As has been widely reported, pension reform is now reality in the State of Illinois – at least for some. Reform legislation signed by Governor Quinn will apply to any newly-hired state or local government employee (except sworn members of police and fire departments, but I’ll get to that in a bit). Changes include:

• Raises the retirement age for full pension to 67 with 10 years of service.
• Raises the early retirement age to 62 with 10 years of service for reduced benefit.
• Limits the maximum pensionable salary to the 2010 Social Security wage base of $106,800.
• Final average salary would be the average of the highest eight consecutive salary years (instead of four) out of the previous 10 years.
• Cost of living adjustments (COLA) would be calculated using simple interest rather than compound interest. COLA would be 3 percent or one-half of the inflation rate, whichever is less, and would apply only after age 67.
• Maximum General Assembly and judges’ pensions would be 60 percent of the calculated final average salary, down from 85 percent.
• Suspends the pension of any retiree who goes to work for a unit of government that participates in another pension system.

As I mentioned, this will only apply to new employees, not any existing state or local government employee. The reason that only new employees are covered by the reforms is that existing employees are protected by the State Constitution from any reduction or diminution of their pension benefits. Eric Zorn of the Chicago Tribune has written on this subject extensively in the past couple of weeks, including arguments FOR and AGAINST reducing benefits for current government employees. I encourage you to read these opinions. They’re good and demonstrate how complex this issue is.

Local government representatives continue to hear news of pending reform for police and fire pensions. It’s been reported that Senate President John Cullerton has indicated his desire to move this forward, as have representatives of House Speaker Mike Madigan. This is good news as no class of employees should be exempt from making a sacrifice towards reducing the tremendous pension obligations of the State of Illinois and local government entities. In short, the State of Illinois needs to finish the job.

There are already new reports about efforts to make changes to the pension reform legislation, particularly as it pertains to teachers. The City of St. Charles isn’t in the education business and we don’t work with teachers, so I won’t comment on this. However, it is likely that if the teachers secure some relief, other groups of government employees won’t be far behind. I believe it’s best to leave things alone for now. If the reforms end up having a negative impact on recruitment, or costing local governments more in salary and insurance claims, or reducing the quality of service, then changes can be considered. There’s no constitutional prohibition on expanding benefits, so those changes are relatively easy to make.