Reick stresses fairness at hearing on proposed pension reform
Rep. Steve Reick (R-Woodstock) discussed a possible pension reform package at length during a House Personnel & Pensions Committee hearing Tuesday, saying the good idea might feasible as long as it remains fair.
At the hearing on a proposed pension reform package, which includes securing ties by the unfunded liability of selling of pension obligation bonds in the amount of $107 billion that would be paid out over the next 27 years, presented to legislators by Committee Chair Robert Martwick (D-Chicago), Reick questioned Associate Professor Runhuan Feng, head of actuarial sciences at University of Illinois at Urbana-Champaign.
“Professor my question is are you talking about ... allocation of each system designated as a special investment fund,” Reick said. “Is that fund basically sitting there in order to guarantee the debt service on the remaining amount of the bonds?
“Those funds would be there to cover all the debt service payments so that it doesn’t become a burden for the state and in addition the remaining balance by 2045 should be returned unconditionally to the retirement system,” Feng said.
“So this should hopefully result in the bond houses being a little bit more comfortable with giving us a more advantageous rate of return since we are paying in to guarantee our own debt?” Reick asked, adding he was not questioning Feng’s rate return equation, rather he was just trying to figure out the mechanics of the process.
Reick also wanted to know how Feng came up with a $107 billion.
“We are underfunded last I read at about $128 or $130 billion?” Reick asked. “Are we subordinating debt to current petition recipients to the extent of the difference between what the actual underfunding is and the $107 billion you are recommending that we borrow?”
The assumption is to bring the funding ratio to 90 percent, Feng said, adding there would still be 10 percent debt.
“Also because of the assumption we made, there will be a market premium on the bonds,” Feng added. “Not too big, but they will be higher than the $107 billion.”
At the beginning of the hearing, Martwick said he was approached by Feng and the State University of Annuitant Association (SUAA) Executive Director Linda Brookhart with a possible solution to save the state money.
“My intention was to hold a serious of hearings on the idea that it is not something new, but has been talked about and done in part by the state in the past,” Martwick said of the proposal, adding “I do not stand here pushing any legislation, I stand here before you are hoping we can engage in a dialogue to explore whether or not it is one way or part of a way to manage our debt.”
Reick asked Martwick if the idea meant buying out certain pensioners who are vested but no longer working for the state of Illinois, and Martwick answered saying they are looking at present cash value buyouts.
“We are looking at invested inactive (pensioners) that were going to be part of the budget deal last year but it didn’t make it in,” Martwick said, adding he will be filing legislation in 2018 for a buyout offer to current retirees to buy their tier one COLA down to a tier two.
Reick said the idea was a good start.
“How we pay off this debt, however, has to be done with the notion that the benefits we are accruing go forward are done fairly,” Reick said.