Governor Quinn Signs Historic Pension Reform

For Immediate Release: Thursday, December 5, 2013


Press Line: (312) 814-3158

Brooke Anderson

Grant Klinzman

Governor's Top Legislative Priority Becomes Law; Will Erase Unfunded Liability and Restore Fiscal Stability to Illinois

CHICAGO - Governor Pat Quinn today signed into law his number one priority - historic legislation that addresses the most critical fiscal challenge in Illinois by reforming the state's pension systems. This comprehensive pension reform solution will eliminate the state's unfunded liability and fully fund the pension systems, a standard set by the Governor two years ago.

After inheriting the worst-funded pension crisis in the nation that was 70 years in the making, Governor Quinn made pension reform his top priority and worked with legislative leaders and legislators to pass Senate Bill 1. In June, he proposed a conference committee to break the ongoing legislative gridlock, and this vehicle led to the bill he signed today. Earlier this year, the Governor suspended legislative salaries and refused to accept his own salary until pension reform was sent to his desk.

"Illinois is moving forward," Governor Quinn said. "This is a serious solution to address the most dire fiscal challenge of our time. I applaud House Speaker Michael Madigan, Senate President John Cullerton, House Minority Leader Jim Durkin, Senate Minority Leader Christine Radogno, Senator Kwame Raoul, Representative Elaine Nekritz, Representative Darlene Senger, members of the conference committee, and legislators from both parties who made this day possible. Working together, we will continue to build a brighter future for the people of Illinois."

Sponsored by Senator Kwame Raoul (D-Chicago) and Speaker Michael Madigan (D-Chicago), Senate Bill 1 will eliminate the state's unfunded pension liability and fully stabilize the systems to ensure retirement security for employees who have faithfully contributed to the systems. All four leaders worked tirelessly to negotiate and pass this legislation.

"The bill would not have passed without me. I was convinced that standing fast for substantial savings, clear intent and an end to unaffordable annual raises would result in a sound plan that will meet all constitutional challenges," Speaker Madigan said.

"I applaud the Governor for prioritizing this issue," Senate President Cullerton said. "I look forward to working with him and all legislative leaders to ensure that we continue on this path of fiscal leadership and bipartisan cooperation."

"With today's bill signing we have staved off a greater crisis," Leader Durkin said. "I am proud many of the significant components are Republican ideas generated by the conference committee, and my predecessor through Senate Bill 1. We should place value into Fitch Ratings' initial comments viewing our actions as positive and I am confident this law will withstand a court challenge and feel it is a major victory for Illinois taxpayers."

"This is a major step forward in putting Illinois on the path to financial recovery," Leader Radogno said. "It is the result of bipartisan, bicameral negotiations, after a great deal of debate and discussions. It will demonstrate to the credit rating agencies and job creators that we are serious about turning Illinois around. This is not the only step we need to take to get Illinois back on track. But it is a significant step at a time when doing nothing would only make our problems worse. I'm proud of the bipartisan effort and its result. Now we need to build on this momentum."

Under the new law, the state will adopt an actuarially sound funding schedule that requires level payments and achieves 100 percent funding no later than the end of fiscal year 2044. To prevent future governors and legislatures from repeating the same behavior that helped create the pension crisis, the law includes a funding guarantee, giving retirement systems the right to go to court if the state fails to make the required payment to the pension fund.

Under the new law, there will be no reductions in the pension checks going out to current retirees. The law will also minimize the impact on the lower-earning, longer-serving employees. There will continue to be Cost of Living Adjustments (COLA); however, they will grow at a slower rate. For most employees, the COLA will be adjusted from the current 3 percent annually compounding increases that are unsustainable to a new formula based on years of service that includes protections for lower-earning, longer-serving employees.

For example, under the new law, a 65-year-old retired state conservation worker with 20 years of service receiving a $17,000 state pension will see that grow to about $22,000 over 10 years. Prior to the law, that would have grown to about $22,400 over 10 years.

Under the new law, current active employees will see COLA pauses every other year upon retirement, with the number of pauses determined by current age. The law also reduces the amount of money current employees pay into their pensions by one percent.

In addition, pensionable salary will now be capped at the greater of the Tier 2 salary cap ($109,971 for 2013), the employee's current salary, or the employee's salary at the end of an existing collective bargaining agreement. The cap will increase over time, based on the consumer price index (CPI). There will also be graduated increases in retirement age based on the age of the employee, with a maximum increase of five years. The bill also creates an optional 401(k)-style defined contribution plan that will be available for up to 5 percent of Tier 1 employees. Senate Bill 1 goes into effect on June 1, 2014.

Since taking the oath of office, Governor Pat Quinn has made pension reform his top priority in order to restore fiscal stability to Illinois. Unlike his predecessors, he made the full pension payment each year. In May 2009, Governor Quinn established the Pension Modernization Task Force, which laid the foundation for future reform efforts. In 2010, despite intense opposition, he signed into law sweeping pension reform for new hires to save taxpayers billions of dollars.

In January 2012, the Governor convened a pension reform working group to develop a comprehensive solution. Three months later, Governor Quinn proposed a comprehensive pension reform plan that erased the unfunded liability, and refused to sign any legislation that didn't meet that standard. The Governor also released several studies on the dire impact of pension inaction on education and launched an online campaign to raise awareness about the pension squeeze and the urgent need for reform.

In June 2013, the Governor proposed a conference committee as a vehicle to break legislative gridlock between the two chambers. He asked the conference committee to forge a compromise that provided 100 percent funding for the systems, which ultimately became the legislation he signed today.

In addition, Governor Quinn also signed Senate Bill 1961 today. Sponsored by Speaker Madigan and Senator William R. Haine (D-Alton), the bill clarifies that the Attorney General will represent the pension systems in any court proceedings, except in cases where the systems are seeking to force the state to make funding payments. The new law takes effect immediately.