CFL News
January 23, 2013

Employees deserve a voice in fate of their retirement security

Illinois AFL-CIO President Michael Carrigan makes the case for workers to have a say in the current pension reform discussion

Source: Reboot Illinois

By Michael Carrigan

The lame-duck General Assembly’s inaction on pension legislation has made one aspect of this complex issue crystal clear. Pension proposals that are developed without working with those most directly affected – public employees and retirees – continue to fail in the legislature and thus fail to serve Illinois citizens.

It doesn’t have to be this way. Lawmakers now have another chance to abandon unfair, unconstitutional approaches and work with the We Are One Illinois union coalition toward a solution that yields positive results for our state.

We have called – and continue to call – for a summit to achieve this goal.

It is important to understand why we are here. For decades, lawmakers failed to make adequate, actuarially-sound payments into the state’s pension systems. This is the primary driver of the problem. Most egregiously, in certain years, the state completely skipped making payments. Now, the state has incurred a worst-in-the-nation pension debt. (William Atwood, executive director of the Illinois State Board of Investment, recently wrote an essay that does an excellent job explaining how our state got here.)

Public workers are not to blame. Despite decades of the state’s fiscal negligence, public employees faithfully paid into the system. There were no “pension holidays” for workers – just the assurance that their retirement benefits, which they worked for years to earn, would be waiting for them unaltered upon retirement.

Their benefit levels are modest. On average, Illinois public employees earn a $32,000 pension, and almost 80% of Illinois workers in state-funded pension systems are not eligible for Social Security, making pensions their only reliable means of retirement security.

On top of that, lower-than-expected salary levels have helped to reduce the pension debt since FY 1996, according to the Commission on Government Forecasting and Accountability.

Facing this dilemma, what should be done?

Public employees are problem solvers by trade. They are our state’s teachers, nurses, public safety officers, and caregivers, and they are willing to be part of the solution.

Through the We Are One Illinois coalition, we have proposed a framework plan grounded in the Illinois Constitution and a belief that any solution should be fair-minded.

First, we squarely take on the state’s core problem – its past fiscal irresponsibility and unreliability. All taxpayers, including public employees, deserve an ironclad guarantee that the state makes actuarially-sound payments into its pension systems, similar to the guarantee Atwood describes that has kept the Illinois Municipal Retirement Fund on firm footing.

Second, with a guarantee in place, we believe public employees would be willing to share in the sacrifice and contribute an additional 2% of their salaries to their pensions.

Third, Illinois has to stop borrowing from its pension systems to pay for its operating expenses. Lawmakers have been less than honest in the past – and in the present – about the revenue required to teach our children, protect our lives and property, care for our elderly and disabled, and provide essential public services. Until we face our revenue problem, we cannot solve our pension funding problem.

That is why we believe corporations should pay their fair share of taxes in these tight fiscal times. The state can no longer afford the nearly $2 billion in tax loopholes we have identified for closure. These loopholes are spending by another name, yet even as spending on education and health care is slashed, these loopholes grow. Moreover, the economic effectiveness of tax loopholes is questionable, as business owners often look toward factors beyond state tax levels, such as the availability of skilled labor, when making location decisions. Some even benefit out-of-state businesses.

Lastly, we believe retirees should be shielded from changes to their pension benefits. This keeps the state’s solemn, constitutional promise to those who worked and paid toward their pensions for decades.

We believe that our plan is the only fair and constitutional proposal currently on the table.

In terms of fairness, we have studied the impact of deep cuts to cost-of-living adjustments (COLAs), as proposed in the past by Governor Pat Quinn and members of the legislature. In short, their plans would harm retirement security for many seniors, who are more susceptible to inflation due to the services they consume, such as health care. Depending on the proposal, retirees would watch the purchasing power of their pensions lose between 28.1% to 36.2% twenty years into retirement.

Regarding constitutionality, historical records show the framers of the Illinois Constitution sought to avoid such an outcome and to instead ensure the state could not shirk its pension obligations to workers and retirees. Indeed, the Pension Protection Clause in Article XIII, Section 5, was amended into the constitution at a time when Illinois’ pension systems were at similarly low funding levels. It reads:

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Our union coalition wants to avoid litigation. Our call for a summit marks a fresh start in working constructively toward a thoughtful, reasonable, and legal solution to the state’s fiscal issues.

Litigation, however, is a certainty if the legislature insists on passing an unconstitutional bill, and we believe any lawsuit filed by our coalition would successfully uphold the constitution’s strongly-worded Pension Protection Clause. Past case law has affirmed as much. Ralph Martire, executive director of the Center for Tax and Budget Accountability, recently cited an example. Meanwhile, the solvency of the state’s pension systems will be at further risk, worsening our fiscal problems.

But we can avoid this. We can work together to find common ground and get to a fair, constitutional solution. We sincerely urge legislative leaders to welcome our call for a summit.

Michael T. Carrigan is the president of the Illinois AFL-CIO, writing on behalf of the We Are One Illinois union coalition comprised of over a million members. More information is available at www.weareoneillinois.org

 

 

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