Pension theft. Eric Madiar, the master architect.

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Attorney Eric Madiar.

-By John Dillon. John blogs at Pension Vocabulary

“We have a state fiscal system that is so poorly designed that it failed to generate sufficient revenue growth both to maintain service levels from one year to the next and to cover the state’s actuarially required contributions.”  –  Eric Madiar, Senate President Cullerton’s Advisor, Consultant and Designer of SB17 to the City Club of Chicago, Sept. 2015

Despite Mr. Madiar’s unblemished observations before the City Club of Chicago nearly a year ago, his draft of a new “reform” measure to reduce the costs of unfunded pensions by placing the burden directly upon the backs of those who work as public employees illuminates the characteristic politicians’ unwillingness to accept a clear, legal and moral path earlier provided by the Illinois Supreme Court.

Enter stage right: SB17.  The offering to an obstinate Governor Rauner to possibly break the ongoing deadlock in the state budget while guaranteeing the certainty of another battle in the courts over Article XIII, Section 5 of the Illinois Constitution.

“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.”

From a Cullerton  “Issue Background” Memo: “Savings would be recognized by giving Tier 1 public sector employees a choice of benefits related to raises they may receive in their careers and the annual cost of living adjustments to their pensions in retirement.”

In legally, overly- simplistic words, Madiar’s argument for Cullerton to Rauner is that as the employer, the state has the right to decide compensation.  And compensation is never guaranteed.  Just as a faculty or union may argue for an increase, so may a state (the employer of a public educator) define a raise or decide to withhold one.

In other words, this is not “consideration; it’s an employer’s negotiable prerogative.

In SB17, Tier 1 employees are asked to give up the 3 percent compounding COLA increase for which they would be eligible each year after retirement.  Instead, they would elect the lesser simple compounding formula for Tier 2 employees, but their future raises would qualify for figuring their final base pensionable annuity.

Sweeteners include a refund of what they have already paid into the pension funds of 10%, and a 10% reduction in payments going forward.  On the other hand, if they retire early? – no (simple)Cola until age 67 or five years after departing the profession.

But the state’s argument will identify the right of the employer to determine salary, not the choice between two diminishments.  Emphasis on salary adjustment, not choice.

Disagreement is sure to follow.  A recent bulletin from IRTA reminds all retirees “The legal team who represented the IRTA Members against Senate Bill 1, Gino DiVito and John Fitzgerald, recently wrote an opinion concerning Senate President Cullerton’s proposed “consideration” language in the bill.”

In short, the attorneys for IRTA do not accept Madiar’s position regarding SB17 or the vulnerability of Tier 1 active teachers; however, they do not represent them.

Likewise, Madiar himself never really supported his own scheme either.

Read the entire post here.

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