03/21/2013 07:43 pm ET Updated May 22, 2013

Illinois Pension Reform: House Passes Major Cap On Public Pension Payments

By Joanne von Alroth

SPRINGFIELD, Ill. March 21 (Reuters) - The Illinois House on Thursday voted to drastically limit automatic inflation increases for public pensions, a measure that supporters said could bring $100 billion in savings to the nation's worst funded pension system over 30 years.

Passage of the proposal is the biggest step Illinois has taken toward reining in huge and growing payments to retired teachers and state workers. It was passed by a vote of 66 to 50 and now goes to the Senate for consideration. It would then need the signature of Governor Pat Quinn to become law.

Under the bill, retired workers would get a 3 percent annual automatic increase only on the first $25,000 of a pension. Any amount above $25,000 would not be adjusted for inflation.

Supporters said the measure deals with the biggest driver of rising pension costs -- the automatic 3 percent increase, compounded annually, that is pushing up the state's unfunded pension liability now at $96.8 billion.

But foes said the measure breaks the state's commitment to retired workers, many of whom cannot supplement pensions with federal Social Security.

Rudy Kink, executive director of Illinois State Employees Association Retirees, which represents just over 6,000 state retired workers, said if enacted, the bill will likely be challenged in state court.

The Illinois Constitution prohibits impairing or diminishing retirement benefits.

"We think it's a diminishment pure and simple of benefits under the constitution," he said.

The chances of approval in the Senate are uncertain. Democrats control large majorities in both chambers and are wary of cutting benefits to members of unions, which are strong supporters of the Democratic party.

Senate President John Cullerton said the automatic increases need to be limited to reduce pension costs, his spokeswoman Rikeesha Phelon said.

"The Senate has demonstrated that we simply don't have the votes for legislation designed to impose unilateral changes to pensions benefits," she added.


Senate Republican Leader Christine Radogno was more optimistic about the proposal, although her party is in the minority.

"I think we could have significant support if and when we have the opportunity (to vote)," she said in a statement.

Illinois' credit ratings have been downgraded to the lowest levels among U.S. states as solutions to the pension problem have remained elusive. The worst-funded state pension system is also devouring an increasing amount of revenue, leading to funding cuts for core state services such as education, health care and public safety.

Last week, the House passed two smaller measures, increasing retirement ages for certain workers and salaries on which pensions are based that would only save the state $1 billion over 30 years.

On Wednesday, the Democrat-controlled Senate rejected a bill containing sweeping pension changes and approved a smaller measure dealing solely with the largest state fund, the Teachers' Retirement System. It requires local school employees to choose between the current annual 3 percent compounded COLA for pensions when they retire or a reduced COLA and continued access to state-sponsored health care in retirement.

Governor Quinn, a Democrat, said he was encouraged by the legislature's recent actions but "there's much more work to do."