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updated: 3/25/2014 10:21 AM

Lawmaker calls for end to 13th pension payment

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  • Deborah Conroy

      Deborah Conroy

 
 

A controversial multimillion-dollar pension perk would end under legislation proposed by state Rep. Deborah Conroy.

The Villa Park Democrat, after reading a Daily Herald investigation of the program, is proposing to eliminate the Illinois Municipal Retirement Fund's 13th payment that cost taxpayers $41 million statewide last year.

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"I think there were some who are unaware of it," she said. "The reality of it is we can't continue to sustain our system this way."

If passed, the proposal calls for an end to the program at the start of 2015. However, IMRF officials believe the law is flawed and wouldn't actually save taxpayers money.

"One of the glaring things that jumps out at me is they attempted to cut off distributing money. They didn't cut off money being collected," said Louis Kosiba, IMRF executive director.

Kosiba also believes eliminating the program would be unconstitutional.

"We all know that there's an argument that the (state) constitution does not allow you to diminish benefits of anyone currently in the system," he said. "The likelihood of this being found unconstitutional is verging on 100 percent."

The 13th payment is a bonus stipend paid to beneficiaries each year with money collected from participating taxpayer-supported agencies. In 2013, 2,941 government agencies throughout the state contributed to the program. The average employer contribution was a little more than $14,000, but suburban county governments like DuPage, Kane, Lake, McHenry and Will paid between $376,000 and $971,000. Several suburban school districts and municipalities also made six-figure payments to the program.

Kosiba bristled at the word bonus. In a legislative update sent to beneficiaries recently, the 13th payment was described as "a form of deferred compensation intended to help offset inflation."

But others agree with the characterization of the payment as a bonus.

"Yes, I think it's a bonus," Conroy said. "It's municipal money that can be used in other areas."

The bonus is paid every July in addition to the monthly checks and is based on the amount of a beneficiary's June pension and its relation to the total amount of pensions paid that month. So whatever percentage of the overall pension pie a beneficiary's monthly payment is, he or she receives that corresponding percentage of the 13th payment pool.

In 2013, there were 119,539 beneficiaries who received bonus payments in July. The average bonus was $343, but some beneficiaries received as much $7,659. Nearly 9,000 beneficiaries received bonuses of at least $1,000.

The program started in the early 1990s as a compromise between labor groups and employers after other statewide pension programs for teachers, state workers and other public employees started compounding annual cost-of-living increases for their employees, which dramatically increased annual payouts.

If the 13th payment is eliminated, it would not affect the IMRF's annual 3 percent cost-of-living increase.

Still, Kosiba said if legislators aren't careful, changes could have unforeseen consequences, including an obscure financial quirk called a "tontine." Theoretically, if no new recipients are allowed into the program but the money is still being collected, the last eligible person alive could receive all the money in the payment pool for that year. That's a tontine.

"Talk about winning the lottery," Conroy said. "We'll make sure that doesn't happen."

Conroy urged Kosiba to call her. Kosiba suggested legislators should have called him before drafting legislation.

"We're not averse to helping people understand how (the pension program) operates, and we're not averse to discussing what the individual is trying to accomplish," Kosiba said. "We may not be supportive of the idea, but we would want to assist that person in at least cobbling together legislation that achieves what they hope to achieve."

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