April 25, 2012 10:26 am

Gov. Quinn released his pension reform plan.  The basics of it are the following:

  • Employees pay an additional 3 percent of their salary toward their pension
  • Change COLA (cost of living adjustment) increases to 3 percent, or one-half the rate of inflation — whichever is smaller
  • Gradually raise the retirement age to 67 (currently as low as age 55 in some plans)
  • Gradually shift the payments for retirement system back to the local taxing bodies over a 3 year period
  • Strict guidelines to pay the currently $83 Billion in unfunded liabilities

To get around the Constitutional provision of not diminishing the benefits, there is a choice for these public sector workers to keep their defined benefits plan:

Pay for your own health insurance after retirement or go along with the proposed changes.  [As a quick side note, the idea of using the health insurance benefit as leverage to obtain pension reform was the brain child of Bruno Behrend, the incoming director of For the Good of Illinois. He made this point on the Champion News Radio broadcasts, pointing out that pension benefits might be guaranteed by the Illinois Constitution, but health benefits are not. [site] (ForTheGooodOfIllinois.org) ]

Of course there will be the typical gnashing of teach and demagoguery from the public sector union leadership on these proposed changes.  The rank and file public union members are starting to see that changes must occur or they will not receive a pension at all in future.  In all likelihood this dynamic will allow the plan, in some similar form to pass this year.

There are couple of obvious questions about this plan that still need to be asked and answered:

1. Does this plan fix the public pension crisis?

No, it does not.  This plan still continues the defined benefits plan in an unlimited fashion keeping the burden on the taxpayers.

Here are a couple of pension reform plans that start to fix the long term public pension crisis:

2. How does the shifting of payments back to the local taxing bodies affect the taxpayers?

The answer here remains to be seen.  The answer will be determined by how the shift back is accomplished and whether it is implement with a PTELL (Property Tax Extension Limitation Law) cap or if uncapped.

  1. PTELL Capped – the burden will be on the taxing bodies themselves which will start to force a reduction in benefit increases handed out.  This scenario will also foretell a large of number of coming tax referendums.
  2. Uncapped – the burden will fall directly on the local property owners.  This will have a devastating effect on homeowners and businesses due to the rapid increase in the already high property taxes.