Preckwinkle, unions strike deal on County pensions
Wednesday, May 14, 2014
Crain's Chicago Business
by Paul Merrion
Cook County Board President Toni Preckwinkle has reached a tentative pension deal with unions that will require taxpayers to pay roughly $150 million more a year while trimming workers' benefits.
If a final agreement is struck, Ms. Preckwinkle is not likely to spell out the mix of budget cuts and tax hikes to be used to increase the county's pension payments. Chicago Mayor Rahm Emanuel's proposal to restructure two city pension funds ran into trouble last month when he asked the Illinois General Assembly to mandate a property tax hike.
An agreement is so close that legislators in Springfield about a week ago began drafting legislation that would shore up the county's severely underfunded pension plans, which otherwise are expected to become insolvent in about 20 years. Cook County's main pension plan has nearly $9 billion in assets, with less than 57 percent of the money needed to pay pension and healthcare benefits it has promised, according to a new annual report last week.
Ms. Preckwinkle has secured tacit support from two of the county's three biggest unions, sources close to the negotiations say.
“My understanding from the President's office is that there is a tentative agreement with the Teamsters and SEIU,” said Cook County Commissioner John Fritchey, a former state Representative. “As was the case at the city and state level, AFSCME is still a sticking point.”
The Illinois Nurses Assn. also is opposed, according to another source.
Teamsters and SEIU account for about 58 percent of the county's unionized employees; while nurses and the American Federation of State, County and Municipal Employees account for nearly 26 percent.
Pending their approval of an actual bill, House Speaker Michael Madigan and Senate President John Cullerton are expected to push for passage by May 31 to avoid the need for supermajority approval by the General Assembly.
“I know they're trying,” a Madigan spokesman said, referring to the county.
A spokeswoman for Ms. Preckwinkle declined to provide details of the preliminary agreement with union leaders, but said she is “still optimistic” about getting a pension bill passed this month. Union officials did not return calls seeking comment.
Ms. Preckwinkle has proposed sweetening the deal for workers by guaranteeing funding for retiree healthcare benefits, sources in Chicago and Springfield said. The pension deal for city workers does not include such a promise. The county has agreed to put in $50 million a year, indexed for inflation in the future.
“The funding of health insurance for retirees is a major gain, especially for those who are close to retirement and not eligible for Medicare yet,” according to a post this month on the website of Service Employees International Union Local 73, which represents Cook County workers and other government employees in the Chicago area.
According to another summary on a Teamster website, pension cost of living benefits would be suspended if the fund dips below 50 percent funding and would be increased if funding exceeds 100 percent.
But the cost of living adjustment for workers hired before Jan. 1, 2011, would remain generous by recent standards for pension deals, if the funding level remains between 50.01 percent and 99.9 percent.
According to the Teamsters website, the COLA would be at least 2 percent a year and up to 4 percent a year, depending on the consumer price index, and it would be compounded each year. If the funding ratio exceeds 100 percent, the COLA goes back to three percent, compounded annually.
“Just on the surface, it's very generous,” said Laurence Msall, president of the Civic Federation, a Chicago fiscal watchdog group that advocates for pension changes. “It calls into question whether they get enough savings” from the proposed reforms.
While state legal requirements differ, the legal obstacles to reducing public employee cost-of-living adjustments is seemingly low, according to a report issued today by the Center for Retirement Research at Boston College.
The General Assembly on April 8 passed a bill that would overhaul the pensions of laborers and municipal workers. The proposed legislation is awaiting the approval of Gov. Pat Quinn, who has balked at adding to the property tax burden of Chicago residents.
Some details of Ms. Preckwinkle's pension proposal to the unions emerged last month in a report by the Chicago Tribune.
The final bill also will cover a smaller plan for forest preserve workers, which has net assets of about $199 million, or 59.5 percent of the funding needed to pay future benefits.
According to the SEIU website and other sources, the county has agreed to increase its pension contribution by about 43 percent, raising it to $2.20 for every dollar contributed by employees, up from $1.54 currently. Most workers now contribute 8.5 percent of pay, except for sheriffs, who put in 9 percent. That would go up one percentage point in 2015 and another percentage point in the following year.
In addition, the age of retirement gradually would be increased over ten years to 55 from 50 for workers with 30 years of service and to 65 from 60 for workers with less than 30 years of service.
Public employees do not pay into Social Security or Medicare, making their government pensions a key part of their financial security during retirement. While additional pension contributions by workers will undoubtedly be unpopular, the SEIU website urges its members to take a pragmatic approach.
“We need to be real about where pensions in Illinois are at,” the website says. “It is always easy to just say NO! But in reality, in Illinois we have seen massive pension cuts which we are currently trying to fight in court.”