Collapse of Pension Reform

Illinois’ state employee pension system remains in critical condition after lawmakers failed to pass substantial reforms during the spring legislative session. With $83 million in unfunded liabilities looming, lawmakers missed last Thursday’s midnight deadline to approve legislation that would overhaul the crippled system after a proposed bill failed to garner support from enough House Democrats to guarantee passage.

And though lawmakers could revive pension reform efforts during a potential special legislative session, there’s still the possibility that Springfield could adjourn without a solution to one of the biggest problems facing the state.

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But while Illinois lawmakers struggle to solve the state’s growing pension liability, another state not that unlike the Land of Lincoln – down to having an incarcerated former governor – has taken drastic steps to put its state-funded pension system in order: Rhode Island.

In 2010, the smallest of the 50 states faced $9.4 billion state pension shortfall.

According to Pew Center for the States, “As of fiscal year 2010, [Rhode Island] had only 49 percent of the money needed to cover its pension promises, far less than the 80 percent most analysts recommend.”

The Pew report says, at the time, “Rhode Island and Illinois [where] the only states with funding rates under 50 percent, based on the most recently available data.”

But with Democrats backed by union bosses controlling both the House and Senate, substantive state employee pension reform seemed like a distant dream.

Sound familiar, Illinois?

In November 2011, in an effort spearheaded by the then-newly elected Democratic General Treasurer Gina Raimondo, both the Democratic-controlled House and Senate voted overwhelmingly to instate what Pew called “unprecedented” pension reforms that went “further than what any other state has done.”

The measure, known as the Retirement Security Act, applied to both current state employees and retirees. It ended cost of living increases for at least five years, tying any future benefit increases to the health of the system; gradually raised the retirement age to mirror that of Social Security; and combined a much-reduced defined benefits pension plan with a defined contribution plan similar to a 401(k).

“This marks a turning point in the recent history of our great state. With the passage of the Rhode Island Retirement Security Act, Rhode Island has demonstrated to the rest of the country that we are committed to getting our fiscal house in order,” said Rhode Island Gov. Lincoln Chafee in a statement to the Providence Journal.

The effort began in 2010, when Raimondo, then a venture capitalist specializing in health care startups, decided to run for Rhode Island General Treasurer on a platform to reform the state’s ailing pension system.

The Oxford and Yale Law-educated daughter of middle class parents, Raimondo told Time magazine in December 2011:

“I was reading a story about budget cuts in the Providence Journal," Raimondo recounts. "The story talked about libraries closing and bus service being cut" because of budget gaps widened by pension expenses. "I had an image of a kid like me trying to get into the library and it's closed. The public bus is how I got to school every day. The public library is where I studied. It's where my grandfather taught himself English." You didn't have to have an Oxford degree to see the connection: unless the pension hole was filled, those services and others would face even deeper cuts. That's when Raimondo made up her mind to run for state treasurer in 2010.

Raimondo made pension reform her main campaign issue. When she was elected in a landslide victory in November 2010, she set out to do just that, taking her PowerPoint slide from city to city to talk with union bosses, lawmakers, and citizens alike.

And on November 17, 2011, the Rhode Island House passed the reforms 57-15. The Senate followed suit with a 35-2 vote. Gov. Chafee signed it into law the following day.

Can Illinois lawmakers pass reforms this aggressive in the coming days? We’ll have to wait and see.

We take a closer look at the collapse of pension reform in Springfield on Chicago Tonight at 7:00 pm.

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