Governor hopefuls: State pension needs work

All candidates put issue high on priority list

Sunday, November 15, 2009

Whoever is elected governor in 2010 will face the challenge of dealing with a massive, unfunded pension debt that vies with other programs for scarce state funds.

Last spring, Gov. Pat Quinn proposed “modernizing” state pensions, establishing a second tier of benefits for newly hired workers. The idea went nowhere.

In the meantime, the economic downturn hammered investments held by the five, state-funded systems covering state workers, university employees, downstate teachers, judges and lawmakers. The deficit grew larger.

The State Journal-Register asked candidates for governor a series of questions about state pensions. They all agreed on one answer: The pension-funding issue can’t be pushed aside while the state tackles other problems. Most called it their “high” or “highest” priority.

How would you reduce the pension fund debt?

Most of the candidates call for benefit reductions. For some, that means changing benefits offered within the defined-benefit plans now in existence, creating a two-tiered system. A defined-benefit plan guarantees a participant a pension payment for life, based on a pre-determined formula.

Other candidates propose eliminating defined benefits altogether, replacing them with a defined-contribution plan, like the 401k plans common among private-sector employers. The amount of the retirement benefit depends on how much a person saves. It is not guaranteed.

*Sen. Bill Brady, R-Bloomington, would put every new state employee into a 401k plan. He would then refinance the existing pension debt with bonds to be repaid in 50 years.

*Former Attorney General Jim Ryan, a Republican, said employee contributions should be increased by one percentage point, the age to receive full benefits should be set at 67 (rather than 60), and the rate of benefit accrual used to determine retiree benefits should be reduced. For example, a pension formula that pays 2.2 percent of final average salary for each year of service instead would pay 1.9 percent.

Ryan also believes the state can legally change benefits earned in the future for current state employees. Others have argued the state Constitution essentially allows reduced pension benefits to be applied only to newly hired workers.

*Former state Republican Party chairman Andrew McKenna also said a two-tiered system should be implemented, both for existing employees and new hires. He said the second tier could be a strict 401k-style plan or a hybrid between a defined benefit and a defined contribution plan. McKenna said money to reduce the existing pension debt would come from freezing state spending.

nAnother GOP candidate, state Sen. Kirk Dillard, R-Hinsdale, said the state needs a two-tiered system, though he did not specify what would be in it. He also said the state must stop the past practice of diverting its pension contributions to other uses.

nConservative commentator Dan Proft wants to move people to either a straight defined-contribution plan or a hybrid that combines elements of both. He also wants to raise the retirement age to at least 65 and prohibit people from getting more than one public pension.

*Republican DuPage County Board Chairman Robert Schillerstrom would stop using the pension systems as a “credit card” to fund other state programs. He also wants a 401k program for new employees.

*Republican businessman Adam Andrzejewski wants to crack down on people who exploit pension rules to enhance their pensions. Andrzejewski also warned that converting to a 401k plan isn’t a panacea because it doesn’t retire the existing pension debt.

*Quinn’s modernization plan, which he presented with his budget last spring, would create a different benefit plan for new employees. It included raising the retirement age to 67 or 62 with 35 years of service, reducing the retirement formula used to determine benefits, eliminating subsidized survivor benefits and eliminating pensions on salaries over $150,000.

Quinn, though, said he is “committed to maintaining a defined-benefit plan for all public employees, both current and future.”

*Comptroller Dan Hynes, a Democrat, said the main problem with pensions is not benefits, but lack of state funding. He said the state should develop a new long-term plan to pay off the pension debt and then stick to it. Some user fees could also be increased and the proceeds applied to pension debt, Hynes said. An example is court filing fees, with the money going to the judges’ retirement system.

Hynes also said people should not be allowed to work a public-sector job while also drawing a public pension.

“Either you work for government or you are retired from government, not both,” he said.

Should pension colas be changed?

All of the pension systems now grant an annual 3 percent cost-of-living increase for retirees, regardless of the rate of inflation. All of the candidates believe that should be changed.

“For the past 15 years, the 3 percent COLA currently enjoyed by pensioneers is not a cost-of-living adjustment at all — it is a raise,” Proft said. “We have not consistently had 3 percent inflation in this country in 15 years.”

Proft wants to index COLAs to inflation, something Dillard also said he is “open to moving to.”

Schillerstrom said the state should look at tying COLAs to inflation, but only for new hires. Brady said his proposal to put everyone in a 401k plan would automatically eliminate COLAs.

Quinn, Ryan and McKenna said COLAs should be either 3 percent or one-half the increase in the Consumer Price Index, whichever is less.

Hynes is against changing the COLAs. Andrzejewski said COLAs “probably” should not be either changed or eliminated. An exception would be for people making “high pension payouts.”

Should there be a moratorium on increased pension benefits?

Most said “yes,” although for different periods.

Quinn said it should last until the current funding problem is solved. Hynes said there should be no new benefits unless they are tied to a dedicated funding stream and the systems overall have better funding.

Schillerstrom said benefits should be frozen because the state can’t afford increases. Andrzejewski said benefits should be frozen until the systems are 80 percent funded. Dillard put the figure at 90 percent funded.

Ryan called for a six-year moratorium. McKenna said a moratorium should be indefinite but called for an amendment requiring a two-third vote of the General Assembly for future improvements. Brady said benefit increases should be allowed only if they don’t add to debt.

Should the alternative formula under the state employee retirement system be changed?

The alternative formula provides enhanced pensions for workers in high-risk jobs. Over the years, more and more job titles have been added to the formula, and critics complain that it now encompasses jobs beyond the original intent.

Brady said the alternative formula would be eliminated with his plan to put everyone in a 401k program.

Hynes wants the alternative formula to cover only job titles that “truly involve safety and risk.” Andrzejewski and Schillerstrom would ban new jobs from being added, while Quinn said additions should be limited. He did not specify how.

Ryan and Proft would limit the formula to police and fire positions. Dillard said when the pension systems are overhauled, the alternative formula “should be revisited for possible elimination” or reduce the number of participants.

McKenna said membership in the formula should be frozen and no additional workers allowed in.

Should the General Assembly retirement system be abolished?

The pension system for lawmakers is the state’s smallest — in participants, assets and amount it contributes to the state’s pension debt. However, the public detests it because its benefits are generous, especially in comparison with those available to teachers and state workers.

Brady said lawmakers are officially considered part-time and should not get a pension. Proft said lawmaker pension benefits should be capped after four years of service.

McKenna, Dillard, Schillerstrom said the General Assembly system should be abolished and lawmakers given the same pension as other state workers.

Ryan said their pensions should be shifted to a 401k-style system.

Hynes said putting lawmakers into the state employee system would aggravate the financial problems of that system.

Quinn said the separate General Assembly system should not be eliminated, but the benefits should be comparable to those of other systems. Andrzejewski also said lawmaker benefits should be reduced.

Doug Finke can be reached at 788-1527.