Illinois Governor Rauner recently announced plans for a sweeping pension overhaul. But in terms of teacher benefits, the proposal isn’t that structurally innovative and instead hinges upon benefit cuts for cost savings within the existing system:
- Most controversially, the plan provides existing state teachers with a choice to either accept a reduced cost-of-living adjustment (COLA) or exclude salary raises from benefit calculations. The rationale behind the choice lies mainly as an attempt to sidestep the state’s contractual protection on benefits by offering an alternative for workers to consider. But as Jesse Sharkey, from the Chicago Teachers Union, describes, the choice comes off more as “we can hit you with this rock, or we can hit you with this stick and you get to choose.” Given the State Supreme Court’s recent decision for a similar law that attempted to reduce pension COLAs and benefits, it’s unclear whether the Governor’s proposal will pass legal muster.
There are some carrots for Chicago. The state will cover the cost of benefits (normal cost) for the Chicago Public Schools. But not without some strings attached. Chicago teachers currently only pay a portion of their 9.4 percent employee contribution because the Chicago Public Schools’ “picks-up” 7 percent. The proposal does away with the pick-up, a locally decided issue, alleviating the cash-strapped Chicago Public Schools of the additional cost but skipping over the collective bargaining process for the teachers' unions. Mayor Rahm Emmanuel also isn’t thrilled about the proposal to allow Illinois municipalities—aka Chicago—to file bankruptcy. While bankruptcy would be a well-needed emergency mechanism for Chicago, politically, it’s a bitter pill for the city to even consider.
But what’s missing from the current proposal is any mention of structural pension reform for Illinois’ teachers. While the proposal includes a new hybrid plan—a smaller defined benefit with a 401k-type defined contribution account—for newly hired public safety workers, it unfortunately does not include a similar plan for teachers. Granted, the Governor is in a tough position and has already pushed for a defined contribution option for teachers and state employees (and potentially may have been more viable).
Meanwhile, the state still has no check to prevent underpayment to the Illinois Teachers’ Retirement System, which comprises over half of the state’s unpaid pension debt. By definition a 401k defined contribution plan cannot be underfunded because benefits are directly tied to contributions. The current proposal, like the previous overturned pension reform law, asks for minor fixes that tinker around the edges but leave more fundamental problems in place. In any case, Illinois' new teachers are left with the same inadequate benefits.