CHICAGO – Legislation aimed at making pension spiking by municipalities more transparent is “ludicrous” as it will be many years before it will have any effect, an Illinois watchdog argues.
Illinois House Bill 5684, which aims to curb pension spiking, was signed into law by Gov. Bruce Rauner on July 28. It passed by overwhelming majorities in both houses of the General Assembly.
The new law requires municipalities to disclose publicly if a soon-to-be-retiring employee will be given a pay rise of more than 6 percent.
Local governments will have to announce the employee’s name, the reason for and amount of the raise or payment, how it would affect the employee’s pension and how it would affect the local government’s liability to the pension system.
But the law will only affect employees who started work for municipalities in 2011 and after, and does not affect workers subject to collective bargaining deals.
It is “ludicrous” that it will be decades before most employees will face this scrutiny, said Ted Dabrowski, vice president of policy at the Illinois Policy Institute.
Legislators have tried to tackle the issue of pension spiking – giving raises to employees just ahead of retirement – a number of times over the years.
A law introduced in 2005 required school districts to pay a penalty to the state for any raises over 6 percent given to a teacher just before retirement.
According to a 2013 Chicago Tribune investigation, it had little effect as school districts continued giving teachers pre-retirement raises, and then paid the penalties. That means taxpayers pay, both locally and through state taxes, said Dabrowski.
“It is still a big problem,” Dabrowski told the Cook County Record. “It just means taxpayers pay more. They pay the penalty, and rather than the state paying these costs, it’s the local taxpayers.”
He added that school districts bump pay 6 percent, but over consecutive years prior to retirement, making the spikes appear smaller.
“The reason this is a problem is because of the pensions structure; there are incentives in spiking, but it just moves the cost to the future,” Dabrowski said.
“The real solution is to scrap pensions,” Darbrowski argued. “Other states are moving towards 401(k), and the state universities in Illinois already do so. There are 18,000 in those plans.”
He added, “With traditional pensions, you never really know what the costs are far into the future. With 401(k)s, employers make a contribution to the pension fund today, and it ends the games the government is allowed to play with taxpayers’ money.”
Under the state’s rules for municipal pensions, a retiree’s benefit calculation is based largely on the person's salary. Municipalities can use early payouts for unused vacation time or give an employee a salary bump before retiring.
Rep. Peter Breen (R-Lombard), who sponsored the law, said, in a report published by the Illinois Times, that “people have been complaining about it (pension spiking) for years, but no one was able to find a solution to it.”
Breen said the bill was not aimed at unions, but at members of management who are in a position to negotiate “sweetheart deals."