual return on assets, which is tied for the highest assumption among statewide pension systems nationally.^[11]

COLA's

Annuitants annually receive 3 percent increases in their annuities.^[42]

Richard Ingram, executive director of Illinois Teachers' Retirement System said cuts in cost-of-living benefits are inevitable in meeting the financial obligations of the state's largest pension fund. ^[43]

Chicago Public Schools

The Civic Federation supports a property tax hike and proposed $5.9 billion budget for Chicago Public Schools in 2011-12 to address Illinois' pension crisis, but expressed concerns about the long-term financial health of the school district. The federation warns of an impending fiscal crisis for the nation's third-largest school district in 2014, when pension contributions will jump by more than 200 percent, saddling CPS with an additional $450 million in payments. Escalating pension and health care costs have led CPS' budget team to project an $861 million deficit in 2014, and that's assuming all other costs remain the same. ^[44]

The Federation's 82-page analysis of the 2012 CPS budget endorses difficult decisions - like denying teachers a four percent cost of living increase and raising property taxes. It says such decisions are in part necessary to maintain class size.^[45]

State Universities Retirement System

The State Universities Retirement System was created in 1941. SURS serves over 70 employers in Illinois including state universities, community colleges, and state agencies.

A member is eligible to retire when they meet the following requirements:

• Age 55 with 8 or more years of service
• Age 62 with 5 or more years of service
• Any age with 30 or more years of service

State Employees' Retirement System

The State Employees Retirement System was created in the mid-1940s. According to the State Employees' Retirement System website, "the final average earnings is determined by comparing: (a) the average of the four highest paid consecutive academic years of employment, and (b) the average of the last 48 months of employment, using whichever is higher." ^[46] The pension plan includes a cost of living adjustment of 3 percent.

A member is eligible to retire when they meet the following requirements:

• Age 55 with 8 or more years of service
• Age 62 with 5 or more years of service
• Any age with 30 or more years of service

The final average compensation is the 48 highest consecutive months of service within the last 120 months of service.

Judges' Retirement System

The Judges' Retirement System was established in 1941. It was originally known as Public Employees' Retirement System. The pension plan includes a cost of living adjustment of 3 percent.

A member is eligible to retire when they meet the following requirements:

• At age 55 with 26 years of credited service.
• At age 55 with 10 years of credited service (reduced 1/2 of 1 percent for each month under age 60). If a judge takes a reduced benefit, it is effective throughout their retirement.
• At age 60 with 10 years of credited service.
• At age 62 with 6 years of credited service.

The benefit is based on the final salary and total credited service of a judge. It is paid monthly for the remainder of their lifetime.

For the third time in the last five years, the Judges' Retirement System, or JRS, has posted a negative investment return. Although the pension fund predicted it would earn $41.5 million in fiscal year 2012, it actually lost $69,096. The fund posted an investment return of -0.01 percent, far below the 7 percent it expected. The five-year average rate of return is -0.1 percent. Even before this year, the five-year average rate of return was only 3.1 percent, and the 10-year average was just 4.5 percent. ^[47]

General Assembly Retirement System

The General Assembly Retirement System was established in 1947.

A member is eligible to retire when they meet the following requirements:

• At age 55 with 8 years of credited service.
• At age 62 with 4 years of credited service.

The maximum pension payable to a member of GARS is 85 percent of their final salary with 20 years of service credit.

Legislative actions

2013

HB3411, which would limit cost-of-living adjustments to pension benefits to the first $25,000 of a pension, delay when the COLAs start, increase employee pension contributions by 2 percent and contains a mechanism to force the state to make its required pension payments, was approved b a House committee 9-1 March 15. ^[48] Additionally the bill combines elements of a traditional defined benefit pension plan with elements of a 401(k)-style plan for people who join TRS or SURS after Jan. 1.^[49]

Other pension reform measures undertaken include sending HB1154 to the Senate, which would tie the maximum salary (currently $113,700) on which a pension can be based to the Social Security wage base. Another bill sent to the Senate, HB1166, would raise the retirement age based on a sliding scale under which younger employees would have to work longer before qualifying for full pension benefits.^[50]

The Illinois Senate passed a reform plan for the Teachers Retirement System, which is estimated to save $18-$40 billion over the next 30 years. It also offers employees a choice on whether they want retirement health care or reduced annual cost-of-living increases. ^[51]

A larger pension reform bill that would have required teachers, university workers, state employees and lawmakers to pay 2 percent more toward retirement accounts, trade compounded cost of living increases for modest increases and, for younger workers to stay on the job a few years longer, failed to pass the Senate the same day. ^[52]

2012

Gov. Pat Quinn is hoping the legislature will pass pension reform by Jan. 9, 2013, the last day of the legislative lame duck session. Quinn said the talks will now exclude discussion about forcing local school districts to pay a portion of their employees' costs. That is a traditional state expense that House Speaker Michael Madigan, also a Democrat, and others had proposed shifting back to the districts - but Republicans balked, fearing it would force communities outside Chicago to raise taxes or drastically cut programs. ^[53]

A possible pension reform is set to be heard in the final days of the lame duck session, including a proposal that would not award annual cost-of-living increases until the age of 67 and would increase employee contributions by 2 percent of salary, spread over two years. Once cost-of-living increases took effect at 67, they would be applied only to the first $25,000 of a retiree's pension. ^[54] Some public unions are threatening to file a lawsuit to challenge the bill if it is approved. ^[55]

Squeezy the Pension Python

Gov. Quinn is hoping to utilize the power of social media to rally people to contact lawmakers to encourage reforming the state's pension plans. ^[56]

After several months of waiting, Quinn unveiled a new website, http://thisismyillinois.com that discusses the history of public pensions and Illinois' five plans. State officials said the idea is to provide details about Illinois' fiscal problems in an easy-to-comprehend way and allow the public to give feedback. It's called the "Thanks in Advance" campaign, which is purportedly a message from the next generation to today's politicians, and the website has links to Twitter and a Facebook page. ^[57]

The video also features a new mascot, Squeezy the Pension Python, which is used to emphasize how the nearly $100 billion unfunded pension liabilities are puttin the squeeze on state funding for education and social services. ^[58]

Although Quinn has made pension reform a priority, the website offers no solution to the state's pension crisis. ^[59]

Ex-Lawmaker Pension Reform Plan

A pension reform plan unanimously passed by the House in March 2012 would require a local government who hires an ex-legislator at a high salary to pick up the costs of any automatic increase in his state pension. It was a response to a Chicago Tribune investigation that revealed former Democratic state Rep. Robert Molaro of Chicago nearly doubled his state-supported pension to more than $120,0000 a year because he worked one month as a well-paid aide to Ald. Ed Burke, chairman of the City Council Finance Committee. ^[60] The bill is now in the hands of the Senate.

Funding Projections

A retirement funding hole long pegged at $85 billion could hit nearly $93 billion by the summer of 2013 if changes are not made, the administration of Gov. Pat Quinn projected. The governor's office collected projections from the five employee pension systems and found the pension shortfall is expected to hit $92.7 billion by mid-2013 if no further steps are taken. In the current budget year, the state is slated to spend $6.2 billion on elementary and high school education and $5.2 billion on pensions. ^[61]

Despite the dire projections, political leaders cannot come together on a pension reform plan. Lawmakers are set to return to Springfield Aug. 17 to grapple with pension reform. Cuts to teacher pension plans will not be considered. Teachers will not be included in the reform package because a deal couldn’t be reached over shifting future pension costs of teachers from the state to local schools, an idea backed by House Speaker Michael Madigan. ^[62]

Senate President John Cullerton, a Chicago Democrat, has called on the House to pass the measure, arguing that even a limited pension-reform measure will send a reassuring message to the credit rating agencies. ^[63]

State lawmakers met for a one-day session Aug. 16 to attempt to resolve the state's pension crisis, but adjourned without accomplishing anything. Only one limited bill surfaced — a plan abolishing pensions for state legislators and other state officeholders - which failed to muster enough votes to pass. ^[64]

Following that inactivity credit ratings firms are in the process of reviewing the state. S&P, which rates Illinois A-plus with a negative outlook, put the state on notice in March that it could face a multiple-notch general obligation rating downgrade if there is no "credible progress" in taming its huge $83 billion unfunded pension liability and on tackling a structural budget imbalance. Ted Hampton, an analyst at Moody's Investors Service, which downgraded Illinois to A2 from A1 earlier this year, declined to comment specifically on the unsuccessful special session. But he noted that Illinois' pension obligation has been a factor in downgrades and other negative rating actions in recent years. ^[65]

2011

Finding a way to fund that $85 billion was the focus of the 2011 general assembly. To compound the state's problem, in May 2010, the legislature amended the State Pension Funds Continuing Appropriation Act to specify that no pension fund payment is required in fiscal year 2011 until the governor and comptroller agree that adequate funds are available. ^[66] Gov. Quinn is in favor of selling $4 billion of bonds to pay the state's annual payment on the five pension programs it runs. ^[67]

2010

The state sold $3.5 billion in bonds to make payments for 2010. ^[68] Moody's Investor Services said Illinois' reliance on the sale of bonds to fund the state's pension programs could further weaken the system. ^[69] Crain's Chicago Business reports that Illinois already has about $13 billion in pension obligations bonds still outstanding from $10 billion sold in 2003 and $3.4 billion in January. ^[70]

Collective bargaining

Gov. Pat Quinn is supports a bill to limit the collective bargaining rights of thousands of state employees, saying his proposal is a balanced approach aimed at ensuring a separation between rank-and-file workers and upper managers. Quinn's office argues the move would save the state money and make government more efficient, saying the bill would apply to high-level management positions such as attorneys, legislative liaisons and deputy chiefs of staffs for state agencies. The idea is to prevent situations where there is no clear leadership at state facilities because all the workers are union members and managers can't discipline employees under them. ^[71]

State pension reforms

Main article: Illinois public pensions reforms

2013

The 2013 legislative session opened with a new bill to reform the state's pension systems. The bill contains a plan "A" and a plan "B." Plan "A" caps pensionable salary, temporarily suspends and reduces the amount of automatic annual increases and increases required employee contributions. Plan "B" requires employees to chose either to accept reductions in the amount of, as well as delays in eligibility for, automatic annual increases or to give up certain healthcare benefits and future increases in pensionable income. ^[72]

Pension Reform Committee

As the legislature faltered on passing pension reform during the lame duck session, Gov. Pat Quinn threw his support behind a bill that would set up a commission to decide how to fix Illinois' financially failing government worker retirement systems. The plan would give power to a committee controlled by legislative leaders. The report would be due April 30, and lawmakers would have a month to vote on it if they decided to overturn it. If the legislature did not overturn the committee, the proposal would have the force of law. The bill has not been approved by the legislature. ^[73] Even if that plan passed the House, it could face an uphill climb in the Senate. In addition, Senate President John Cullerton has indicated he prefers his own version of pension reform that he argues is constitutional, unlike the House plan. ^[74] The House adjourned for the last time before the new 2013 legislature was sworn in before examining the resolution. Moody's Investors Service warned last month that without action on the pension problem, it could downgrade the current A2 Illinois debt rating, the lowest among the states it rates. A lower credit rating could increase the cost of borrowing. ^[75]

2012

The Quinn administration has terminated the contract between the state of Illinois and its largest public employee union. State officials informed leaders of the American Federation of State, County and Municipal Employees there will be no additional extensions of a contract covering 40,000 workers that expired in June. Officials said after extending the contract three times, union negotiators haven't made proposals dealing with retirement health care and continues to seek a pay raise despite the state's troubled finances. The action will have no immediate effect because the contract terms remain in effect. ^[76]

In April the Illinois House overwhelmingly approved a proposal to make it more difficult to approve government worker pension increases. The measure, proposed by Michael Madigan will likely be considered by voters in the fall. The proposed Constitutional Amendment would require a three-fifths vote by state lawmakers, city councils and school districts around the state to sweeten any employee pension perks. The bill is now in the hands of the Senate, but is expected to be approved. ^[77]

Public unions are gearing up to oppose proposed pension changes, including increasing employee contributions by 3 percentage points, reducing pensioners’ annual cost-of-living increases from 3 percent compounded to the lesser of 3 percent or half the rate of inflation, and increasing the retirement age to 67. Fearing those reforms will be "rammed through" the legislature, the IFT, IEA and AFSCME say they have offered concessions at the negotiating table, although they decline to detail them or offer an overall union plan to address the state’s $85 billion in debt. The IFT said labor’s ideas would cost members more money and save the state billions of dollars. ^[78]

The Illinois Senate passed a bill to repeal a provision in a 2007 pension law that would have allowed the former Oak Brook Chief of Police to collect a $750,000 annual pension, much higher than his final salary. The 2007 law included a one-time, six-month window that allowed former Oak Brook Police Chief Thomas Sheahan to transfer credits from a Municipal Employees’ Annuity and Benefit Fund of Chicago (MEABF) into the Sheriff's Law Enforcement Personnel program within the Illinois Municipal Retirement Fund (IMRF). Sheahan was to receive benefits based on one $77,000 pension, instead of two pensions that add up to $45,000 a year. Sheahan was the only person in the state to benefit from the provision. ^[79] Gov. Pat Quinn said he will work with legislative leaders to come up with an agreement on the $83 billion problem and call lawmakers back to the Capitol. ^[80]

Constitutional Amendment

A proposed amendment to the Illinois Constitution that would have made it more difficult to expand public employee retirement benefits failed at the ballot box. The amendment would have require a three-fifths vote instead of a simple majority for any pension increase, but cutting benefits would have require just a simple majority. ^[81]

Teachers Pension Reforms

To shore up teacher pension plans, Madigan proposed a plan to divert revenue from corporate personal property replacement taxes to bolster pension funding. However school districts and local governments, which receive millions in funding from the tax, are opposed to the plan. Madigan has introduced three amendments to House Bill 3637. One would divert about $536 million, another would divert $982 million, and the third would divert $1.4 billion. The tax brings in $1.4 billion for local governments. ^[82]

Senate Leader John Cullerton blames the minority Republican Party for blocking attempts to shift the pension costs to local school districts. ^[83]

'Judges to Rule on Own Retirement Benefits

The cash-strapped state of Illinois passed legislation that calls for requiring retired state employees, university workers, lawmakers and judges to begin paying premiums for state health insurance. One retired judge is suing the state over that policy change. His lawsuit contends the new law "abolishes free health insurance to Illinois retirees who were and are entitled to free health insurance on account of working for the state for20 or more years of service, or, in the case of retired legislators, four years, and in the case of retired judges, six years." According to the Illinois Policy Institute Maag is asking his former colleagues on the bench to rule in his favor and in their own self-interest. ^[84]

SB1673 Debate

Legislation intended to curb the rising cost of public pensions in Illinois would reduce the benefits for recipients, except for the judges. Judges receive the highest average annual pension of any public employee, yet their benefits would remain untouched, according to legislation introduced by Illinois House Speaker Michael Madigan. The nearly 1,000 retired judges earn an average annual pension of more than $112,000. The average public employee retiree draws an average annual pension of about $40,000. ^[85]

During a debate over shifting teacher and university pensions to local districts on May 29 Madigan dismissed Republican concerns that shifting financial responsibility for pensions will result in local property tax increases. However, on May 30 he shifted course after a talk with Gov. Pat Quinn, who asked him to drop the provision of shifting the burden from the state to local school districts. ^[86]

Pension reform came to a halt in the legislature despite having the issue of shifting financial responsibility for teacher pensions to local boards removed. Sponsorship for the bill was shifted to Republican House leader Tom Cross so the provision could be removed. After the provision was removed Madigan announced he was a "no" vote and the bill lost support from Democrats. Cross said the bill will be revisited over the summer. ^[87]

What's in the Bill: ^[88]

• Employees and retirees would be offered two choices: have access to a state-sponsored health care plan upon retirement, have their raises count toward their pensions and a lesser cost-of-living adjustment; or keep the 3 percent compounded annual COLA that they have today.
• If they keep retiree health care and pensionable raises, their COLA will be one-half of the urban consumer price index or 3 percent, whichever is less. The COLA will not be compounded; instead, each COLA increase will be based on an employee’s original pension.
• Employees and retirees would have from Jan. 1, 2013 to May 31, 2013 to make their choices.
• If employees and retirees choose the lesser COLA, they will receive no boosts in their pensions until age 67 or 5 years after they retire, whichever comes first. This will affect some employees who have already retired. For example, if an employee retired at age 55, is now 58 and chooses the new COLA, the new COLA will not kick in until the retiree reaches age 60. That employee will receive no COLA for the next two years.
• The bill would phase in a shift of the “normal” pension costs for teachers and university employees to school districts, state universities and community colleges. The normal cost is the total benefit accrued by active employees for the current fiscal year. The shift would start in fiscal year 2014. Each district, university and college would pay 1 percent of their employees’ payroll each year for the first six years, then one-half of 1 percent in subsequent years until the cost of funding each system’s pension benefits is fully funded at the local level.
• If the state is more than 90 days late in making a payment to the pension systems, they can go to court to recover the money. Unions believe this is not an adequate guarantee of future funding by the state.
• Full funding of the pension systems in 30 years.
• Estimated savings: $65 billion to $115 billion, according to Quinn budget director Jerry Stermer.
• Some employees have speculated that if they rush to retire now, the courts might strike down provisions that apply to those who have already retired, but uphold them for those who had not yet retired when the governor signs the bill. All provisions concerning the choice employees make will be non-severable, meaning courts will have to either uphold the changes in full or strike them down in full.

Pension oddities

An ex-lobbyist for the teachers union qualified for a six-figure pension under a law sponsored by Michael Madigan. Under the 2007 pension law, employees of a statewide labor organization who had previously worked in Illinois government were given a special six-month window to rejoin the taxpayer-supported pension plan for rank-and-file state workers. ^[89]

Former District 147 Superintendent Alex Boyd Jr., indicted for theft of thousands of dollars from the district, received raises and a boost in his pension prior to his 22011 retirement. If he is found guilty, he faces the loss of his pension. According to the Chicago Tribune Boyd is accused of illegally cashing out months of sick and vacation time without board approval and racking up a five-figure credit card bill. The district's elected board secretary, Mable Chapman, also was indicted on felony charges. Prosecutors say she helped Boyd's alleged theft in exchange for meals and trips on the taxpayers' dime. ^[90]

Litigation

In 2005 a lawsuit was filed challenging whether the Board of Education of Chicago violated its legal duty under the Illinois Pension Code submitting a contribution that was $40,635,883.26 short of the requirement with unilateral authority. The case, Board of Education of Chicago v. Public School Teachers’ Pension & Retirement Fund is currently in a procedural battle over whether the Board must redraft its complaint to name all 3,400 teachers as defendants, in the process having to find and serve each one with a copy of the suit. ^[91]

Sale of assets

In 2010, the state was faced with selling assets to pay for retiree pension benefits because the state had not funded its share of pensions system costs.^[1] The TRS has sold assets for the six years prior, the biggest sale being that of $1.68 billion in the 2009 budget year.^[1] It is now looking at selling as much as $3 billion out of a fund balance of about $33 billion.^[1]

In October 2010, the Executive Director of the Illinois State Board of Investments, which manages one-fifth of the state's pension funds, said it was selling $80 million of assets a month to pay pension benefits.^[92]

Top pension recipients

A tax watchdog group released a list of Illinois’ top 100 pension-earners, the majority of them retired college or school district administrators. About a quarter of the pensioners are former Chicago-area superintendents, including several in the western suburbs pulling in more than $200,000 a year after retirement, according to the list from the Illinois Taxpayer Education Foundation. ^[93] A list of the top 100 pension earners can be found here. Another organization, National Taxpayers United of Illinois, released documents in 2010 detailing who is draws the highest pensions in Illinois. ^[94] The NTUI is one of the organizations seeking to end public pensions in Illinois for new hires and shift retirement plans to an employee contribution plan similar to a 401(k). For those employees under the current pension plans, NTUI leader Jim Tobin said he wants to see them contribute a minimum of 5 percent to defray costs.

A Better Government Association investigation found that 27 of the 286 retired office holders—or nine percent—are enjoying annual pensions of more than $100,000. In some cases, retirees draw their pensions while also working in other government-related posts or lucrative private-sector jobs. Thirty retirees, or 10.5 percent, have drawn more than $1 million each so far. ^[95]

Tom Morrison, a Palatine Republican who was elected to the Illinois General Assembly in 2010, made headlines when he opted out of the lucrative pension plan for members of the general assembly during his freshman orientation. Morrison said he did not want to be a financial burden on a system that needs an overhaul. He said cuts must be made and he wanted to be an example. Morrison said once a legislator's service to the state is over, they should no longer receive compensation. ^[96]

A former Chicago labor leader spent one day on the city payroll which netted him an annual pension payment of $158,000. His pension is so high that it exceeds federal limits and required the city pension fund to file special paperwork with the Internal Revenue Service to give it to him. A former president of the Chicago Federation of Labor is set to collect approximately $5 million during his lifetime according to an analysis based on the fund's actuarial assumptions. He now draws the pension while working for a hedge fund, Grosvenor Capital Management, that works with public pensions including the Teachers Retirement System of Illinois. The firm also was one of Mayor Rahm Emanuel's largest campaign contributors.^[97]

Funding levels

Illinois’ unfunded pension obligations grew by about $7 billion in fiscal 2011 but the state's funded ratio dipped just slightly to 43 percent from 45 percent, according to the state’s latest pension figures. The latest review based on fiscal 2011 figures shows Illinois’ unfunded liabilities rose to $82.9 billion for a funded ratio of 43.4 percent from $75.7 billion unfunded liabilities and a funded ratio of 45.4 percent in fiscal year 2010. ^[98]

In 2012, State Treasurer Dan Rutherford said the biggest financial issue facing Illinois is the unfunded liability of the pension plans. ^[99]

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by to the Pew Center on the States^[100], the American Enterprise Institute^[101] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.^[102]

In Thousands

PEW	AEI	Kellogg (2009)
$54,383,939	$192,458,660	$167,300,000

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

State Pension Funding Levels 2008 (figures are in thousands)^[2]

Latest liability	Latest unfunded liability	Annual required contribution	Latest actual contribution
$119,084,440	$54,383,939	$3,729,181	$2,156,267

State Retiree Health Care and Other Non-Pension Benefits Funding 2008 (figures are in thousands)^[2]

Latest liability	Latest unfunded liability	Annual required contribution	Latest actual contribution
$40,022,030	$39,946,678	$1,192,336	$159,751

Underfunded pension liabilities

Number of pension plans	Pension assets ($bn)	Stated liabilities ($bn)	Funding status (% of tax revenue)
4	$65.7	$151.1	-717%

This data is based on projected data from 2008 census data.^[103] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Research conducted by State Budget Solutions shows the extent to which the state has funded or underfunded its Annual Required Contribution:^[104]

Illinois Public Pension Contributions
FY 2002-2011 Total Annual Required Contribution	$35.5 billion
FY 2002-2011 Actual Contributions	$30.1 billion
Difference	-$5.4 billion
Illinois has also issued $17.2 billion in pension obligation bonds

Rate of return

The State Employees' Retirement System, Judges' Retirement System, General Assembly Retirement System, and State Universities Retirement System assume a rate of return of 7.75%.^[105] The Teachers Retirement System assumes an 8.0% rate of return.^[106]

The consultant for the Illinois' Teacher Retirement System recommended the fund lower its expected rate of return in 2012. The board has put off its decision though until September, preferring to allow as much discussion as possible. As of August 2012, TRS forecast that its investments will return 8.5 percent. TRS officials in the past have disagreed with the notion that the 8.5 percent expectation is unrealistic or that it would lead the fund's managers to take unreasonable risks to attain that result. If the board adopts a 7.75 percent rate, the fund's future pension liabilities would jump to $92 billion, from $83.5 billion now, and its funded ratio relative to liabilities would drop to 41 percent, from the current 45 percent. ^[107]

TRS dropped its expected rate of return to 8 percent from 8.5 percent. The funded ratio for the Teachers' Retirement System will fall to 42.4 percent from 45.2 percent and the state's fiscal 2014 payment to the fund will rise to $3.36 billion instead of $3.07 billion under the previous rate of return, according to a spokesman for the system. ^[108]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 451 locally-administered pension systems.^[6]

Local Pension Reforms

The Pension Fairness for Illinois Communities Coalition, made up of Illinois municipalities and business interests, put forth a plan for local pension reforms. Solutions put forth by the organization include: ^[109]

• Requiring public safety employees to contribute more toward the cost of their pensions. Currently, employees only contribute about one-third while taxpayers and investments fund the remainder.
• Adjusting cost-of-living-increases from the current 3 percent so they are not compounded annually.
• Increasing the retirement age for public safety employees, who can now retire with full benefits at the age of 50.
• Consolidating the 638 individual public safety pension funds into a multiple employer pension system similar to the Illinois Municipal Retirement Fund to expand investment opportunities and lower overall operational expenses.

County pensions

The DuPage and Will County boards voted themselves into the special Illinois Municipal Retirement Fund program that was specifically created for elected county officials in 1997. The two boards pay into 32 pension plans that will cost taxpayers in those counties almost $1.2 million this year. DuPage has the highest average pension for county board retirees among the collar counties. In Will County, the average pension payout for former county board members is $25,130. The average is $10,557, $8,656 and $3,560 respectively in Lake, Kane and McHenry counties. ^[110]

Some critics don't think county board members should receive pensions at all. Collin Hitt, senior director of government affairs at the nonpartisan government watchdog organization Illinois Policy Institute, told The Daily Herald that part-time government employees don't deserve a lifetime pension. Another perk of the special county pension program is that credit is given for other government work. So a retired county board member's pension is boosted by elected or hired service at townships, municipalities, park districts or even another job at the county. Many former county board members in DuPage and Will counties have credit from other work. A bill passed by the state legislature is awaiting Gov. Pat Quinn's signature to abolish the special county pension program. ^[110]

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

Financial documents for the State Employees' Retirement System, the Judges' Retirement System, and the General Assembly Retirement System are available on the State Retirement Systems of Illinois' website.^[111] Information on the Teachers' Retirement System and the State Universities Retirement System is available on each funds' individual website.^[112][113]

Names of public pension recipients and amounts disbursed are available as public records.^[114]

Fund performance data

Pension fund investment performance is noted in each fund's Comprehensive Annual Financial Report.^{[115][116][117][118][119]}

Rate of return

Assumed rates of return are posted in the actuarial section of each fund's Comprehensive Annual Financial Report.^{[115][116][117][118][119]}

Unfunded liabilities

Unfunded liabilities are posted in the actuarial section of each fund's Comprehensive Annual Financial Report.^{[115][116][117][118][119]}

Oversight

State law requires requires regular asset disclosure by members of state pension boards and managers. It also prohibits gifts between interested parties involving pension managers and board members.^[120]

Independent audits are included in each funds' Comprehensive Annual Financial Report.^{[115][116][117][118][119]}

See also

• Pension Fairness Coalition
• Illinois' 2007 fiscal report shows $70 billion deficit
• Ten cities facing the worst of the pension crisis
• Illinois state government salary
• Illinois state budget

External links

• Open the Books searchable pension data for over 4,000 units of Illinois government.
• "Private workers, public pensions," Chicago Tribune, December 17, 2011
• "Quinn signs public pension overhaul," Chicago Tribune, January 5, 2012
• Tough Road Ahead For Quinn’s Pension Plan, CBS Chicago, April 23, 2012
• Public Pensions in Illinois--Government and Public Affairs, University of Illinois at Champaign Urbana
• Illinois State Pension Fund Management - State Integrity Investigation

References

	v • d • e Public pensions
Pension context	Public pension eligibility • Public pension disclosure • State government pension liabilities Local government public pensions • Public pension crisis • Public employee benefits • State budgets
State public pension systems	Alabama • Alaska • Arizona • Arkansas • California • Colorado • Connecticut • Delaware • Florida • Georgia • Hawaii • Idaho • Illinois • Indiana • Iowa • Kansas • Kentucky • Louisiana • Maine • Maryland • Massachusetts • Michigan • Minnesota • Mississippi • Missouri • Montana • Nebraska • Nevada • New Hampshire • New Jersey • New Mexico • New York • North Carolina • North Dakota • Ohio • Oklahoma • Oregon • Pennsylvania • Rhode Island • South Carolina • South Dakota • Tennessee • Texas • Utah • Vermont • Virginia • Washington • West Virginia • Wisconsin • Wyoming

	v • d • e State of Illinois Springfield (capital)
Transparency	Freedom of Information Act | Transparency Checklist | Government corruption reports | Transparency Legislation | Open Records procedures | Transparency Advocates | State budget | Taxpayer-funded lobbying associations |
Divisions	State | List of Counties | List of Cities | Illinois school districts A - L | Illinois school districts M - Z | Evaluation of county websites | Evaluation of city websites | Evaluation of township websites | Evaluation of school district websites |
Government	Illinois State Constitution | Executive | House of Representatives | Senate |
Judiciary	Illinois Supreme Court | Circuit Court of Appeals | District Courts | Judicial Nominating Commission | Judicial news | Judicial activist organizations |
Ballot Measures	2008 ballot measures | School bond issues | Procedures for qualifying an initiative | Amending the constitution | History of direct democracy | Campaign finance requirements |