Pension and Health Care Update
June 2013



Are you a state employee or do you have funds in SURS or a state pension system?  Please read this, long but important article, sent by a member.  

Greetings from the board of directors of UIC UNITED, the UIC chapter of the State Universities Annuitants Association (SUAA). SUAA is committed to fighting potentially unconstitutional and adverse legislation that would diminish promised benefits and will take legal action, either independently or with our coalition partners, in opposition to such legislation if and when such proposals become law. We as members may also decide on a compromise position, should the terms be favorable.


Summary
The Politics:  How does all the recent news affect our members? The sad and frustrating answer is that we still do not know because no pension-related legislation was passed in the spring legislative session. Governor Quinn has called a special session of the legislature to deal with pension reform for June 19th. On June 10th, Quinn met with the Democratic legislative leaders in the hopes of reaching a compromise between the two major bills, both sponsored by Democrats, Senator Cullerton (sponsor of Senate Bill 2404) and Representative Madigan (sponsor of an amended version of Senate Bill 1). No progress was made. There is a lot of pressure to solve this problem entirely through pension "reform," but the responsibility of the problem attributable to the debt should be shared more broadly. To date, the governor and legislators refuse to consider increasing revenues to address the shortfalls because they fear for their reelection if they increase taxes in any way or even close tax loopholes.

The Fiscal Problem: The fiscal problem in Illinois is terrible, and due to its enormous liabilities, Illinois has the lowest credit rating of any state in the nation. The state's pension payments have grown from about 6% of our general revenue funds five years ago to over 17% for pensions plus 5% for debt repayment, for a total of 22% of the general revenue fund today. Note that this ratio rose partly because of cuts in other areas, not entirely because of increased contributions to our pensions. The state budget for pensions is $5.1 billion this year, with $1.7 billion for direct pension payments; the rest is to pay for principal and interest payments on previous borrowing. Illinois is behind in its payments and projects an accumulated deficit of over $5 billion a year. However, since $9 out of $10 of general fund spending go to the four core services of education, health care, human services, and public safety, spending on pensions can only lead to further devastating cuts for our most basic public services.
 
The Solutions Under Consideration: The pension itself has a constitutional protection against any cuts. The Illinois constitution considers pension benefits to be an "enforceable contractual relationship," prohibiting their "diminishment or impairment." So the political gambit is to bite away at the benefits of health insurance and cost-of-living adjustments. All the bills and suggestions detailed below cut the "benefits" in a different way, but all leave the existing base payment intact. If enacted, any bill that cuts benefits would be legally challenged in the Illinois Supreme Court, but some approaches have weaker grounds than others. It has already been determined that pension benefits for new employees can be changed, and legislation to that effect has been enacted. Here is how the two proposed bills diverge: SB 1 is very aggressive in cutting benefits and producing considerable cost savings (estimated at $150 billion), but virtually inviting court action. SB 2404 proposes a way for meeting the constitutional mandate, but in the process, producing much lower monetary savings (estimated at $50 billion). Too many unknowns! As stated above, increased revenue generation is not being considered.
  
Upcoming Health Care Changes in 2014: There will be an appeal to the Illinois Supreme Court in September to determine whether health care is a protected pension benefit under the Illinois state constitution. Nonetheless, you have already seen the implementation of a percentage assessment on your pension to contribute towards your health insurance premium, starting July 2013. We all had to make a benefit selection by May 31, 2013, even though CMS has not provided details of the plans that will be put into effect midyear. Although nothing has been decided, we have been informed that the state of Illinois is considering several Medicare program options for annuitants in 2014, such as the original Medicare program, an HMO-type plan, or Medicare Advantage. We also understand, but cannot confirm, that each individual will be given another opportunity to decide whether it is better to pay the new CMS % assessment or to opt out and obtain external coverage. And, if one opts out, what are the implications for future re-entry into the state-sponsored plan? The Affordable Health Care Act ("ObamaCare") will impose mandatory coverage in January 2014, but with federally subsidized insurance payments for those who qualify. Again, too many unknowns!

What next? Expect news flashes from us. We will have a quarterly e-newsletter in the coming year. An update of our legislative platform will be available in late June on the chapter website (www.uic.edu/orgs/suaa/), as well as the SUAA website (www.suaa.org), following the annual meeting of the SUAA board of directors in Springfield on June 18-19, 2013.

What can you do? Visit your legislative representatives over the summer and get to know them. Introduce yourself as a state university employee, annuitant, or survivor of a state worker and share your thoughts and expectations.

Please circulate this message widely and invite others to join our chapter:

(1) From the UIC United website, www.uic.edu/orgs/suaa/applicat.html, the application may be printed and then completed and mailed with a $42 check to the SUAA office.

(2) At the bottom of the web page above, there is a link to the SUAA website, www.suaa.org, where the application may be completed online.

Details of Pension Bills and Reform Suggestions

SB 1-Opposed by SUAA
Chief components of the proposed bill (sponsor-Speaker Madigan)
•    Lowers Automatic Annual Increase (AAI); capped at 3% ($1,000 x years of service)
•    Caps pensionable salary at applicable Social Security wage base
•    Phases-in increase in retirement age for Tier I members
•    Reduces the Effective Rate of Interest (ERI); affects money purchase calculation, purchase of service time, and portable plan payouts
•    Increases employee contributions by 2%
Bill Status-defeated in Senate: 16 yeas and 42 nays

SB 2404-Union-negotiated compromise bill via efforts of the We Are One Coalition (teachers and state and university employees); supported by SUAA in its current form despite imperfections
Chief components of the proposed bill (sponsor-Senator Cullerton)
•    Gives employees and retirees the option of maintaining a 3% compounded AAI with a two-year staggered delay in receiving the increase and the ability to maintain health care coverage
•    Offers two additional options if employee does not wish to take the AAI holiday or pay the additional 2% of earnings
•    Has no pensionable caps or increases in retirement age for Tier II provisions
•    Contains provisions for a task force to study ways of improving Tier II benefits

Bill Status-passed in Senate: 40 yeas and 16 nays (not called for a vote in the House)


IGPA Proposal-Presented by University Presidents (not endorsed by the legislature)
Chief components of the proposal:
•    Compounds AAI and has no cap
•    Provides for more rational administrative rules for calculating the ERI
•    Phases in cost shift to universities over a 12-year period
•    Increases employee contributions by 2% increase in in exchange for guarantee of full funding of the pension
•    Re-amortizes the debt and state funding guarantee
•    Proposes new hybrid plan (defined benefit/defined contribution) for new employees
 Bill Status-Never became a bill

Upcoming Veto Session for House and Senate (summer recess; legislators in district)
October 22, 23, and 24; November 5, 6, and 7                                       

Some revenue enhancements supported by SUAA:
•    Revises terms of the amortization of the current pension ramp schedule
•    Implements legislation to require funds for debt service fees to expiring pension obligation bonds to be transferred into a pension stabilization fund
•    Increases employee contributions by 2% over a 2-year period with the requirement for full pension funding
•    Retains current state income tax rate until such time as there is adequate replacement for revenues generated from this source
•    Adopts a graduated income tax
•    Includes other revenue enhancements, such as tax incentives, foreign dividend exemptions, off-shore drilling credits, and retail tax discounts
Status of Health Care 2013

SB 1313--Opposed by SUAA (became law in June 2012)
Chief components of proposed bill (bipartisan and governor support):
•    Limits free health care coverage for state retirees
•    Requires retirees to pay a portion of their health care cost
•    Implements rates following a 15-month negotiation period with the union and state of Illinois over the health care benefit package
•    Implements new rates on July 1, 2013*
1.    Non-Medicare eligible rate- 2% of annuity in 2013 with an additional 2% to be paid in 2014
2.    Medicare eligible rate-1% of annuity in 2013 with an additional 1% to be paid in 2014

*A court challenge on health care is pending review in September by the Illinois Supreme Court. The plaintiffs allege breach of contract on the promised benefit of health insurance earned at the rate of 5% per year. After completion of 20 years of service 100% of the cost was to be state-paid for the retiree, effective 1989. The outcome will determine whether health care is a protected benefit under the Illinois state constitution and thus if SB 1313 is legal.

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