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Officer Down

Monday, March 4, 2013

PENSION: Ow! Why pension reform is so hard

--I do not believe any of these solutions will withstand a court given constitutional test.
Cutting benefits, forcing employees into risky investment options are not the right answers for fixing problems that our state government has caused over a period of many years.--

Story at Crain's Chicago Business

By Greg Hinz
March 04, 2013

In Springfield and Chicago, if you take a whopping big magnifying glass, you can see signs that our elected officials are getting closer to doing something about the state's and city's pension funding crises.

A couple of weeks ago, Mayor Rahm Emanuel proudly announced a deal with police sergeants that includes some cuts and that he hopes will set the pattern for other labor unions. Just last week, 19 Illinois House Republicans and 12 Democrats actually co-sponsored a bill that would do things like raise the retirement age to 67 and require workers to kick in more toward their pensions, slicing an estimated $30 billion out of the state's nearly $100 billion in unfunded pension liability.

Progress, right? Then House Speaker Michael Madigan went and put the age-67 provision up for a test vote on Thursday. It got one vote. Paying more? It got three votes. What is the point?

And so it goes on the pension front. I want to think there's some hope as Illinois and Chicago careen toward insolvency or big tax hikes. But doing something is tough, sometimes for political reasons and sometimes because of the sheer human pain involved.

And it's almost always like something out of Alice in Wonderland.

An example: In Springfield, those who know tell me that the universe of potential “yes” votes for pension reform likely is no more than 80 to 85, with 59 votes needed for passage. The other lawmakers are either beholden to labor or, at the opposite end, allies of groups such as the libertarian Illinois Policy Institute. The institute wants to stop all pension accrual immediately and move to a 401(k) system in which the state would pay just a Wal-Mart-ish 3 percent of salary.

That means that sponsors of any bill have to thread the needle. Yet the compromise measure I mentioned above, sponsored by Rep. Elaine Nekritz (at right), D-Northbrook, would all but abolish cost-of-living adjustments for pensioners. It would do so by paying COLAs only on the first $25,000 of benefits but not raising the $25,000 base at all, no matter how much prices inflate in coming years. It will be hard to get Democrats to vote for that.

There's a whole different level of complexity in the position of Senate President John Cullerton. He says that under the state Constitution, Illinois can't diminish the rate of benefit accrual at all without offering the unions a “consideration,” specifically health insurance. But either the cost of the health insurance would eat up most of the pension savings or health premiums to workers would be set so high that workers wouldn't get much consideration at all. Go figure.

Meanwhile, at City Hall, Team Emanuel is feeling good about the sergeants' deal, which raises the retirement age, cuts back on COLAs and gives them only a 9 percent pay hike over four years—7 percent after the required new 2 percent of pay is deducted for health insurance.

That's progress for a group that has been treated a lot better than most non-sworn city employees. But to get the deal, the city had to agree to raise the maximum pension to 80 percent of pay from 75 percent. Mr. Emanuel threw in the legal towel on the Korshak case over whether health insurance is mandatory, and Chicago's finest still will be able to retire at age 53.
Sponsors of any bill have to thread the needle.

Bottom line, says one source who would know, the city will save just 8 to 30 percent of what it would have had to pay, depending on how fast it ramps up additional funding. Another source, Civic Federation President Laurence Msall, sets the savings at 10 to 15 percent. Even if other unions agree to go along, “it's not a panacea,” Mr. Msall says. And it's “not enough” to avoid a projected $700 million city fiscal cliff over pensions in 2015.

Yes, I know. One step, two steps. If real people weren't at risk of being thrown under the bus in their old age, it almost would make me buy the Illinois Policy Institute's plan. Almost.