In the debate over how to fix Illinois’ worst-in-the-nation pension problem, the people who argue that retirement pay and benefits need to be protected at all costs have always held the high ground.
The law is on their side: Pensions are a contract, the benefits of which “shall not be diminished or impaired,” the Illinois Constitution says. Some go a step further. Protecting pensions as promised, they say, is a moral imperative, too.
Gov. J.B. Pritzker has staked out that argument.
But lest we forget: A contract is an agreement between two parties, and both parties are entitled to the rights granted under the terms of their compact.
We’re all familiar with the rights of the contract from the perspective of the state’s workers and retirees. They can count on the pension benefits they’re promised the day they start work, to the penny, in their retirement years.
But state government and the taxpayers who fund it are party to the pensions contract, too. When we hire teachers, public safety and health workers, office workers and other public employees, we promise them pensions. But that contract obligates us to not a penny more. We have a right to rely on that benefit, just as retirees have a right to their pension checks, too.
This understanding is vitally important now, because there is an effort underway to convince our Springfield lawmakers that the pensions contract agreed to by state employees hired since 2011 should be sweetened, with taxpayers covering the additional costs.
The post-2010 retirement packages are known as “Tier 2” benefits. The move to reverse taxpayers’ savings on pension costs goes by the slogan “Undo Tier 2.”
The topic is on the table because a narrow section of the Tier 2 pension promise must indeed be fixed. Tier 2 benefits are not growing as fast as Social Security checks, and this violates a safe-harbor provision in federal law.
The actual problem is narrow, and the legislature is considering ways to fix it. But the little-known codicil is being used as a wedge to do much more.
The Undo Tier 2 slogan evidently was penned by the Illinois Education Association, a leader in the union pressure campaign that delivered tens of thousands of emails and in-person demonstrators to the statehouse last week. The American Federation of State, County and Municipal Employees — the state’s largest public employees union — joined in pressuring lawmakers to vacate the contract many AFSCME members agreed to when they first went to work for the state.
The stakes are high. Even the narrowest Tier 2 fix would cost taxpayers $5.6 billion by 2045, according to a state consultant’s report. Proponents of Undo Tier 2 have offered no estimates for what their more ambitious plans would cost because, well, they would break the state’s bank.
Tier 2 has saved Illinois taxpayers billions of dollars already. It raised the retirement age, reduced the rate of growth in retirees’ pension checks and capped the pensionable salary for public employees. The creation of Tier 2 was the state’s best hope for reining in pension costs that were spiraling out of control, due to the 3% compounded annual growth in pension checks that contributed toward today’s $142 billion in state pension debt.
The state’s savings from Tier 2 are projected to grow over time — especially now that about half of active state employees and retirees today are eligible for Tier 2 benefits.
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With a Tier 2 fix under active discussion in Springfield this year, the risk of a runaway cost to state budgets is real. Even some fiscally responsible lawmakers are saying that some sort of “sweetener” will be required. Creating more generous cost-of-living allowances, reducing the retirement age to as low as 60 or boosting the way a pensionable salary is calculated is among the options being discussed.
Pritzker has seen this problem coming. And so far, he is handling it just right.
In the midst of last week’s union pressure campaign, Pritzker told reporters that the costs of even the simplest Tier 2 repair are not yet known. And he parried growing pressure for some sort of sweetener to go along with a must-do fix.
Even the simplest adjustment to Tier 2 — the move to bring pension checks in line with Social Security benefits — would be a sweetener, Pritzker explained, because it would go beyond the state’s existing commitment. “That, in a way, is a sweetener in the sense that it’s going to cost taxpayers something,” he said.
Coming from Pritzker, that’s a powerful statement. After all, he backed Amendment 1 to the state constitution that broadly expands workers’ rights. He signed a generous four-year contract with AFSCME last summer, which includes a nearly 18% pay raise over four years, at a cost of $625 million to taxpayers.
And Pritzker has refused even to consider an amendment that would weaken the state constitution’s pension clause. The idea is “a fantasy,” he said in his 2020 budget address, that would lead only to a legal dead end.
“The idea that all of this can be fixed with a single silver bullet ignores the protracted legal battle that will ultimately run headlong into the contracts clause of the U.S. Constitution,” he said.
Contracts do have consequences. And the same Illinois pensions clause that protects workers’ pension checks likely protects taxpayers’ pocketbooks, too.
David Greising is president and CEO of the Better Government Association.
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