Editorial: Pension reform must address COLAs
It's become a foregone conclusion that nearly all of us will have to share the cost of cleaning up Illinois' pension mess. That, sadly, includes taxpayers, who will face a worse mess if the system is not reformed. And, just as sadly, it includes teachers and other public employees, who unlike the legislature have met their payment obligations over the years but who will suffer far worse if the system collapses than if they contribute to its restructure.
Aside from the political challenges posed by that unfortunate reality, there's the question of how to divvy up the pain. A coalition of public employee unions recently conceded they'll have to play a role, and we commend them for that. But the proposal from the We Are One Illinois coalition doesn't go far enough. It would take annual cost-of-living pension increases off the table. To the contrary, reining in the so-called COLAs is where lawmakers should start.
These yearly upward adjustments in pension amounts are a big contributor to Illinois' growing pension-related costs. COLAs amounted to 21 percent of retirement benefits paid to former educators last year.
At 3 percent, compounded yearly, these increases have raised pensions beyond the rate of inflation. As Democratic state Rep. Elaine Nekritz of Northbrook points out, COLAs would have pushed a retiree's $65,000 pension in 1995 to more than $100,000 a year today. Keeping up with inflation would have raised it to $95,939.
A recent proposal by Nekritz and Democratic state Rep. Daniel Biss of Evanston would apply COLAs only to the first $25,000 of an employee's pension and delay COLAs until an employee is 67 or retired for five years, whichever is first.
Other proposals would cut COLAs in other ways, such as by linking the annual percentage increase to the inflation rate. Those might be equally effective ways to cut COLA costs — but cutting them is something that must be done.
Nekritz and Biss's pension-cutting plan is multipronged, setting up a separate retirement plan for employees hired in 2011 or later and addressing COLAs alongside other issues for employees hired before 2011. Among them:
Ÿ Higher payments by employees. Nekritz and Biss's plan eventually would have teachers and state workers pay 2 percent more toward their pensions. We Are One Illinois offered a 2 percent increase if coupled with a requirement that the state pay its yearly share toward pensions. That concession is an important step, yet increasing the pay-in has less effect on the bottom line than fixing COLAs.
Ÿ Later retirement. Nekritz and Biss's plan would gradually raise the age for full retirement benefits by five years. For teachers, that would be age 60 after 35 years of work, which seems generous enough. What must go are provisions that have let employees retire in their 50s with sizable pensions.
Public employees, understandably, are upset about such changes. Yet, lawmakers have options before them that would make a real impact on pension costs without grave consequences for workers, and it's time for the General Assembly to take action. Further delays will only add to the costs all of us must share.