Today the Illinois House is considering SB 1673, given the misleading name "Pension Reform." The most important thing it does is require already retired state workers, inluding university faculty, to choose between giving up all access to the state medical insurance plan and the guaranteed 3% COLA that they have been receiving and upon which their retirement plans were based. Further, the amount of their pensions were calculated based upon the continuation of the COLA in its present form; in other words, without the present COLA each and every pension would be higher than it is, because the amount was calulated assuming it would increase by 3% per year.
The legislature has already passed, and the Governor has said he will sign, legislation that will eliminate the 5% per year of service credit against the cost of the state health insurance plan for retirees. In other words, state workers were guaranteed free health insurance if they worked for the state for 20 years or more. This was important, since state workers are not in the social security system, and it is estimated that more than 80% of state retirees do not have Medicare coverage. Further, those of us lucky or ambitious enough to be covered by social security have our earned social security benefits reduced because we get state pensions. Not only that, a retired state worker whose spouse gets social security is barred from claiming 1/2 the spouse's benefit, as he or she would be entitled to if not a retired state worker.
The Illinois Constitution of 1970 provides that "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. " The Illinois Supreme Court has ruled in the case of similar language for sitting judges that this means that the COLA cannot be reduced or eliminated. There is widespread belief that the COLA for retired state workers cannot be eliminated or reduced because of the Illinois Constitution, and of course the pension amount itself cannot be diminished or impaired.
There is, however, no such consensus regarding increasing the cost of state health insurance for state retirees. Thus the legislature, in its so-called wisdom, has changed the rules for health insurance. It remains to be seen which side of the debate the courts will come down on, but it is interesting to note that the very judges of the Illinois Supreme Court who will decide the issue are affected negatively by the legislation. Normally they would have to recuse themselves, but as they did previously in the judge's COLA case (Jorgensen v. Blagojevich, 2004) they will undoubtdly cite the"rule of necessity" and take the case.
To get around the unconstitutionality of the proposed COLA reduction, the legislature has bundled a COLA reduction with access to the state health insurance system for retirees. Both retirees and current state employees will be required to make an irrevocable election as to whether the stay in the health insurance system and change the COLA from 3% compounded annually to the lesser of 3% or 1/2 the urban CPI, or keep the current COLA but be denied all access to the state health insurance plan. The thinking is, if giving up the COLA is voluntary, it isn't unconstitutional.
This looks rather like a choice between shooting yourself in the left temple or shooting yourself in the right temple; it is not a choice, but coercion. It should be held unconstitutional.
Enter the legislature's second stategy. Retired judges are not included in the legislation. This looks for all the world like a crass attempt at bribery: if the judges find the plan constitutional, they won't be included. I trust that the Illinois Supreme Court will see through this obvious ploy.
The Governor's office claims that the cost of state retiree health insurance will be based upon ability to pay and years of service, but the legislation itself merely states that the costs will be determined by Central Management Services, a creature of the Governor. There is nothing whatever to prevent the state from charging retirees $500 per month or more for health insurance coverage. Theoretically those with Medicare could be charged less, but there is no guarantee of this, either.
When we went to work for the State of Illinois, we willingly accepted lower salaries than were available in the private sector and in other states in exchange for the promise of adequate pensions and health insurance. According to the Illinois Constitution, for those of us already retired this is a binding contract. The State of Illinois is in the process of breaching this contract, balancing the budget of the pension system on the backs of those least able to afford it simply because we have little politicial power. It's not fair, it's not right, and it's not constitutional.
And further it's not our fault. Every single state worker, including every single university professor, paid if I'm not mistaken 8% into the system every single month. The State was supposed to match this dollar for dollar, but for many years did not do so, choosing instead to spend the money on other things. This has led to a horrendous pension deficit that they are now blaming retirees for. Obviously this is absurd, but absurdity never yet prevented exploitive legislation. Only the courts can do that, and there is no guarantee they will help this time.
Full disclosure: my wife Carol and I are both impacted by these ex-post-facto pension "reforms". As we both have social security and Medicare, we will not be affected as much as many others, but we both feel betrayed, exploited, and cheated. Many of our friends have lobbied Springfield extensively, and we have done what we could. But the bill is a done deal in the House, and I have no confidence in the Senate or, least of all, in the Governor. It will take a judicial miracle to stop things now, and I am not confident. Time will tell.