A pension reform measure, soon to be introduced by State Senator Bill Brady (R-Bloomington) was heard in a subject-matter only hearing by the Senate Executive Committee on Tuesday, April 30. Brady will soon file the plan as an amendment to SB 1388 to create a hybrid pension system that would apply to employees in all five state systems.
“Illinois has, without question, the worst-funded public employee pension system in the nation,” said Brady. “The fiscal instability, inherent in the system, is a major contributor to the state’s low credit ratings which are the worst in the nation according to Standard & Poor’s and Moody’s.”
According to Brady, Illinois’ unfunded pension debt is close to $100 billion, a number that is more than double the $43 billion the state owed for pensions 10 years ago. When bond debt is added in the total debt rises to $130 billion. With all figures are considered, Illinois owes roughly $10,000 per person, which is more than twice the $4,000 per person in pension and bond debt that existed 10 years ago.
“Pension reform is not only important to right our fiscal course here in Illinois, but also to ensure that the tax-hike imposed in 2011 will sunset as promised at the end of 2014,” said Brady.
The proposed amendment to SB 1388 would:
- Freeze the current defined benefit plan for everyone in all five state systems and base future benefits on the “frozen” salary as of January 1, 2014.
- Retirees under the former defined benefits system would not be guaranteed a cost of living adjustment (COLA). Future COLAs would be granted by resolution from the General Assembly only in years when the state was able to afford it.
- Going forward, everyone in the five state systems would earn benefits under a hybrid “Tier 3” model similar to the proposal contained in the Cross-Nekritz legislation HB 3411.
- Requires funding at levels recommended by experts.
Under Brady’s hybrid plan public employees would receive a defined benefit, and would also invest in their own retirement plan similar to a 401(K) with savings that they could transfer no matter where they were employed.
“My legislation is expected to generate substantial savings for the State of Illinois,” said Brady. “We have an opportunity here to ensure a financially sound pension system for current and future retirees and put the state back on a firm fiscal footing.”