April 16, 2014
On April 8, 2014, the Illinois House of Representatives and Senate approved Senate Bill 1922, which contains reforms and funding increases intended to stabilize the financial condition of two of the City of Chicago’s four pension funds. The bill awaits Governor Quinn’s review.
This blog post is an update to a post from two weeks ago that provided the details of an earlier version of the reform bill. The approved version contains some changes, described below.
Amendments made to Senate Bill 1922
The major change to the benefits laid out in the pension reform proposal was to the annual automatic increase, also known as the cost of living increase or “COLA.” Currently, members of the Municipal and Laborers’ funds receive an annual increase to their annuity of 3%, compounded annually. It is important to note that such an annual increase is not based upon the cost of living or inflation and is therefore not a true COLA, but a guaranteed automatic annual increase.
The original proposed legislation as described by the Civic Federation blog two weeks ago would have reduced the automatic increase to the lesser of 3% or half the increase in the consumer price index (CPI) using a simple interest calculation. This change was to apply to both current retirees and employees hired before January 1, 2011. Additionally, no annual increases were to be paid to any current or future retirees in 2017, 2019 or 2025, a provision known as the “COLA pause.”
The version of the bill that passed the General Assembly on April 8th included the above provisions, but added minimum annual increases for retirees with annuities less than $22,000. These low income annuitants, no matter how low CPI goes, will never receive an annual increase to their annuity of less than 1% of their last annual annuity amount prior to January 1, 2015. This additionally means that such annuitants will not experience the “COLA pause” described above. Chicago officials have not yet released any actuarial studies with data on the impact of these changes.
The reforms to automatic annuity increases contained in SB1922 and the protections provided to retirees receiving lower annuities are different from the approach taken in the state pension reform package contained in Public Act 98-0599. To read more about the changes the State of Illinois made to the annual annuity increases provided by four of its five pension funds, read the following two posts on the IIFS blog:
- Illinois Pension Overhaul Features Lower Benefit Increase
- How the Illinois Pension Plan’s Annual Benefit Increase Affects Current Employees
An additional significant change to the version of SB1922 passed by the General Assembly was to language relating to increased employer contributions to the fund. This language was revised so as not to require property taxes be levied to pay the contribution. Instead, how the increased contribution is to be made is left up to the City of Chicago and can be paid from any available funds.