Yesterday Illinois Governor Bruce Rauner proposed changes to the state's $111 billion under-funded pension plans. Some of the media coverage I've seen isn't quite right. Here's the relevant text of Rauner's prepared remarks:
The pension reform plan in this budget will protect every dollar of benefits earned to date.
Let me repeat that, this is core of the issue: the pension reform plan protects every dollar of benefits that have earned so far.
What you’ve earned, you’re going to get.
And if you are retired, you get everything you were promised. That is fair and that is right.
But moving forward, all future work will be under the Tier 2 pension plan, except for our police officers and firefighters.
Those who put their lives on the line in service to our state deserve to be treated differently, and I believe the public will stand with me in this single case of special treatment.
This budget also gives employees hired before 2011 a choice to take a buyout option – a lump sum payment and a defined contribution plan in return for a voluntary reduction in cost-of-living adjustments.
A few things to note here:
1. Rauner is playing a little bit of politics. The Illinois State Constitution already protects every dollar of benefits earned to date, plus the right to earn future benefits. That's not a smart policy for the state, but his language is either a bit misleading or it hints at a desire to amend the state constitution.
2. The Tier 2 pension plan that Rauner mentions is extremely ungenerous to workers. It requires them to stay for more than 20 years just to have a pension worth more than their own contributions, and it's capped against inflation, meaning it won't keep up with rising costs. Illinois policymakers should instead be thinking of entirely new alternative plans rather than dumping all workers into the cheap, poorly designed Tier 2.
3. His proposal for an opt-out is a smart one. Research on Illinois suggests that workers may be willing to trade some upfront cash in exchange for lower retirement benefits. That would save the state money in the long run, but, because it's voluntary, it would not force any changes upon workers who didn't want it.