Pension changes are bad news.
Written by Mark Nichols
Just recently, Illinois Gov. Pat Quinn signed a law fundamentally changing the way that public pensions will work in that state. Outgoing Chicago Mayor Richard Daley warned the changes would drive up property taxes in the city by $550 million. Chicago officials say that provisions in the legislation that require it to shift in 2015 to an actuarially based funding formula and reach a 90% funded ratio for its police and firefighters funds in 25 years.
That's a shorter amount of time than other cities, or the state itself for that matter, have to make the same changes.
The city's annual payments are currently based on a formula tied to a percentage of salaries and it falls far short of the actuarially based required contribution to move toward a funded ratio of 90%.
Former mayor Daley also voiced concern that the legislation puts the added funding burden solely on the city's shoulders by not requiring a hike in employee contributions towards pensions and that it specifically calls for funding to come from increases in property taxes.
Under the legislation, the city's annual contribution to its police and fire pension funds would increase from $309 million now to more than double that figure- a whopping $856 million by 2015.
"The direct result of the governor's actions will be a massive property tax hike for Chicago residents of at least $550 million, or about a 60% increase in our current property tax levy.
In fact, Governor Quinn has just imposed the largest property tax increase in the history of Chicago," Daley warned in a statement.
The new state legislation also establishes a two-tier pension system, cutting benefits for new public safety employees beginning Jan. 1.
The law imposes caps on annual cost-of-living increases, raises the retirement age, and limits pensions to 75% of an employee's salary for all new employees.