Pension Reform Battles Get Underway in Illinois (UPDATED)

Even modest changes are going to be a challenge, let alone shifting to a defined contribution plan


Stock art? No, this is actually how much Illinois has contributed to its employee pension funds.
Credit: Andre Blais at Dreamstime.com

With Illinois' new supermajority Democratic state legislature seated, it's time for the state to try to face its massive public pension time bomb, widely argued to be one of the worst in the nation (worse than California's even).

Today, the Illinois Policy Institute, a free-market think tank trying to encourage pension reform in their state (not unlike how the non-profit Reason Foundation, which publishes this site and Reason Magazine, is trying to encourage the same in California), held a presser to promote their own solutions (pdf). Their plan has been introduced as HB3303, sponsored by Assembly Rep. Tom Morrison (R-54), and would work to close the gap in funding for existing public employee pensions, level out pension payments, and – the biggie – push new hires into 401(k)-style plans rather than pensions.

Theirs is not the only plan. Another bill with bipartisan support would create a hybrid program for some employees, making a system of both defined benefits (pensions) and defined contributions (401(k)s). Reuters reports that Illinois House Speaker Michael Madigan is trying to push some reforms of his own, increasing the retirement age for public employees, freezing cost of living increases, and requiring employees to contribute more to their own pensions.

But the big question is whether any public pension reform can happen in a state with such powerful unions. I spoke briefly with Jonathan Ingram, the Illinois Policy Institute's director of pension reform, and they're hoping heavily Democratic Rhode Island's shift to hybrid retirement funds for new hires is a sign that change is possible.

"I think the day of reckoning is very close on the horizon," Ingram said. "They're realizing they have to cut education and public safety because pensions are crowding out the money." A temporary income tax hike meant to help the state pay bills was instead used to pay pensions (and at least one Illinois Democrat wants to make the hike permanent for that very reason).

California has shown that if the state legislature is too beholden to unions to fix the problem, voters can force it with ballot initiatives, as they did last year in San Diego and San Jose. Ingram said Illinois' ballot initiative system, though, is much weaker. Citizens there are more dependent on politicians facing down union interests. So, good luck with that!

UPDATE: The Illinois House utterly rejected Madigan's proposals.

Below, Reason Foundation Director of Policy Adrian Moore chats with former San Diego Councilman Carl DeMaio in our Reason office in Los Angeles about pushing pension reform in California: