fy2012

AN ACTION ALERT FROM ONE

“Right now the Senate is making important decisions on the FY2012 US International Affairs Budget, including funding for life saving international development programs.  The House has proposed cuts to these effective international programs for the 2012 fiscal year, and the Senate is about to act, so we must take action now to stop the cuts and save lives.

The situation is urgent. Please take a few minutes to call your Senator today to urge them to protect critical life-saving programs for the world’s poorest people.  Immediate action is needed as votes on the State and Foreign Operations appropriations bill could happen as soon as Wednesday, November 2nd. 

Please take a few moments to make these important calls to both of your Senators… You can contact [them] directly or through the Senate Switchboard (202-224-3121).


Remember to tell them:

  • Your name and where you live, including address;
  • you’re calling as a member of The ONE Campaign. (Or not, that’s great, too!)
  • Ask the Senator to vote ‘No’ on ANY amendments that would CUT the State and Foreign Operations appropriations bill. 

Additional Information: 

  • Less than 1% of the total US budget goes to life-saving programs for the world’s poor. But this 1% saves lives, fights poverty and preventable disease.  It also promotes democracy, good governance and global peace and stability for generations to come.
  • The State and foreign operations appropriations bill protects critical life-saving programs that fight HIV/AIDS and malaria, and helps farmers grow crops to feed their families and entire communities.
  • The current Senate proposal protects these vital programs and must not take any cuts.
Is Gov. Quinn's Pension Plan Constitutional?

Whether you think Gov. Quinn’s “Public Pension Stabilization Plan” is good or bad policy, there’s an even more fundamental question to answer—Is it constitutional?

Regular readers know that the constitution here in Illinois has a Pension Clause. Also known as a non-impairment clause, it prohibits the State from unilaterally acting to reduce or eliminate the pension benefits of public employees.

Gov. Quinn argues his pension plan is constitutional because it isn’t unilateral: workers can choose to participate in his plan or continue with their current plan. Opponents claim the “choice” isn’t legit because it takes too much away from workers without giving them enough new benefits as “consideration” for their sacrifice.

We’re getting ahead of ourselves, though. Before we look forward at what the Pension Clause could mean for our future, let’s look back at Illinois pre-Pension Clause (pre-P.C. for short).

The state of public pensions in Illinois wasn’t great pre-P.C. (Not that different from today.) Together, the retirement systems were 41.8 percent funded. Public workers worried that the State would renege on its promises rather than make good on what was due. And pre-P.C., welching was a real option for the State because of the terms of most workers’ pension plans.

Back then, there were two types of pensions: “mandatory” and “optional.” Workers with “mandatory” plans were required as a term of their employment to participate in the plan. “The ‘rights’ created in the relationship were simply a gratuity or bounty, and the legislature could change or revoke the plan’s terms at any time.”1

On the other hand, employees in “optional” plans had “vested rights.” They were “entitled to a pension based on the pension statute in effect when [they] entered the retirement system, not the statute that existed when [they] retired.”2 The plan was “optional” because the worker could choose to participate or not.

The pensions of teachers, university and community college staff, and state employees—who were only eligible for the “mandatory” plan—weren’t protected. Who could opt into the “optional” plan, thereby securing their retirements? Members of the General Assembly along with judges.

Things started to look even bleaker in 1964 when the State Supreme Court in New Jersey ruled that the government there could cut pensions—both benefits to be earned in the future and benefits already accrued by workers—in order to maintain the solvency of the systems. Proponents of the Pension Clause in Illinois would cite Spina v. Consolidated Police and Firemen’s Fund Commission (Spina for short) as one of the reasons why we needed a Pension Clause.

Motivated by Spina and the sorry state of pensions in Illinois, university employees, police officers, and firemen banded together to take advantage of the opportunity that the 1970 Constitutional Convention presented to pass an amendment that could protect their pensions.

That’s the why and the how of the Pension Clause. What about the “what”? What does the Pension Clause do?

Well, here’s what it says:

Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.

Seems simple enough—a worker who joins one of the State’s retirement systems is entitled to a pension, and the State can’t cut her pension. But what are the benefits that the Pension Clause refers to without defining? What exactly do “diminish” and “impair” mean? Is the Pension Clause talking about earned benefits, or future benefits too? To answer those questions, there are two court cases to look at.

Let’s start with the most recent of the two: Kraus v. Board of Trustees of the Police Pension Fund of the Village of Niles (or Kraus for short).

The year is 1976. A police officer, who had reached the retirement age of 50 and fulfilled 20 years of service, decided to retire. He applied for a full pension to the police pension board. This officer has been on disability since 1967 due to an on-duty injury.

At the time the officer entered the system, the Pension Code permitted police on disability to receive a regular pension based on their rank at the time they retired. In 1973, the State changed the Pension Code. Now, police placed on disability were entitled to a pension based on their rank when they went on disability, not their rank at the time of their retirement.

In Kraus, based on this change to the Pension Code, the police pension board denied the officer’s request for a full pension based on his rank at retirement. The trial court disagreed with the board and reversed its ruling. The board appealed to the Appellate Court.

The Appellate Court came down on the side of the officer, deciding public workers were entitled to those benefits per the Pension Code at the time they entered the system—not as it stands when they retire. That means, whatever the terms of the Pension Code when a worker starts to pay into his pension, those are the terms that worker is entitled to retire under.

The implication of Kraus is huge. First off, the State can’t touch the benefits you’ve earned to date. To most people I talk to, that’s easy to understand and reasonable. On top of that, though, Kraus says that the State can’t change the terms under which current employees earn benefits in the future. Both earned and future benefits are inviolate.

So if Illinois told you, you get to retire at age 55, then you get to retire at age 55—regardless of any changes to the Pension Code that happen between the day you start paying into your pension system and the day the system starts paying out to you. In other words, the rules are the rules from the day an employee enters to the day he exits. The State can’t change them—at least not unilaterally.

The State Supreme Court re-enforced the ruling in Kraus six years later in Felt v. Board of Trustees of the Judges Retirement System and again two years later in Buddell v. Board of Trustees of the State University Retirement System.

There is another court case that’s important to look at: Peters v. City of Springfield. In it, three firemen filed suit against Springfield after the City passed an ordinance that increased the mandatory retirement age for firemen from 63 to 60.

There’s nothing in the Pension Code about mandatory retirement age. But the firemen claimed that the change—although it didn’t directly violate the terms of the Code—it did impair their ability to maximize their pensions. Therefore, they argued, it was unconstitutional.

Ultimately, the State Supreme Court came down on the side of the City of Springfield. Government can change terms of employment that the Pension Code is silent on—such as mandatory retirement age, salary, or work hours—so long as those changes “stem from an independent reason.”3

That begs the question, If the Clause protects those terms of employment in the Pension Code and those terms only, what’s in the Pension Code anyway?

I haven’t had a chance to read all 1,053 pages of the code, but I did read Section 14, which is all about the State Employees’ Retirement System (SERS). SERS’s membership includes more than 130,000 people, everyone from maintenance workers to nurses and corrections officers to social workers.

Here are the terms of employment codified in the Pension Code when it comes to SERS:

  • The terms of membership
  • The employee contribution
  • The years of age and years of service required for retirement
  • The final average compensation calculation
  • The wages and benefits included (and not included) in compensation
  • The multiplier used to calculate pension payout
  • The cost of living adjustment (COLA)

So, the Pension Clause, according to the courts, says that the State can’t change these terms of employment for current workers or retirees, at least not all on its own. Bringing us back to our original question—Is Gov. Quinn’s pension plan constitutional?

Here’s the quick and dirty of Gov. Quinn’s pension plan (for a full analysis, see “Gov. Quinn’s Pension Plan Translated” below). The governor is asking workers to voluntarily accept cuts to their pensions. They’d have to pay more into their pensions, retire at an older age, and accept a reduction in their COLA. That’s the sacrifice. In exchange, the State will subsidize (at least in part) these workers’ healthcare when they retire. That’s the consideration.

The thing is, in Illinois today (at least at the time I’m publishing this), the State already offers healthcare to its retirees. Public workers who retire with at least 20 years of service can choose a traditional plan where participants pick any doctor or hospital or a managed care plan, like an HMO, and they don’t have to pay any premiums.

With this in mind, is the healthcare clause in the governor’s pension plan consideration for workers who opt in, or is it a threat to those workers who want to stick with the more generous pensions that the State’s promised them? Is it, join and you’ll get this new, valuable benefit? Or is it, don’t join and you’ll lose this precious, existing benefit?

The answer to that question might matter to the constitutionality of Gov. Quinn’s pension plan. Remember, a pension is a contract according to the Pension Clause, and “with any modification to an existing contract, there must be an offer, new consideration, and voluntary acceptance.”4

That today’s healthcare subsidy isn’t in the Pension Code complicates an already complicated issue. Looking back to Peters, the State can change terms of employment that the Code is silent on if there’s an independent reason for the change.

And the State has an independent, very powerful reason to restrict retiree healthcare: it’s expensive. According to the Civic Federation, 91 percent of the 81,900 retirees receiving health insurance from the State as an OPEB (or other post-employment benefit) aren’t paying any premiums. In fiscal year 2011, while coverage cost retirees $12 million, it cost the State close to $500 million.

In fact, the State is already acting on this issue. Just last week, the Illinois House and Senate passed S.B.1313. Before this bill, the State contributed to the cost of a retiree’s healthcare 5 percent for each year of service, up to 20 years. Meaning any worker who put in 20 years, the State picked up the tab for her healthcare 100 percent.

S.B.1313 doesn’t exactly eliminate this State subsidy. Instead, it empowers the Department of Central Management Services to determine how much the State should pony up for healthcare—leaving the rest to retirees. The bill passed the House on Wednesday and the Senate on Thursday, and Gov. Quinn intends to sign the legislation.

This isn’t getting a lot of play in the press, but I believe S.B.1313 is setting the stage for a pension proposal similar to the governor’s where workers, in exchange for cuts to their pensions, are offered a healthcare subsidy from the State. Not the 100 percent coverage workers with 20 years get today, but better than whatever Central Management Services comes up with under S.B.1313. And the government is doing a good job positioning this as an independent issue, unrelated to pensions.

All that said, with what I know about the constitution and the Pension Clause, I think there’s reasonable debate to be had over the constitutionality of Gov. Quinn’s plan— that’s if he had stopped at State-subsidized healthcare.

He didn’t stop there, though. There’s one plank in Gov. Quinn’s pension plan that I think clearly crosses over into unconstitutional territory.

Here it is: for workers who stand by their current pension plan, none of their future promotions or raises would count toward the final compensation used to calculate their pension payout.

Today, to calculate the final average compensation of a Tier 1 worker in SERS (that’s anyone hired before January 1, 2011), first add up his total compensation over the 48 months of consecutive service where he was paid the most, and then divide that total by 48. That final average compensation is the basis for a worker’s pension payout, and a retiree’s benefits cannot exceed 75 percent of the final average compensation.

That is in the Pension Code—unlike State-subsidized healthcare. To change that term of employment violates the Cardinal Rule of the Pension Clause: whatever the terms of the Pension Code when a worker starts to pay into his pension, those are the terms that worker is entitled to retire under.

Put another way, “Current employees must have the power to freely accept or reject the offer and remain in their current plan under its original terms.”5 Gov. Quinn’s pension plan, as is, fails that test.

Whatever I think, whatever labor thinks, whatever the legislative leaders think—it will be the State Supreme Court that has the ultimate say.


1 – Eric M. Madiar, Is Welching on Public Pension Promises an Option for Illinois? at page 6 (2011). This is a well-researched, thorough analysis by the chief legal counsel to Illinois Senate President John Cullerton. I recommend reading it and will quote Madiar several times in this post.

2 – Id. at 6.

3 – Id. at 36.

4 – Id. at 61.

5 – Id. at 73.

Happiness is a by-product.
Happiness lies in the joy of achievement,
in the thrill of creative effort.
The human spirit needs to accomplish,
to achieve, to triumph to be happy.

Happiness does not come from doing easy work,
but from the afterglow of satisfaction
that comes after the achievement
of a difficult task that demands your best.

Your personal growth itself contains the seed of happiness.
You cannot pursue happiness by itself.
There is no happiness except in the realization
that you have accomplished something.

Happiness thrives in activity.
It’s a running river, not a stagnant pond.

—  Max Stein
MindTree reveals Q1 FY2013 results

External image
 

MindTree has announced its standalone results for the first quarter ended June 30, 2012, as approved by its Board of Directors.

Krishnakumar Natarajan, CEO & MD, MindTree said, “The global demand environment continues to be challenging as customers are cautious in their IT spending. However, with our strategic initiatives, we expect to achieve NASSCOM’s current industry estimates for FY2013. Our margins have shown consistent improvement over the last 4 quarters and we will continue to focus on operational efficiencies as we move forward.  Given the great progress we have made, we are embarking on multiple initiatives to enhance our competitiveness, that will elevate us to the next level.”

Key financial highlights Revenue at $105.5 million (growth of 0.4% q-o-q / 14% y-o-y) and Net Profit at $16.7 million (growth of 21.3% q-o-q / 116.2% y-o-y) in USD terms, whereas,  In Rupee terms: Revenue is at `5,630 million (growth of 7.1% q-o-q / 36.3% y-o-y) and Net Profit is revealed at `890 million (growth of 28.6% q-o-q / 157.2% y-o-y).

For More Details See

www.varindia.com

an open letter to Congress: Feed the Future!

Dear members of Congress,

I am a constituent of Indiana’s ninth district. Midwesterners, we know what drought and extreme weather, market prices and subsidies can do to a community. That is why I believe it is our duty to support programs that provide food and agricultural development aid to foreign nations.

Allow me to share several statistics with you, courtesy of the World Food Program, that I believe demonstrate how supporting food aid supports the American economy as well:

  • The return on a dollar spent improving child’s nutrition is 39:1.
  • Hunger costs developing nations $450 billion each year.

Imagine the reduction in aid needs if we provide aid now and continue fighting child hunger. As economies and foreign markets are able to develop, because their hunger costs go down, our trade relations could grow.

These issues are important to me for many reasons, not least of which are these: I come from a farming family that, after several bad seasons, was forced to leave their farm; I would never ask a family to go through this. Now, how many of your constituents could say the same?

When it is time to vote on the 2012 fiscal year’s budget, please do not vote for cuts in food and agricultural development aid. Continue to support Feed the Future and similar programs. Thank you. 

 

Sincerely,

Megan Betz

P.S. Readers, please take the time to write letters to your own members of Congress. Get them in the mail before Nov. 18!

How big is Illinois' unfunded pension liability?

This big:

(By the way, the stuff on top represents all the State’s General Fund expenses for fiscal year 2012.)

$83 billion—that’s the amount the State of Illinois owes to its retirement systems for benefits already earned by public workers and retirees. [1] Sounds like a lot of money, but is it? How does it stack up to State spending this fiscal year on stuff like education, healthcare, and public safety, for instance?

All in all, the total amount the State owes to its retirement systems is about 2.5 times more than all its expenses from the General Fund in fiscal year 2012. The General Fund is the technical term for the operating and administrative expenses of the State. It’s where money for services like education, healthcare, and public safety comes from, and it’s also where money for the State’s pension payments comes from.

How much the State spent on any of its General Fund services this fiscal year pales in comparison to the unfunded pension liability in Illinois, which is:

  • 9 times more than Illinois’ annual investment in education
  • 12 times more than Illinois’ annual investment in human services or healthcare
  • 54 times more than Illinois’ annual investment in public safety
  • Many hundreds times more than Illinois’ annual investment in economic development
  • Over 1,000 times more than Illinois’ annual investment in quality of life

To create the graph above, I used data from the Office of Management and Budget [2] along with the TreeMap-gviz gadget in Google Docs:

To clarify a few of the categories of spending:

Unspent appropriations—Also known as “salvage,” this is money appropriated to agencies that ends up being more than their actual expenses, or money that is reserved at the discretion of the governor.

Statutory transfers out—As the Center for Tax and Budget Accountability explains, these are “funds that, pursuant to state legislation, must be paid from the General Fund to other state funds, to local governments, and to cover other state obligations created by statute.” [3] For example, the State is required to pay part of the income tax revenue it receives to the Local Government Distributive Fund. This expenditure falls under the “statutory transfers out” category.

Capital and pension bond debt service—Debt service is how much money is owed on a loan, including both the principal amount and interest. In the case of capital bonds, it’s debt related to the construction or improvement of things like bridges, roads, and schools. In the case of pensions, it’s debt that a state issued to pay down a deficit in its pension system. Illinois issued pension debt, or “pension obligation bonds,” in 2003 and 2010.

Interfund borrowing repayment—In Illinois, there are more than 600 Special Funds that operate outside of the General Fund—everything from the Personal Property Tax Replacement Fund to the Hearing Instrument Dispenser Examining and Disciplinary Fund. Last fiscal year, as the Civic Federation explains, “The State authorized borrowing up to nearly $1 billion from the Special Funds to help close the State’s budget gap and relieve cash flow pressures. Under the interfund borrowing law, loans from these funds must be paid back within 18 months.” [4]


1—Commission on Government Forecasting and Accountability, “A Report on the Financial Condition of the Illinois State Retirement Systems: Financial Condition as of June 30, 2011” at page 25 (2002).

2—Governor’s Office of Management and Budget, “Three-Year Budget Projection (General Funds), FY13-FY15” (2012).

3—Center for Tax and Budget Accountability, “Analysis of Proposed Illinois FY2013 General Fund Budgets” at page 7 (2012).

4—Civic Federation, “State of Illinois FY2013 Budget Roadmap: State of Illinois Budget Overview, Projections and Recommendations for the Governor and the Illinois General Assembly” at page 52 (2012).

Updated: Gov. Quinn's Pension Plan Translated

To me, the question about Governor Pat Quinn’s pension plan, released this Friday, is whether it’s constitutional. Illinois has a non-impairment clause in its constitution that reads, “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” As a result, many argue, attempts by the State to unilaterally cut current workers’ benefits are doomed to failure before the state supreme court.

While I work on some more thoughts on that question, I wanted to translate Gov. Quinn’s proposal from pension jargon into plain language. So, here’s my translation of each of the elements of Gov. Quinn’s public pension stabilization plan (PDF).

GOV. QUINN’S GOAL

What is the governor trying to accomplish?

Maintain a defined benefit plan

When it comes to public pensions, there are three types of plans: defined benefit, defined contribution, and hybrid.

Defined benefit means just what it says: the plan guarantees workers a defined set of benefits, such as salary and healthcare, for life once they retire.

In contrast, under a defined contribution plan, the payout is based on the performance of the investment of employee and employer contributions. Whether your investment skyrockets or tanks, that’s what you’re left with. A hybrid pension plan takes a little from the defined benefit column and a little from the defined contribution column: a less generous, but guaranteed set of benefits supplemented by a 401K-style plan.

Defined benefit plans are the most common in the country: according to the Pew Center of the States, 90 percent of public workers have access to a defined benefit plan.

While the benefits under Gov. Quinn’s proposal are less generous, they’re still guaranteed regardless of the performance of the retirement systems’ investments. That means Illinois would still offer its workers defined benefit plans.

Reach 100 percent funding for pension systems by 2042

Pension systems are funded by employee contributions and employer contributions plus the returns those contributions get when invested in things like bonds, real estate, private equity, and hedge funds.

Illinois is responsible for the employer contribution into five public pension systems: State Employees’ Retirement System (SERS) for state employees, General Assembly Retirement System (GARS) for state legislators, Judges’ Retirement System (JRS) for judges in Illinois courts, Teachers’ Retirement System (TRS) for suburban and downstate public school personnel, and State Universities Retirement System (SURS) for public university and community college faculty and staff.

The State has done an awful job at paying its share into these retirement systems. In fact, Illinois owes $83 billion to them. That’s called unfunded pension liability.

Illinois can’t pay off its pension debt in one lump sum, so it has to pay off a little each year. That annual amount plus the amount the State must pay for pension benefits earned in that year is called the actuarially required contribution, or ARC for short.

Gov. Quinn’s plan says Illinois will have to pay its ARC each year for 30 years before its pension systems are fully funded. That 30 years represents the amortization period of the plan, or the length of time the State needs to eliminate its unfunded liability.

Back in 1995, Illinois enacted a law known as the “Pension Ramp.” It laid out a 50-year funding plan for pensions which would get Illinois retirement systems to 90 percent funding by 2045. According to the governor, under his plan, pensions will be fully funded ahead of schedule by 2042.

Of course, Gov. Quinn is making an assumption about the return the retirement systems’ investments will get. In Illinois, each system sets its own target rate, ranging from 7 to 8.5 percent. If you only looked at the actual return on investment over the last three, five, or even ten years, you might baulk at those target rates. If you look at the 30-year average, though – the same as the amortization period of Gov. Quinn’s plan – those targets start to seem reasonable. That said, there is considerable debate on the subject, and it might just be the topic of a future post.

The SURS long-term average is for 25 years (as opposed to 30) because that is the only data available on their website.

Adhere to a 30-year “closed” ARC

The payment plan laid out in the 1995 Pension Ramp was optional. The State had the option to make its annual payment or to skip it – something Illinois did on more than one occasion.

Gov. Quinn’s pension plan lays out a payment plan established by actuaries as opposed to legislators. Think of actuaries as pension experts who use their knowledge of statistics and business to assess risk and design good investment strategies. So, experts will tell the State its actuarially required contribution (ARC), which each year the State is expected to pay.

GOV. QUINN’S PLAN

Those are the goals. How does the governor get there?

Changes to benefits for active and inactive members

3% increase in employee contributions

Depending on the retirement system, public workers contribute 4 to 11.5 percent of their salary to their pensions each year. Gov. Quinn is suggesting increasing that contribution by three percent for all current and future employees.

Reduce COLA to lesser of 3% or ½ of CPI, simple interest

COLA stands for cost-of-living adjustment. Each year, because of inflation, the same amount of money buys less stuff. A COLA helps to counteract the effect of inflation.

Today in Illinois, public workers who’ve retired get an automatic 3 percent COLA to their pension annually – regardless of the level of inflation. And that 3 percent is compounded instead of simple interest. That means if your pension is $10,000 in your first year of retirement, it would be $10,300 in the second year and 10,609 in the third. It goes up $309 in the third year instead of another $300 because the COLA applies to your current – not your original – pension payout.

Since a COLA is supposed to counteract inflation, it seems reasonable to tie COLAs to the actual level of inflation. That’s where CPI, or consumer price index, comes in. A CPI measures how much the price of goods and services changes. Looking at the annual percentage change in a CPI is how to calculate inflation.

Of course, Gov. Quinn’s pension plan doesn’t tie COLAs to the CPI, it ties them to half of the CPI (or 3 percent, whichever this less). This means that the real value of a retiree’s pension will never be able to keep up with inflation.

In this graph, I assume a worker’s pension starts at $10,000 in her first year of retirement. I also assume a 2.7 percent rate of inflation, which is the current rate today. Obviously the rate of inflation would go up and down over time, but that doesn’t change the reality this graph illustrates so well: the real value of a worker’s pension will take significant cuts over the course of her retirement under Gov. Quinn’s proposal.

Please note, I’ve corrected this graph since first publishing this post. In the original, our worker’s annual pension under Gov. Quinn’s proposal looked flat (staying the same over time) when it should have been linear (increasing the same amount each year). In this current and correct graph, you can clearly see that of all the changes the governor suggests to COLAs, what will hurt workers the most is indexing them to one half of the CPI. Compound versus simple has an impact, but it’s not nearly as significant.

Increase retirement age to 67 (to be phased in over several years)

Gov. Quinn’s pension plan also calls for bumping up the retirement age – which is 55 years in Illinois today – to 67. That’s a big jump. To put it into context, New York recently enacted a one-year increase from 62 to 63 years after their governor proposed a retirement age of 65.

Public sector pensions limited to public sector employment

In the fall of 2011, the Chicago Tribune and WGN-TV discovered some labor leaders were counting their union time and salaries toward their City of Chicago public pensions, even while they were on leave of absence from their city jobs. There was also a story about two workers who counted their years as union employees toward teachers’ pensions after they spent a day in the classroom as substitutes.

These practices might sound like an abuse of the system, but they were OKed by the legislature in 1991. Gov. Quinn wants to stamp them out in his reform package.

Employer responsibilities

State makes required payment each year

As we’ve already discussed, Gov. Quinn’s plan commits the State to pay its actuarially required contribution (ARC) each year for 30 years until 2042 when Illinois’ retirement systems are fully funded.

Employers take responsibility for their normal costs

Illinois’ history when it comes to pensions is riddled with mysteries. Here’s a big one. Even though it’s not the State of Illinois that negotiates contracts with K-12 public school teachers, state university staff, or community college employees, ultimately the State is responsible for making the employer contribution into these workers’ pension funds. So, a local school board negotiates the retirement benefits of its educators, but it doesn’t pay a dime into the retirement system – that’s up to Illinois.

This dynamic is true of all state universities and all community colleges. For K-12 public schools, it only applies to suburban and downstate teachers. Chicago Public Schools makes the employer contribution for CPS employees.

What’s incredible is that these contributions – for TRS and SURS members – make up about ¾ of the State’s annual pension payment.

There’s been a lot of talk lately about changing this. Both the speaker of the Illinois House and president of the Senate are supportive. Members of the Assembly from suburban and downstate districts, though, worry that suddenly shifting this liability to local governments will force them to raise property taxes, which is usually the only way municipalities can raise revenue.

In the press conference where Gov. Quinn unveiled his plan, he made it clear this wasn’t an essential aspect of this plan, but it’s a change we should expect him to continue to push for.

“Considerations” for public workers

As regular readers know, Illinois has a non-impairment clause that ties the State’s hands when it comes to restructuring the pensions of current public workers and retirees. So, you’d be right to wonder whether Gov. Quinn’s pension plan is even constitutional. After all, it’s clear the proposal cuts current workers’ benefits.

The governor argues his pension plan is in-bounds because he offers workers the option to opt in or to opt out. But – and this is a big but – if you choose to opt out of the new plan and stick with the current plan, there will be consequences. None of your future raises or promotions will count toward the final salary used to calculate your pension payout. And when you do retire, you’ll lose your subsidy for healthcare.

Right now in Illinois when it comes to health insurance, the State offers its retirees a traditional plan where participants can choose any doctor or hospital as well as a managed care plan, like an HMO. Public workers who retire with at least 20 years of service can choose either plan, and they don’t have to pay any premiums.

According to the Civic Federation, 91 percent of the 81,900 retirees receiving health insurance from the State as an OPEB (or other post-employment benefit) aren’t paying any premiums. In fiscal year 2011, while coverage cost retirees $12 million, it cost the State close to $500 million. Moreover, Illinois makes these contributions on a pay-as-you-go basis, meaning they’re not pre-funded like pensions are.

If you stand by your current pension plan, you can kiss this coverage good-bye if Gov. Quinn has his way. Nonetheless, the governor estimates that 3 out of 4 public workers will opt into his plan.

Not surprisingly, the unions are not a fan of Gov. Quinn’s proposal. Here’s an excerpt from the response of the AFL-CIO:

We strongly disagree with the proposals made today. Considering that the subject at hand is the ability of hundreds of thousands of Illinoisans to support themselves in retirement, we believe the proposals are insensitive and irresponsible.

Forcing public servants to choose between two sharply diminished pension plans is no choice at all. It is a clearly illegal attempt to solve the problem caused by past governors and the legislature solely on the backs of teachers, caregivers and other public workers.

One thing I think everyone – lawmakers and unions alike – would agree on: Gov. Quinn’s pension plan, if enacted, will end up before the seven justices of our state supreme court.

Of course, whether we make it that far depends on the legislature. Does the General Assembly have the will and the power to pass this package in an election year when Democrats have a chance of picking up seats in the House, the Senate, and Congress?

Mahindra XUV 500 Gets a Place Together with Knickknack 10 SUVs entree South Africa

Mahindra & Mahindra has reinforced its presence in the global market regard the last two years with the immense growth toss which the company has shown in the last two years in the global market. The lay on for exports surged in the Asia-Pacific, Africa, Westernmost and Latin America and USA. Company EUR™s passenger duologue exports grew agreeably to 70 per cent modern the fiscal lunar year that ended in Jog on 2012 which is huge leap.
Mahindra East Africa which was embarked team year antique in the year 2004, managed to sell 1761 units in FY2011 which increased to 2558 units in FY2012 showing an contentiousness by 45 in uniformity with shekel. The company EUR™s vintage range in the passenger car segment comprises of Mahindra Scropio, Mahindra Xylo, Mahindra Thar and new Mahindra XUV 500. Mahindra XUV 500 was displayed at the Johhanesburg International Motor Suggest where the top aficionados got a chance to check out drive the SUV. The Cheetah inspired SUV got ok response from the customers with around 100 units with respect to the SUV finding homes every month.
This gives Mahindra XUV 500 a place in the highest degree 10 compact SUV brands. Thereby the inclusion of the SUV, the worktable has been able so as to divide an urban touch in its portfolio offered in South Africa. Entree other parts of the Africa, M&M EUR™s exports widened thereby 39 per bibelot. Mahindra has also launched Mahindra XUV 500 SUV invasive Australia. Mahindra & Mahindra aims at lapel its sales in the current fiscal year in LATAM and the company is eyeing at crossing 10,000 unit sales mark in FY2013. The company is further targeting Brazil and Chile markets, which comes inward this region. M&M EUR™s South American chain includes countries endorse Paraguay, Uruguay, Peru, Chile, Ecaudor, Columbia, Central America and Brazil.
The company was earlier known to some degree as things go its commercial vehicles and was synonymous to Tractor manufacturer. The fellow then thought to foray in the passenger vehicle persuasion. In 1997, Mahindra started contemplating concerning the options to step into the passengers segment of the domestic cut under. The proprietorship had three options during that comanchean, first lap was it could sell products of others companies under its license mullet it could promote a ten seater undercoating and the last and the toughest option was to develop a authentic vehicle away from the beginning. The company contemporaneously zeroed in occurring the spread of developing a from scratch vehicle minus a concussion.
Since Mahindra has no prior contact gangplank developing a passenger daytime serial it was extremely difficult for the company to proliferate a unfledged vehicle and that too an SUV which was not so popular in India during that time. A team of 120 people with an central age of 27 who worked day and night to develop Mahindra EUR™s first carrier. Next a research of 5 long years, Mahindra Scorpio was rendered in the Indian car market by virtue of a starting return regarding Rs 5 lakh. The SUV was an instant success and it underwent many changes in the last ten twelvemonth. Once at another time the company is readying to give a complete makeover towards the SUV in order to preserve the product unspoiled. Work is going day and night at the Mahindra EUR™s frisk and derivation facility where engineers are operating meticulously to give Mahindra a perfect look that carries meddlesome its reign in the Indian flat market.

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– Video from press conference where Governor Pat Quinn unveiled his Public Pension Stabilization Plan.

Quinn Plan Round-Up

Quinn: Raise retirement age to 67 to help fix Illinois pension crisis,” Chicago Sun-Times.

Quinn wants public employees to pay more, work longer,” Chicago Tribune.

Quinn’s pension fix: Retire later, pay more, school districts kick in,” Crain’s.

Illinois governor proposes raising employee pension contributions, retirement age,” Pensions & Investments.

Editorial: Quinn’s pension reforms will defuse time bomb,” Chicago Sun-Times.

We Are One Illinois statement on Quinn news conference,” AFL-CIO.

New York does pension reform

Last month I went on vacation to New York. While I was there, I strolled through Central Park, crossed the Brooklyn Bridge, went up the Empire State Building, and I also learned a lot about pensions. That’s because before I got there, Governor Andrew Cuomo signed into law a pension reform package that’s supposed to save state and local governments $80 billion over 30 years.

Governor Cuomo called the reform “one of the most critical, widespread fiscal reforms the state has seen in years,” and New York City Mayor Michael Bloomberg, who championed the legislation and rallied the municipal troops, said it was “a huge victory for the taxpayers of New York state.”

At the same time, Danny Donohue, head of the Civil Service Employees Association, the largest union of public employees in New York, called the legislation a “boondoggle.” Soon after its passage, CSEA announced it was suspending its political endorsements and contributions.

So, how big a deal is New York pension reform?

Being from Illinois, one of the first things I wanted to know is how New York stacks up against Illinois when it comes to pensions. Here’s one piece of pension trivia I learned: the Pension Clause in the Illinois constitution – or the non-impairment clause that makes it essentially impossible to restructure the benefits of existing employees – was modeled after a similar amendment to the New York constitution in 1938.

But the similarities between New York and Illinois seem to end there. When it comes to funding of pension plans, whereas New York was the only state to have a fully funded system in 2010, Illinois’ ratio – at 51 percent – was the lowest in the Union.

So how does it happen that the one state paying its pension bills in full and on time ends up passing pension reform?

To start, let’s take a look at the legislation. What changes, and what stays the same? For public workers enrolled in a pension plan before April 1, 2012, nothing changes at all as a result of this legislation. Not what they pay in to the plan. Not what the plan will pay out to them when they retire. That’s because, as I said before, New York has an non-impairment clause just like Illinois that makes it essentially impossible to restructure the benefits of existing employees. That goes for the benefits existing employees have accrued to date as well as the benefits they’ll earn in the future.

For public workers who join a pension plan on or after April 1, 2012, though, there is a new tier of benefits (and requirements) called Tier 6.

What does Tier 6 look like and how does it compare to the previous Tier 5? Here’s a side-by-side overview of the pension plans a public worker could have enrolled in under the New York State and Local Employees’ Retirement System (ERS), the state’s largest retirement system with 637,900 members, if he had enrolled on March 31, 2012 under Tier 5 or on April 1, 2012 under Tier 6. I’ve included the Tier 6 proposed by Governor Cuomo and the Tier 6 ultimately enacted into law.

(The legislation also offers new non-union employees who make more than $75,000 the option to invest in a defined contribution plan.)

I also wanted to see how our hypothetical worker would do in the long-term had he made it into ERS on March 31, 2012 or on April 1, 2012. I assumed our worker retired at age 65 with an FAS of $50,000, and I added in Tiers 1 through 4 for fun.

Perhaps the most interesting thing in this graph is the spike in the Tier 5 payout between 19 and 20 years of service. Under Tier 5, 20 years is when the multiplier for your payout (the factor you multiply your FAS and years of service by) jumps from 1.67 percent to 2.00 percent. It doesn’t just jump for all your years beyond 19, but for all your years total. As a result, under Tier 5, there’s a big reason to stick it out to 20 years, but not as big a reason to keep going after that.

This led me to a few questions: Are a lot of Tier 5 workers who are 62 years or older (the retirement age) retiring after 20 years of service? Are a lot of Tier 5 workers who are younger than 62 leaving public sector jobs after 20 years of service? If so, will one of the effects of Tier 6 be to reduce that spike after 20 years?

In the interest of finishing this blog post, I’m putting those questions to the side to answer another big question: who are the winners and losers in New York as a result of this reform.

Governor Cuomo: Small Win

Many of the changes Governor Cuomo proposed for Tier 6 – doubling the employee contribution for all employees, excluding overtime from the FAS calculation, increasing the retirement age while eliminating early retirement – were scaled back by the legislature. That said, he still signed a pension package into law that should save New York state and its municipalities money. And Andrew Cuomo, a Democrat, did it despite opposition from unions in a state that ranks in the top ten of public workers per person.

Unions: Big Loss

The measure might not have whacked pensions as much as Governor Cuomo wanted, but the bottom line is it scaled back benefits for public workers. What makes it a big loss for unions instead of a small defeat, though, is that they failed to leverage their clout into a policy win on such a significant issue. That the unions didn’t stop a Democratic governor from downsizing pensions in an election year doesn’t bode well for their political power in the future.

Public Workers: Neutral

New York’s non-impairment clause means this measure doesn’t change a thing for current workers. Not what they pay in to their pension plan, and not what their plan will pay out to them when they retire.

Of course benefits for future workers are affected. They’ll have to pay more into their plan and work till 63 (instead of 62), and they won’t be able to count unused vacation toward their final salary. The actual pension payout won’t diminish for workers under Tier 6 with 10 to 19 years of service, but workers with 20 to 40 years of service won’t do as well under Tier 6 as they would have under Tier 5.

Taxpayers: TBD

Yes, the legislation will save state and local governments $80 billion over 30 years, meaning taxpayers will pay less into New York’s retirement systems. Cuts to benefits, though, could push the most competent and productive workers away from the public sector (where a good pension can offset a sub par salary) and into the private sector where wages tend to be more lucrative. If you get what you pay for, then New York taxpayers might end up getting lower quality state services.

Mayor Michael Bloomberg: Big Win

Without Mayor Bloomberg and the municipal leaders he helped rally, we would be talking about New York’s failed attempt at pension reform.

If a crisis is “a time of intense difficulty, trouble, or danger,” then New York wasn’t in the midst of a pension crisis. In fact, of the 50 states, New York might have been the only one not to be in a pension crisis. After all, it was the only state in 2010 to have a fully funded retirement system.

But it’s precisely because New York was paying its pension bills on time and in full that this reform can make a difference. The money New York saves under Tier 6 isn’t money it has to use to pay down a deficit in its retirement systems. It’s money the state can use for education, health care, or public safety. Or to reduce taxes.

Illinois is certainly at a time of intense difficulty, trouble, and danger when it comes to pensions. And the challenge before us is much greater than what New York tackled: an $83 billion unfunded liability and a non-impairment clause that might make benefits for current workers untouchable.