Leadership Matters December 2013

no way for school districts to pay for it,” he said, noting that in the spring of 2012 pension reform negotiators and stakeholders “were the closest we’ve ever been to pension reform that we could have swallowed, but it fell apart because of the cost shift.” Ingram, the TRS executive director, said the normal pension costs for TRS employees currently is 6 percent of payroll, but he predicted that would decrease because of the Tier 2 reduction of benefits for employees hired after January 1 of 2011 and if legislators cut Tier 1 employees’ and retirees’ benefits. If a gradual cost shift ever passes, Clark

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savings for the state. This proposal calls for cutting the current annual 3 percent compound COLA to 3 percent compound of the lesser of a retiree's pension annuity or the retiree's number of years of service times $1,000. Following the presentations by Ingram and the two legislators, Clark defined his role on the panel as that of a “color commentator,” and then offered his opinion about what is happening with pension reform. He said he thinks the potential passage of a pension reform bill that slashes retirement benefits from public employees and retirees is really about three things: 1) the next election, 2) a cost shift to local school districts, and 3) taxes. Clark noted that the timing of the special

said school districts would need some flexibility from the state. “School districts should have the opportunity to opt out of mandates that don’t fit your district,” Clark said, prompting a wave of applause from the mix of school administrators and school board members that filled the room to capacity.

IASA Executive Director Dr. Brent Clark said he thinks the potential passage of a pension reform bill that slashes retirement benefits from public employees and retirees is really about three things: 1) the next election, 2) a cost shift to local school districts, and 3) taxes.

session, the day after the filing deadline for next March’s primary meant that legislators couldn’t get any farther away from a possible primary challenge. He laid out a possible scenario that included:

Clark also mentioned looking at the possibility of including normal pension costs outside of the tax caps, perhaps as part of the IMRF levy that already is on the books, and said that restoring General State Aid (GSA) to full funding also would be critical to allow school districts to take on the employer pension costs. There were several questions about the drastic cuts to retirees’ COLA, which everyone agreed was the biggest financial piece of pension reform. “If someone were to do a historical autopsy of the TRS system, other than the state failing to make its payments, I think they probably would make one change: Going back to a simple COLA instead of a compound COLA,” Clark said, referring a 1989 law that made the COLA compound. When questioned about reducing the COLA, Biss allowed that “ideally it should be in line with Social Security,” which includes an increase tied to the full CPI. “No doubt, the best way would be to use the CPI like Social Security does – if we could afford it,” Biss said. However, tying the retirement benefits to actual inflation would not generate the $160 billion in savings that some legislative leaders are seeking.

Legislators passing pension reform in early December, knowing full well that it likely would be tied up in a court challenge; After the March 2014 primary passing a cost shift to local school districts; After the general election in November of 2014 passing a bill to deal with income taxes, possibly extending the temporary increase or looking at some sort of progressive income tax. The topic of a potential shift of employer pension responsibility from the state to local school districts sparked a lot of discussion. Clark said if the $160 billion pension reform package contains some of the elements that have been reported – raising the retirement age, a salary cap and the decimation of the COLA – he has been advised that based on the pension protection language in the Illinois Constitution those elements would be unconstitutional, though the Illinois Supreme Court would make the final determination. However, he said there is no constitutional protection against a cost shift, though it is a political hot potato for many downstate legislators. “It’s constitutional, but it’s a train wreck if there is

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