Illinois: Payments reduced to state pension system

Illinois state lawmakers approved a plan to close a projected gap in the general fund by diverting payments that were intended for the state's public retirement system.

The plan is the result of amendments to Senate Bill 27, the original text of which dealt with making changes to widows' pension benefits:

Pension Note (H-AM 1)(Comm on Gov't Forecasting & Accountability)

Senate Bill 27 (H-AM 1) reduces the required State contributions to the retirement systems by $1,077.9 million in FY 2006 and $1,031.6 in FY 2007. Reducing contributions in FY 2006 and FY 2007 will result in larger required employer contributions for the remainder of the funding plan (FY 2008 - FY 2045). These increases in future required State contributions have not yet been calculated. The bill also makes several changes to the Pension Code which may reduce the growth in accrued liabilities. A reduction in the growth rate of the accrued liabilities will result in lower required annual State contributions over the life of the funding plan. The amount of the annual reductions has not been calculated.

The Chicago Tribune reports on the likely impact of SB 27.

The proposal would take about $2 billion in money that had been destined for public pensions over the next two years and impose some modest changes in pensions to free up cash to close the budget hole.

At the same time, it would set a new payback schedule for state pensions that Republicans said could take as much as $3.5 billion away from pensions over the next five years, add to the long-term debt and force pension systems to sell more assets used for investment.

Rep. Robert Molaro (D-Chicago), the House sponsor of the plan, acknowledged a long-term impact to the systems but said the alternatives to balance the budget were "just horrible."

"This is the best of 10 not-so-nice options," Molaro said.
Some Democratic supporters said a controversy over public employee pensions was less likely to anger voters than raising revenue through higher taxes or more gambling.

In an odd reversal of traditional roles, Democratic lawmakers are the ones promoting the reduced pension fund payments under SB 27. Republicans argue that it will compromise the benefits promised to retirees.