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Article updated: 12/3/2013 5:11 PM

Key details of decision over Illinois pension crisis

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By Associated Press

SPRINGFIELD -- Illinois lawmakers made a historic vote Tuesday to finally close the gap on the state's $100 billion public pension shortfall, which is considered the nation's worst.

The plan, unveiled last week by Democratic and Republican leaders of both the House and Senate, will save the state $160 billion over 30 years by trimming retirement benefits, they say. Union officials say it will unfairly hurt retirees who were promised the money and worked hard to earn it. Some Republicans say it doesn't go far enough and would not solve the crisis.

Gov. Pat Quinn, who has championed pension reform, said he supports the latest measure and is expected to sign it. Unions are expected to quickly challenge the plan's constitutionality.

Key details of the plan:

The predicament

Illinois' five public-employee retirement systems are a combined $100 billion short of what's needed to pay benefits as promised to workers and retirees. The accounts contain about 40 percent of what they need to be considered fully funded. The shortfall is due largely to decades of legislators skipping or shorting the state's pension payments -- a practice that allowed them to spend that money elsewhere. Other causes include economic downturns, lower-than-projected market performance and beneficiaries living longer.

The impact

The massive unfunded pension liability -- along with the state's other financial woes -- has led credit rating agencies to repeatedly downgrade Illinois' rating to the lowest of any state. That means when the state borrows money, taxpayers pay more in interest than people in other states. Illinois' annual payments to the funds have grown, taking up about one-fifth of the state's general funds budget -- about $6 billion -- this year. That's money that could be going to schools, roads or other areas.

The proposed solution

Among other provisions, it would:

-- Raise the retirement age for people 45 and younger, on a sliding scale basis.

-- Guarantee the state will make its full annual contribution to the funds and allow the systems to sue if the payments aren't made.

-- Change the cost-of-living increase from the current rate of 3 percent, compounded annually, on the full annuity benefit. Retirees would receive increases at that rate only up to a certain amount of annuity benefit. Legislative leaders say the new structure would benefit lower-income workers who held their jobs longer. Employees also would miss some annual cost-of-living adjustments, depending on their age.

-- Cap the amount of salary on which a pension benefit is based. In 2013, that amount would be about $110,000.

-- Decrease the employees' own contribution to their retirement funds by 1 percent.

-- Provide workers the option of participating in a 401(k)-style defined contribution plan.

The decision

A special bipartisan pension committee OK'd the plan Monday when a clear majority of its members signed the measure after returning to the Capitol. That sends the plan to the full House and Senate, where both chambers must vote on it. If it is approved in both chambers, the bill then would need Quinn's signature.

The next step

If the plan is passed, unions say they will sue. They argue the proposal would violate a provision of the state Constitution that prohibits diminishing pension benefits. Legislative leaders believe the plan will survive a challenge because of the funding guarantee and the decrease in employee contributions.

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