If federal and state statutes drive funding and staffing levels, how is it that CPS can choose to ignore or follow them at will? And why can’t other Illinois districts do the same under SB1? Bev Johns responds.

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CPS CEO Forrest Claypool.

The first thing to remember is that in all things education there is Chicago and then there is the rest of Illinois.

The same rules rarely apply.

Most of the state’s poor and students of color live in Chicago and Cook County. When bad things happen they usually happen here first and then travel down state.

For years, special education funding to CPS has been in the form of a block grant, with no guarantees of how it will be spent. In recent years the money has been co-mingled with general education funding. There were no guarantees that special education funds would result in direct and dedicated funding for Special Education teachers or at what ratio of teacher to student.

CPS has now told parents it will no longer co-mingle the general education and special education dollars in their block grants. If true, this is a win.

Meanwhile the legislature has sent to the governor a school funding formula, Senate Bill 1, which will send special education dollars to districts as block grants as they have always done to CPS, allowing for co-mingling of general education and special education dollars. The state will no longer require direct and dedicated funding for special education teachers.

Interesting that when I asked my state representative, Will Guzzardi, about this part of SB1, he told me, “As far as the number of teachers, staffing ratios for special ed are written into federal and state statute; it’s those ratios, not the funding line item, that as I understand it are the driver of how districts staff up.”

So, I am confused.

If federal and state statutes drive funding and staffing levels, how is it that CPS can choose to ignore  or follow them at will.

And why can’t other Illinois districts do the same under SB1?

From Bev Johns:

Fred,

“As far as the number of teachers, staffing ratios for special ed are written into federal and state statute; it’s those ratios, not the funding line item, that as I understand it are the driver of how districts staff up.”

There is NO Federal or Illinois statute on number of teachers or staffing ratios for special ed.

There is NO Federal regulation on number of teachers or staffing ratios for special ed.

There is NO Illinois regulation on number of teachers or staffing ratios for special ed.

There is an Illinois regulation that says each local school district is supposed to have its own special education teacher workload rule, but many do not, and those that do say workload will be individually determined or have extremely high limits or are very vague statements that limit nothing. (ISBE does NOT approve or even receive a copy of these local school limits.)

Pensions Tier III: Your future 401K will likely not be protected under Article XIII, Section 5, the pension protection clause of the Illinois Constitution.

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Democratic Party Speaker Michael Madigan.

-John Dillon. John Dillon blogs at Pension Vocabulary.

“We can overturn any law we pass within an hour.”

The most significant and everlasting words I received from a legislator concerning pension reform bills and future promises came back in 2011, when my good friend Glen Brown and I met with Representative Elaine Nekritz in Buffalo Grove area to discuss our concerns about the “pension reform” being pressed by Governor Pat Quinn.

Representative Nekritz was thought to be the probable successor to Michael Madigan before her announcement to retire from Illinois politics this year.

Back then, as Tier One retirees, we realized the General Assembly – facing an underfunded pension liability after decades of shirking their payments – was about to move to some draconian diminishment of promises made and benefits constitutionally protected.   The bill – SB1 – was not yet fully baked, but it was on it’s way.

We had an emotional discussion.  One of many more…

We were such idealists.  She smiled when she replied to our question –

“We can overturn any law we pass within an hour.”

On May 8, 2015, the Illinois Supreme Court echoed our hope unanimously.  Article XIII, section 5, stands.  There shall be no diminishment of benefits earned upon the contractual entering of employment as a state employee.

Earlier Tier Two passed quickly by the General Assembly for those hired after January 1, 2011, and without any real objection by the unions, requiring new hires to work toward a defined pension that is capped at a CPI of about $110,000 and without a compounded cost of living adjustment.  With the caps and the lesser benefits, Tier II workers started paying down much of the debt created by the General Assembly and surrendered nearly 9.5% of their salaries for less than 6% of a return in a defined benefit.

Glen Brown wrote in January of 2015:

“If Tier II is left alone, it will accomplish its mission. The $61.6 billon TRS unfunded liability will shrink over several decades and eventually be eliminated because the state will pay less to the ever-growing number of Tier II members. In fact, at some point in the future, we estimate that Tier II members actually will help create a surplus of funds for TRS that effectively could eliminate the need for any state government contribution to the System.

“But the core of Tier II – the reduced benefits structure – is a problem the Teacher Recruiting and Retention Task Force will review. The benefit structure is unfair to all Tier II members. Right now, a Tier I member’s pension costs roughly 20 percent of an active member’s salary. Because of the benefit reductions in Tier II, a Tier II member’s pension is worth just 7 percent of an active member’s salary. However, by law, active Tier II members of TRS, like me, pay the same 9.4 percent salary contribution to the System that active Tier I members pay.

“What all this means is that Tier II members are paying the entire cost of their pensions plus an extra 2.4 percent to TRS. That extra 2.4 percent subsidizes the pensions of Tier I members” (https://teacherpoetmusicianglenbrown.blogspot.com/search?q=tier+II)

And now, Tier II pension reserves are calculated to be at 151% funding.

But now, suddenly,  we have Tier Three.

Remember: “We can overturn any law we pass within an hour.”

According to the IEA, Tier III offers a positive opportunity to “fix” some of the problems with the Tier II design.

Among those problems was an unscored bill Tier II passed which did not meet the Federal requirements for a qualified retirement plan or “safe harbor” limit.

According to IEA’s website, “ SURS and TRS members who first become participants of the pension systems on or after a to-be-determined implementation date (likely no earlier than July 1, 2018) will have the option to:

1) Be in a new hybrid benefit, known as Tier III, or

2) Elect to be part of the current Tier II.”

Elect.  Choose.  Decide to leave the benefits of a promised contractual agreement. This is a form of long-sought-after consideration, wrapped in promises of personal ownership has been part of Cullerton’s olive branch to Rauner and an earlier acceptance by a collective of state workers’ unions.

“Tier III offers a hybrid plan of a partial defined benefit (pension) and a defined contribution plan (401k or etc.).  While none of this is fully formed yet, those Tier II people choosing to go with the irrevocable defined contribution (401K, etc.) will pay minimally 4% of their salary, but see their pension contributions drop from 9 percent to no more than 6.2 percent.

“Also, existing Tier II members will have the option of joining Tier III. The retirement systems shall establish procedures for making these elections which, once made, will be irrevocable. The Tier III plan is a combined defined benefit (DB), often referred to as a pension plan, and defined contribution (DC) plan. Under the DB part, the member’s contribution will be no more than 6.2 percent of salary, but may be less depending upon a system’s determination of the annual normal cost of benefits. The member’s contribution drops from the 9 percent of salary required under Tiers I and II.

Entering finally stage right: the 401K style retirement plan.

In 2011, the Civic Committee of the Commercial Club of Chicago urged the adoption of a 401K program for teachers to replace the pension structure currently in place – SB512.  But 401k’s had their birth in the Reagan era: Congress acted in 1986 (during the Reagan presidency) to replace defined benefit plans for federal workers (CSRS) with a less generous defined benefit plan (FERS) and a generous 401 (k) plan called a TSP.  This explicit endorsement by the government from a single type defined-benefit plan to a possible combination of defined-benefit/contribution plan to which employees could elect to contribute amounts of their own choice became the starting point for a fast growing industry in financial investing and personal portfolios for retirement (Employee Benefit Research Institute, 2005).

Makes you wonder who will be managing these teacher investments, doesn’t it?  Maybe Ken Griffin at Citadel?

Sorry.  Couldn’t resist.

“We can overturn any law we pass within an hour.”

Beginning with the 2020-21 year, all employer costs (normal and any unfunded liability) for a Tier III member will be picked up by the member’s employer and not the state (prior to that date, the state will contribute 2 percent of each Tier III member’s salary to each system with the Tier III member’s employer picking up the rest, if any exists). Under the DC part, the member must minimally contribute 4 percent of salary, while his/her employer must contribute at least 2 percent and could contribute up to 6 percent of salary.

Your future 401K will likely not be protected under Article XIII, Section 5.

 By 2020, the local districts pick up the cost of your 401K savings plan.  The state has no responsibility to engage in any promised compensation for your investments..

I repeat what I warned in 2014:

Note: Always remember this.  Were the State or Rauner ever able to move public workers to a 401k retirement system, it would not be protected under the Pension Clause.  If the State found that matching contributions to a 401k plus the need for Social Security were too much, the General Assembly could do away with 401k plans altogether. 

I have questions for Senator Daniel Biss.

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Senator Daniel Biss with IEA Retired’s Jack Tucker.

Skokie Senator Daniel Biss is running for the Democratic nomination for Illinois Governor. He wants to run against Bruce Rauner.

Like just about all the candidates, Senator Biss is running as a progressive alternative to the Trumpian current occupant of the Springfield mansion.

Senator Biss has two big problems.

He doesn’t have nearly the cash of the front runners, Chris Kennedy and JB Pritzker.

And he was the most outspoken legislator in promoting the pension reform bill that the Illinois Supreme Court ruled as unconstitutional.

State Representative Elaine Nekritz, who recently announced her retirement, was the pension theft leader on the House side of the Capitol. Someone wrote to tell me that Elaine was on TV this weekend saying the pension problem would be solved by attrition. I didn’t hear her say that on TV this weekend and couldn’t find it on Google. But that’s been her view over the years, so I don’t doubt the report.

Attrition.

Meaning we retirees will be dead soon enough and if we can move everybody that is new to a defined contribution plan and shift the cost to local school districts, the pension problem will be solved.

Elaine can say stuff like that. She’s leaving the General Assembly.

Daniel Biss is running for governor.

“I see dead people,” is not a good campaign slogan for the governor’s race.

And besides, Bruce Rauner has trademarked it.

Moving new public employees to a defined contribution system is clearly the plan, as is moving pension costs to underfunded local school districts.

That is what was done quite secretly in the budget bills that were passed with legislative votes overriding Governor Rauner’s veto.

I supported the override, but was pissed to discover the secret pension changes.

Here is my exchange with Senator Biss:

June 26th.  Daniel,

Does this article say that you favor moving pension costs to the local school district and does that represent your current view?

Fred

 

June 27th. Fred,

It does not. I don’t think the article says I favor any particular solution it all — I read it (and I recall the interview) as just me whining about what’s wrong with the current situation.

The challenge is that the complete school aid solution involves many steps, including progressive tax reform, way more state revenue in the school aid formula, a better school aid formula, less property tax reliance, and then pension parity between Chicago and TRS. Pension parity could be achieved in any number of ways, but if it were to be done by moving pension costs to the local school district then the “way more state revenue in the school aid formula” part of all this needs to be adequate to stop that transition from harming the non-Chicago schools.

On the other hand, if we were to just move pension costs to the local school district without doing the rest of this, that would certainly harm the non-Chicago schools.

Daniel

 

July 11. Daniel,

While we wait to find a date for you to join us on our radio show/podcast I would like to ask you what your views are regarding the changes to the Teacher Retirement System, the creation of a Tier III, that was part of the budget passed over the Governor’s veto.

– Fred

 

July 12. Fred,

The creation of the Tier III plan is a bad idea that I oppose. Its voluntary nature made it fairly easy for me to decide to support the package notwithstanding that, but I was frustrated to see this proposal in the final package.

Daniel

 

July 12. Daniel,

Thanks for your brief response.

I think that Tier III – along with the change to the estimated return on TRS investments – are terrible ideas which are not mitigated by the voluntary component of Tier III. I look forward to talking about this when we schedule a date for you on our radio show/podcast.

-Fred

 

July 12. Fred,

Thanks — likewise looking forward to it. So just to make sure I understand, you think the assumed rate of return on TRS investments should be higher than it is now?

-Daniel

 

July 12. Daniel,

The change by the legislature reduces the amount the state pays into the system. It will increase the liability. Where does the so-called $1.5 billion in savings come from? Shifting costs to the local school districts and reducing the amount paid into the system by rolling back the change to the assumed rate of return on investments. The action of the legislature increases the assumed rate. Just to make sure I understand, you voted to return to the old assumed rate which is higher.

Fred

 

July 12. Fred,

Oh I see, sorry. You’re talking about the so-called “smoothing”? Yeah I hate that.

-Daniel

To be clear, Senator Biss assured me in an earlier email that he would never vote for an unconstitutional pension bill again.

But for many retirees, his role in passing the unconstitutional previous attempt at pension theft has left a bitter taste that won’t go away.

And without notifying voters, Biss and others voted for these pension changes as part of the budget bill and override of the Rauner veto.

His response to me that the Tier III defined contribution plan is voluntary is problematic in that Tier II is so bad that it literally forces employees to switch to a defined contribution plan. It is like putting a gun to their heads and saying they have a right to choose to live or die.

Senator Biss is scheduled for our radio show, Hitting Left with the Klonsky Brothers, on Friday August 4th at 11AM on Lumpen Radio, 105.5fm.

I’m looking forward to the conversation.

This week’s Hitting Left podcast.

If an elected official tells you the school funding problem in Illinois is a formula, they are telling a lie. The school funding problem in Illinois is inadequate revenue.

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By Bev Johns

Is ANY politician telling the truth about Senate Bill 1?

All sides say some schools will NOT OPEN next month (although no one has yet identified even one school that will not open in August). What is true is that many

schools could not remain open all school year without State funding.

State Sen. Andy Manar, who sponsored Senate Bill 1 to change the method of funding for schools, told The Associated Press a veto by Rauner would effectively KILL SB 1.

Manar needs to stop saying we have the “worst school funding formula in the country”.

No, we do not. The lack of funding of our current formula, the failure to increase the Foundation level for 9 years, since 2008, means we rely far too much on the property tax, which results in disparate and inequitable funding.

No matter how many times Manar (and others) say it, the problem is not the formula but the lack of funding. (Comment from Capitol Fax, 7/17/17)

Rauner states that his revised SB1 “for the first time, ensures all school districts in Illinois are equitably and adequately funded.”

His revised plan does NO SUCH THING. 

SB 1 (revised or not) is just about funding FORMULAS, not funding. 

“But as there are many facets to the school funding equation, the one that is most important — and that often is the first component to fall away from the discussion — is funding it.

“In truth, our current funding formula would likely be meeting most needs if it was properly funded.

“It does attempt to funnel more funding to those districts with less property wealth, but it is still using the foundation level of spending per pupil from 2008.

“No formula will work properly with that track record of underfunding.”

Illinois Association of School Boards, Funding reform won’t work without funding,

By Ben Schwarm

https://www.iasb.com/journal/j030417_02.cfm

“the annual failure to fund the GSA formula at any level close to the recommendations of the Education Funding Advisory Board, which was to have been an iron-clad rule when EFAB was created decades ago.

“I don’t think there would be an argument about equity if the state funded the 50% of education that the Constitution implies it should and that the GSA “equalization” formula was designed for in the 1970s.

“The state can’t equalize anything paying just 26%.

“The structure of the formula didn’t cause the problem.

“Failure to fund the formula as it was intended to be funded, that’s what caused the problem and nothing else.”

Illinois School News Service, April 27, 2017

Hitting Left with the Klonsky Brothers. Episode #24. The show must go on.

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As my brother correctly pointed out, I am letting him do the heavy lifting this week, along with Susan Klonsky.

I am 3,000 miles away in the middle of the Atlantic on the Azores, an autonomous region of Portugal.

Created by volcanos, the islands sits on two different oceanic shelfs: the North American shelf and the Azorean shelf. They are a bounty of beautiful views, plants and birds.

Meanwhile back home, Hitting Left with the Klonsky Brothers aired live on Monday with guests Jose Cha Cha Jimenez of the Young Lords Party, Stan Mckinney formerly of the Black Panther Party and Amy Bennington.

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Mike, Susan, Cha Cha and Stan were all in Chicago back in the day, fifty years ago at a different time in the Movement.

Mike and Susan recall arriving in Chicago in 1968, just married and with their first child, the streets on fire and meeting the Chairman of the Illinois Black Panther Party, Fred Hampton.

Chairman Fred was assassinated by the government in 1969. Both Cha Cha and Stan share their memories of Fred Hampton and stories from their activism.

The show will be rebroadcast on Friday on Lumpen Radio, 105.5fm at our regular time, 11AM and is available now for download here.

I’m back from my travels and will join brother Mike on July 28th with our second gubernatorial candidate Bob Diaber and Radio Free Bridgeport’s John Daly.

Then on August 4th our third show with a candidate in the Democratic Primary will be Senator Dan Biss.

On August 11th we will be talking public employee pensions and the recent actions of the Illinois state legislature with Jay Rehak of the Chicago Teachers Pension Fund and some of my blogger retirees cohorts. They are currently fighting over who gets to join us on the show. Best of three rounds.

The financial shock of making newly-hired teachers pay into Social Security and allowing them to be eligible for benefits would affect all current and retired teachers.

From Glen Brown’s blog.

From the Illinois Teachers Retirement System.

“Issue: Requiring newly-hired Illinois teachers to become part of Social Security would help ease the burden on TRS, lower the state’s contribution to public pension systems, help ease the long-term financial problems facing Social Security, and create more income stability for retired teachers.

“Discussion: Making newly-hired teachers pay into Social Security and allowing them to be eligible for benefits would affect all current and retired teachers. Illinois teachers have never been part of the Social Security system. Most teachers rely almost solely on a TRS pension during retirement. Active teachers contribute 9.[0] percent of their paycheck to help fund TRS and school districts contribute 0.58 percent of every teacher’s salary to the System. Last year, all told, teachers contributed $917 million to TRS and school districts contributed $155 million.

“For new teachers to become part of Social Security this scenario would mean a mandatory 12.4 percent payroll deduction split evenly between the member and the employer, which in the case of Illinois teachers is school districts and state government. Teachers would still be required to contribute 9.[0] percent of salary to TRS.

“For school districts, the cost of teacher pensions would immediately rise by a considerable amount. Instead of contributing 0.58 percent per new teacher, every district would have to contribute 6.2 percent per teacher. It is estimated that this increased cost would equal $41 million for Illinois school districts in the first year and more than $2.4 billion over 10 years. Plus, districts would still have to contribute 0.58 percent for each participant in the current system.

“Finally, a 1999 study by the General Accounting Office found that adding teachers and other public employers from around the country who are not currently in Social Security would create, at best, a temporary surge in revenue for Social Security. Over the long term, adding teachers to Social Security would only increase the System’s total obligations and deepen the long-term funding problem.”

IEA was neutral on pension theft. What else is new?

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“There are no neutrals on a runaway train.” Howard Zinn
Illinois President Cinda Klickna showed up long enough to explain the legislature’s recent pension theft and then quickly left town.

Her two terms as president of the organization ended last week.

But not before declaring that the largest teachers union in the state was neutral on creating a defined contribution pension system for Tier II and Tier III teachers.

Because of their neutrality, there was no lobbying call for members to oppose what had been a long-standing union position of opposition to turning our pensions into any privately run annuity.

Here is President Klickna’s final farewell:

1.     Were there pension changes in the new FY 18 State budget?

Yes, there were changes made to pensions in SB 42, one of the three budget bills that make up the FY18 State budget.

2.     How does SB 42 impact pensions?

Within Senate Bill 42, the budget implementation bill, the General Assembly created a third tier for new hires under most pension systems, including State Universities Retirement System (SURS), Teachers’ Retirement System (TRS) and State Employees’ Retirement System (SERS). The Illinois Municipal Retirement Fund (IMRF) is not included. This third tier attempts to fix some of Tier II’s problems. There are several other significant components of the proposal that improved upon the current pension system and several counterproductive ideas that were omitted, for example, a consideration option for Tier I members.

3.     Does the new pension proposal create a third tier?

Yes. SURS and TRS members who first become participants of the pension systems on or after a to-be-determined implementation date (likely no earlier than July 1, 2018) will have the option to:

1) Be in a new hybrid benefit, known as Tier III, or

2) Elect to be part of the current Tier II.

Also, existing Tier II members will have the option of joining Tier III. The retirement systems shall establish procedures for making these elections which, once made, will be irrevocable. The Tier III plan is a combined defined benefit (DB), often referred to as a pension plan, and defined contribution (DC) plan. Under the DB part, the member’s contribution will be no more than 6.2 percent of salary, but may be less depending upon a system’s determination of the annual normal cost of benefits. The member’s contribution drops from the 9 percent of salary required under Tiers I and II. Beginning with the 2020-21 year, all employer costs (normal and any unfunded liability) for a Tier III member will be picked up by the member’s employer and not the state (prior to that date, the state will contribute 2 percent of each Tier III member’s salary to each system with the Tier III member’s employer picking up the rest, if any exists). Under the DC part, the member must minimally contribute 4 percent of salary, while his/her employer must contribute at least 2 percent and could contribute up to 6 percent of salary.

4.     What are the benefits of Tier II or Tier III?

  • In both Tier II and Tier III, the cost of living adjustments (also known as COLA), retirement age and years of service are essentially the same.
  • The pensionable salary of a member that chooses Tier III is higher than the salary of a Tier II member. It is equal to the Social Security Wage Base — $127,200 in 2017 vs. Tier II being $112,408.42 in 2017.
  • Under Tier III, members’ DB contribution decreases to no more than 6.2 percent (so they are receiving equivalent benefit value for their contribution as opposed to Tier II), although each service year is worth 1.25 percent as opposed to 2.2 percent under Tier II.
  • In addition to the DB contributions, Tier III members will have the benefit of minimally 6 percent of salary/year going into a DC plan.
  • For some employees, depending on anticipated length of service and other factors, Tier II may be preferable to Tier III. For those who don’t want any stock market risk in their retirement, they can keep a strictly defined-benefit plan under Tier II.
  • For those who prefer the portability of a DC plan, or see the combined package as preferable, they can opt in to Tier III.

5.     How are Tier 1 participants and retirees impacted by the changes?

The pension legislation has no impact on Tier I members, including retirees. The creation of the Tier III plan does not divert state dollars from TRS or SURS to the defined contribution plan. It requires that the employers fund the defined contribution plan and any liabilities attributable to the DB plan for Tier III members, if any exists.

6.     What impact will this legislation have on local school districts?

For SURS and TRS, the bill contains language that local employers, rather than the state, would be responsible for the employer’s normal and any unfunded liability costs of the defined benefit plan for Tier III employees, plus at least 2 percent of salary for the employer DC contribution. See FAQ 3 above.

7.     Did the IEA support the pension changes?

The IEA and all the unions within the We Are One Illinois labor coalition took a position of neutrality. We knew pension legislation of some kind was going to have to pass for there to be a budget. So, we worked to ensure the unconstitutional consideration model, which had been a part of SB 16 was not included. Additionally, we worked to make sure end of career salary increases which could be used for calculating one’s pension were not reduced from 6 percent to the consumer price index. Such a reduction would minimally have impacted local bargaining.

8.     What role do the systems have in the creation of the DC option?

The legislation requires the systems to implement a DC option for Tier III participants. This option will provide future teachers the ability to invest their retirement savings in mutual funds and other investment options similar to their 403(b) savings plans. The Tier III option will not be available until the DC plan is approved by the IRS.

Bob Lyons’ first report as retired TRS board member. The recent actions in Springfield.

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-By Bob Lyons

I have retired from the TRS Board and I write this today as a fellow annuitant, not as a TRS trustee. This past fiscal year ended on June 30 2017 and  it is my understanding that TRS investments made something above 10% for the year As additional information comes  from TRS holdings in private equity and real estate, it is expected that the gains will only grow. And with TRS funding level firmly above 40%, Illinois is no longer the worst-funded pension state. Illinois has moved up and is now in 48th place, Kentucky 49th at 37.8%, and New Jersey is last with 37.5%. And that is not the only reason to celebrate; Illinois finally has a budget. 

According to the editorial writers and columnists across the state, Governor Rauner was the clear winner except for those that gave the victory to Speaker Madigan. For more than two years Governor Rauner tried to hold the budget hostage: first, for a set of union-busting demands, but in the end for several  measures, such as term-limits, a property-tax freeze, and workmen’s compensation changes that were more popular. In the end while Governor Rauner got nothing for his efforts, he can and will use the tax increase as a hammer against Madigan and company in the 2018 election. One thing is certain: the two years without a budget was a loss for the state. Even with the increased income tax, the state bond rating hovers just above junk. Illinois owes a total of over fifteen billion dollars to everyone it does business with. And the many candidates for governor and the legislature are all in full campaign-mode a year and four months before the election.  The political pundits have already given Illinois claim to be the most expensive campaign in the nation for who will be our governor.

Even without a budget, a combination of courts orders and continuing resolutions had the state of Illinois paying out $39 billion a year, or more accurately a combination of paying, or promising to pay a total of $39 billion. Now the increase in the state income tax from 3.75% to 4.95%, which is an increase of 1.2%, according  to Mike Madigan, or 32%, according to Bruce Rauner, is expected to bring in an additional $4.3 billion in revenue. The rise in the corporate tax from 5.25% to 7% should grow the state’s revenue by an additional $460 million. The bill that gave us the tax increase also allows the state to borrow $8 billion to pay down debt. Normally borrowing to deal with debt is not a good plan, but with some debts paying interest as high as 12% the state can borrow for far less and come out ahead.  In addition, paying off some debts will free up matching grants from the Federal government.

Illinois  needed the tax increases in order to fund TRS pensions. June 28, as the state headed into a third year without a budget, a federal judge ruled that Illinois was out of compliance with previous court orders to pay health care bills for low-income and other vulnerable groups  Judge Joan Lefkow ordered the state to come up with $586 million per month to make immediate payments and to start reducing the $2 billion debt which is owed to health care providers. Without additional revenue, State Comptroller Susana Mendoza would have obviously needed to take the money from somewhere else. The monthly payments from the state going into the pension funds could likely have been taken by Mendoza to help satisfy the judge’s demand.

Over the last several years, following the advice of its own investment people and its outside consultants the TRS Board has lowered its assumed rate of investment return in three steps from 8.5% down to 7%. Each decrease in assumed returns meant that the state of Illinois would need to increase its contributions to the pension fund. The last decrease in assumed returns caused the needed increased contribution from the state to TRS to grow by $402 million. The necessity of these increased payments was not well received by the Governor and the General Assembly and as part of the legislation recently passed TRS must now retroactively “smooth” the final effect of any changes made in the TRS assumed rate of investment in the last five years with 20% being phased in each year over the next five years.  Though the results of this calculation have yet to be announced by TRS,  the estimate is that it could significantly lower the state’s FY 18 contribution  and it may mean that the annual payment from the state of Illinois would remain approximately $4 billion, or even less than it was for last year

The FY 2018 budget included changes to the Illinois Pension Code with the creation of a new Tier III.  None of the Pension Code changes enacted on July 6, 2017 affect Tier I members or retired members in any way. There will be no changes to benefits, active Tier I member contributions, or health insurance. Tier III will only affect Tier II members and those teachers yet to be hired only if they want to be a part of it. The optional Tier III calls for a “hybrid” retirement plan of two parts – a life-long-defined benefit pension and a defined contribution plan similar to a 401(K). Details on Tier III still need to be worked out and then the plans will be submitted to the Internal Revenue Service for their approval. It is a shame that that stipulation was not part of the creation of Tier II. Tier II members are paying 9% for a plan that is worth only 6% at best.   Tier I is funded at just over 40%, Tier II is currently funded 151%.

One other change to the Pension Code should be noted. Local school districts will pay for the cost of a member’s pension if the member’s salary is equal to or greater that the governor’s statutory salary of $177,412 – only the portion that is equal or over. Also local school districts will be responsible for the “employer contributions” for both the DB and DC plans that will be part of Tier III. For those of you who look ahead and fear the state wants to get out of the pension business, you should know that the billions that Illinois owes to TRS are binds that will not break. They owe it and they have to pay it.

Trump-watching is a spectator sport.

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I remember right after Trump got elected when there was a period I couldn’t watch the news or read a newspaper.

You too, right?

It wasn’t that I became paralyzed with grief or anything. Although I have some friends who didn’t want to get out of bed in the morning. I get it. But that isn’t me.

As Trump and the Republican’s troubles worsened, the cloud began to lift.

To be sure, he and the Republicans are causing plenty of trouble. And it will take years to repair the damage.

But I’m back watching the nightly news, reading the New York Times and in moments of quiet desperation I will even turn on the Situation Room with Wolf Blitzer.

Some complain on Facebook that Trump’s Russian troubles are a distraction.

I think that misses the point.

His Russian troubles are a reality. It is like complaining that the rain is a distraction.

The problem is that Trump’s Russian troubles have become a spectator sport. Like watching the Cubs. Or roller derby.

And they involve forces and cliques we have no entry in to.

It’s fun. But we’re not players in all that.

Which is why I’m so annoyed with even the most progressive of Illinois legislators who voted for a budget bill that included what the Teacher Retirement System called “significant changes” to our pension system.

I’ve posted about it. John Dillon has posted about it. Glen Brown has too.

But since last Friday when I first received notice from the Teacher Retirement System of Illinois that the legislature had done something to our pension system, it has taken a determined effort just to find out what exactly they did.

There has been no follow up explanation from the teachers unions or We Are One Illinois, which represents other state public employees.

And the only information I have received from even the most progressive of state legislators is when I contacted them to ask.

That’s not movement politics.

That’s not participatory democracy.

I understood the need to pass a state budget and fund social services. I understood the need to override the Governor’s veto. I support raising revenue. I know that to get that done Republican votes were necessary and compromises had to be made.

I’m not quite sure why these things seem to always end up involving cuts to our pensions or underfunding, however.

Look. I follow these things. I knew there were bills floating around Springfield for years to convert our defined benefit pensions systems into defined contribution systems. I knew there were bills to shift pension costs to local school districts.

I have written about them and organized against them.

But we didn’t know that they was part of the budget deal. Nobody we sent to Springfield thought it was something we should know was happening.

Even after it happened.

Nobody said to us that deals are being made. They involve pensions. Get your people on the phone.

We would have done that. Believe me.

Trump’s Russian troubles may be a spectator sport.

I’m for participatory politics.

John Dillon: Tom Waits and the pension deal. “Step right up.”

John Dillon

-By John Dillon. John blogs at Pension Vocabulary.

HT: GB

A close friend of mine once turned me on to a song by Tom Waits of which I hadn’t been exposed.  I’m not totally square, Dude.  I mean “Small Change” and “The Piano Has Been Drinking” were always old favorites.  So, when my friend said, “You gotta get an earful of ‘Step Right Up,” I had to try it out.

I love it when you feel like someone behind your eyes is forcing open your senses: your pupils suddenly pushed open, your hearing laughing out loud, feeling wrinkles on my chuckling cheeks …

“Step right up, step right up, step right up,

Everyone’s a winner, bargains galore

That’s right, you too can be the proud owner

Of the quality goes in before the name goes on

One-tenth of a dollar, one-tenth of a dollar, we got service after sales”

For the last week, many of us have been asking what was the sweetener that brought the over-a-dozen Republican votes to the budget battle?  What did we (unions, etc.) give up to induce them into voting an override?

Then, the answer:  Senate Bill 42.   Pages 270-283 of the same bill.  Not the budget bill.***

Step right up, new hires and Tier 2 teachers and state employees.  If you feel like you got suckered into paying down the unfunded liability caused by decades of not reimbursing the normal costs, we (the General Assembly) are going to give you an option to break free!   Captain of your own financial ship!

“Three for a dollar

We got a year-end clearance, we got a white sale

And a smoke-damaged furniture, you can drive it away today

Act now, act now, and receive as our gift, our gift to you

They come in all colors, one size fits all

No muss, no fuss, no spills, you’re tired of kitchen drudgery”

Tier 3 now enters stage very far RIGHT!  An opportunity to provide the beginning of Governor Rauner’s plan to reduce, if not completely destroy, the state employee unions in Illinois.  A chance to give up your defined benefit (a pension) for an IRA.

So, I looked through the legalese on those pages this evening.  Now mind you, I am not a lawyer or politician, but I do comprehend “Step Right Up,” so maybe that qualifies.

Here is what I see:

Here’s what I wonder:

  • Implementation to occur as soon as possible after passage; thus, January of 2018?
  • New members or old (Tier 2) have 30 days within which to make this selection.
  • To opt into the defined contribution or to opt to stay within Tier II is an irrevocable decision? 
  • Determination of a final average salary will be increased to the average of the last ten years of earnings.  
  • Such earnings cannot exceed the federal Social Security wage base in effect at that time.  Currently $127,200.
  • No retirement annuity unless the participant has attained 67 years of age and meets the other necessary criteria.                                                                                        
  • Multiplier is now at 1.25% for each year of service time’s final average salary.  No longer 2.2. 
  • Increases in annuity payouts are provided annually as measured by the BLS measurement of the consumer price index, but such payments will be 1/2 of the unadjusted measure of the consumer price increase. 
  • Survivors will be provided 66 and 2/3% of the dying spouse’s retirement annuity at time of death.  
  • Employees not contributing to a defined contribution shall part with 6.2% of their salary to the retirement system.  And this cost will not be more than the 6.2% unless such employees have decided to make contributions to the defined contribution plans available under this act.
  • In addition, the 6.2% can be lowered by agreement of the State Actuary and CGFBA to a lesser amount if the “normal costs” are reduced.  If the normal costs increase, the rate shall be capped for employee at 6.2%.  Neither of these variations are involved in those who choose a defined contribution.
  • Tier 2 and new Tier 3 hires can choose to join a defined contribution plan that “aggregates ” employer and employee contributions.  The term aggregate means to add together; i.e., participants pay in and are given a match or sweetener to do so by the employer.  This is likely a cost shift to districts.
  • Tier 2 or 3 members who join the defined contribution plan will pay 4% of salary to the plan.  The employer shall pay an additional amount, not beyond 6% of the employees salary and no lower than 2%.  I see no basis for the differences.  Is this a negotiated item??? 
  • The State Board of Investments and private sector companies will help plan investments.  Hello, Ken Griffin and Gov. Rauner’s friends. !
  • Earlier collected earnings in TRS may be rolled over into the plan based upon authorized federal law and the retirement system as long as qualified plans. The concept of “qualified plans” leaves much to be desired.  I remember that Bernie Madoff met ERSA requirements for “qualified plan” before later changes.
  • Each retirement system will reduce the employee’s contributions to the contribution plan by the costs of administrative fees and costs of offerings (think advertising, 10b1’s, etc.)

So, it would appear, a smattering of Republicans came forward to help the state of Illinois from falling into the fiscal abyss, but they and the Democrats also voted for a possible end of the unions they for whom have so long sworn allegiance.  Can’t win fair share?  Then, let’s offer a defined contribution.

Smart and clever move?  As a former member of TRS replied, “Let me remind you that any money that TRS would not receive from a active teacher needs to be make-up by the state of Illinois.  The money owed to TRS by the State must be paid and they should know that.”

“We need your business, we’re going out of business

We’ll give you the business

Get on the business end of our going-out-of-business sale

Receive our free brochure, free brochure

Read the easy-to-follow assembly instructions, batteries not included

Send before midnight tomorrow, terms available,

Step right up, step right up, step right up

You got it buddy: the large print giveth, and the small print taketh away”

And that, my union friends, is the fine print of our budget deal.