Board Policy
Illinois Pension System Reform
March 29, 2007
The Illinois Chamber acknowledges the Illinois public pension system is substantially and dangerously under-funded. According to 2006 Standard and Poor's report, Illinois ranked 47th in the nation with its retirement systems' funded ratios. According to a report by the Civic Federation of Chicago, funded ratios for the five Illinois retirement systems have fallen to 57.7% when a well-funded system will have a ratio of 80% or more. According to the Commission on Government Forecasting and Accountability, unfunded liabilities of Illinois’ five pension funds are projected to be nearly $45.8 billion in FY 2007.
Principle reasons for the state's failure to adequately fund its pension systems, according to the Civic Federation's report, are attributable to a combination of factors including actual contribution shortfalls, investment losses, failure to increase payments during the 1990s economic boom, increased benefits, and impact of the FY 2002 early retirement initiative.
In order to adequately fund the Illinois public pension system, the state will need to make the full certified contributions required by law. In monetary terms, the funding increase is $3.06 billion from $1.37 billion today to $4.43 billion in FY 2016. If debt service payments on the pension obligation bonds are factored in, the amount of increase is from $3.14 billion to $5.01 billion, which represents a 168.2% increase.
This Illinois Chamber Board of Directors recognizes the Illinois General Assembly will be considering initiatives to improve funding of the Illinois state pension systems in the coming months and supports all fiscally responsible methods to bring our pension systems into compliance.
The Illinois Chamber believes fiscal responsibility includes necessary pension system reforms. The Illinois Chamber supports implementation of the pension system reforms recommended by the Governor's Pension Commission and the Civic Federation. In particular:
- Increasing the minimum age for new employees to receive full benefits to 65 years of age with 8 years of service. This proposal was estimated by the Governor's Pension Commission to save $11.51 billion in state contributions to the pension funds.
- Limiting automatic annual pension increases for new hires only. This proposal was estimated by the Commission to save $4.76 billion in state contributions to the pension funds.
- Increase individual contributions to the state's existing plans to match national benchmarks. In the Illinois state employee retirement systems, members with Social Security are now required to contribute only 4% of their compensation to the pension funds, and member without Social Security are required to contribute 8%. These contribution levels are lower than the national averages of 5% and 8.6% respectively.
With these reforms, the upward trend in cost growth can be slowed. Existing pension commitments should be paid in full, but the state can and should institute these necessary reforms to reduce the pension costs of future employees and presently non-vested employees. Implementing these reforms will go a long way toward aligning public sector employee compensation with private sector employee compensation.
The Illinois Chamber does not support increased funding of the state pension systems without curbing pension system cost growth through the above-stated reform measures.
The Illinois Chamber does not support increased funding for the state pension system if the source of such funds is from implementing a gross receipts tax. The Illinois Chamber strongly opposes enacting a gross receipts tax for the purpose of pension system funding or for any other state funding purpose.
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