Watch out: Illinois lawmakers may still spike pensions this session

Illinois lawmakers could still pass expensive changes to newer state worker pensions using a “gut and replace” maneuver. The proposal would cost taxpayers over $76 billion by 2050.

The legislative session in Illinois may soon end, but that doesn’t mean the state is in the clear from pension legislation demanding an extra $76 billion from taxpayers before 2050.

Springfield lawmakers may be poised to use a Madigan-era tactic and put the contents of House Bill 2540 into the meaningless shell of a bill created for this last-minute maneuver. HB 2540 counteracts much of the Tier 2 savings for state workers hired since 2010.

How would this happen?

Lawmakers in Illinois have found a way to work within the letter of the law while ignoring the spirit of it. State rules require a bill to be read three times before it can be passed into law – a safeguard meant to give lawmakers time to evaluate a bill’s contents. But that rule doesn’t apply to amendments, which can be added at any time.

This loophole enables what’s called a “gut and replace.”

Essentially, lawmakers file shell bills that don’t do anything substantive – they may change a word or phrase in existing law, for example. Since these bills have cleared major deadlines, they can later be gutted and replaced with completely new language. Because the bill number, not its content, determines its place on the legislative calendar, this lets leaders rush major policy changes through both chambers with little notice or debate – often in the session’s final hours.

It seems lawmakers plan to use this maneuver to spike pension benefits at the end of this session.

What would this look like?

Lawmakers could swap a shell bill with the contents of House Bill 2540, introduced by state Rep. Stephanie Kifowit, D-Oswego. The Commission on Government Forecasting and Accountability described the bill as making “significant changes to the Illinois Pension Code.”

Some of those changes include:

• Changing the funding goal to reach 100% by fiscal year 2049.
• Implementing a 20-year layered amortization approach when calculating the minimum state contribution.
• Lowering the retirement age from 67 to 65 for non-public safety employees.
• Eliminating early retirement reduction penalties if the Tier 2 salary cap has been reached within five years of retirement.
• Adding a 3% automatic annual cost-of-living adjustment, rather than tying it to inflation.
• Reducing the final average salary calculation from eight consecutive years to six.
• Updating the Tier 2 salary cap to match the Social Security wage base.

Actuaries estimate the package would cost taxpayers an additional $76 billion by 2050 for just three of the five statewide pension systems. Illinoisans already pay some of the highest taxes in the nation and face a $143.7 billion pension shortfall. The state can’t afford another costly benefit spike.

What can be done instead?

Tier 2 was created in 2010 for new employees to slow the unsustainable growth of pension obligations. Some critics argue Tier 2 is unfair because it offers less than Tier 1.

But comparison only obscures the reality that Tier 2 is a generous pension for long-term public employees. The only valid concern is whether Tier 2 benefits might fall below the federal minimum for government pensions to be comparable to Social Security. That issue might apply to a small number of top earners making over six figures at retirement.

Rather than overhaul the system, lawmakers should take measured steps to identify and address problems.

The state should:

1. Conduct a thorough actuarial analysis, including individual testing and a legal risk assessment. Lawmakers owe it to taxpayers and workers to understand the facts before acting.
2. If a problem is found, target solutions at the individual level. That’s more fiscally responsible than boosting benefits across the board. Lawmakers could use legislation similar to House Bill 5798, filed this session by state Rep. Blaine Wilhour, R-Louisville.
3. Expand the option for defined contribution plans to all employees. Currently, only workers in the State Universities Retirement System can choose a 401(k)-style plan. Defined contribution plans offer portability and flexibility for short- and medium-term workers that pensions – even spiked ones – don’t.

There’s no excuse for a “gut and replace” maneuver with so many reasonable options available. Springfield should pursue real reform rather than try and pull a fast one on taxpayers at the end of this session.