6 Crucial Things to Know about Chicago’s Pension Reform Law

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In recent months, Chicago attempted to reform its pension law. The reform proposed by Governor Rauner contained significant measures that would have impacted more than just public pensions. State and local public workers would have lost collective bargain right for pensions, wages and work hours.

The media intensely debated the reform trying to explain to the public, the burden Chicago faces from the government-worker pension crisis. If you are unfamiliar with the debate, here’s everything you need to know about Chicago’s pension reform law.

But First, a Word on Chicago’s Pension Reform Law

Back in 2011, Mayor Rahm Emanuel met with 31 unions that represented Chicago City’s workers. The reason for this meeting was the fact that LABF (Laborers’ & Retirement Board Employees’ Annuity & Benefit Fund) and MEABF (Municipal Employees’ Annuity and Benefit Fund of Chicago) were significantly underfunded. The purpose was to find a solution that would benefit all parties involved.

As a result of this meeting, an Act was signed into law in 2014. Among other things, two mechanisms that would force the City to fund the pension plan were included in that Act.

As expected, some labor unions and participants in LABF and MEABF disagreed with the reform proposed, arguing that it violates the pension protection clause. But why exactly did they disagree?

The answer is simple: the reform was Rauner’s (the governor that proposed the plan) way of sliding some other measures that he previously couldn’t pass through the legislature. More specific, the public workers, both state and local would be affected regarding work hours, pensions and wages. Furthermore, the standard for proving injury claims and bankruptcy conditions would be considerably higher.

Here are six important points of the Chicago’s Pension Reform Law.

1. Workers Have Two Options

As you may know, there’s a Tier 1 plan destined for employees that were hired before 2011. This plan also points the people that are eligible for a benefit regarding the highest pension. With this reform, they would have two options to choose from:

  • One: to have all their future salary increases excluded from the calculation of their pension;
  • Two: to agree to change to a more reduced cost of living when they retire.

The new formula regarding pensions would grant them an increase of less than 3% or half the U.S. Consumer Price Index, annual and non-compounded, as opposed to the current legislation, where they receive an increase of 3%.

2. Increased Taxes

The people of Chicago already must pay for an increase of $543 million property-tax passed by the City Council for the pension funds of fire and city’s police. With this reform, they would have to pay even more for the increased contributions to the pensions of the laborers. According to an Irvine Personal injury attorney, annual contributions to the fund can be paid with virtually every fund that is available.

3. Major Changes Will Take Place

Some changes that apply to the points removed from the collective bargaining would also take place:

  • The overtime pay limit would start not from 37.5 hours as it currently is, but from 40 hours in order to adjust to the federal law;
  • There will be no decline in wages for five years;
  • The overtime and vacancy rights would be adjusted;
  • People that have more than 15 years of service would have a three week vacation while the ones with less than 15 years will have a two week vacation;

4. State Grants Can Also Be Affected

The city’s state grants might also be in harm’s way since they are “eligible” for garnishing. The law requires that pensions contributions must be paid to the funds of laborers by the city. If the city is not able to pay (or doesn’t want to pay the full amount), the pensions system will most likely want to get its share from the court. If this happens, all state grants could be garnished.

5. Lower Benefit Plans Would Become More Advantageous

Employees would be motivated to shift to the lower plans that offer them various incentives:

  • They could benefit from some priority rights regarding overtime, work schedule, and vacation. For instance, they could get a $2,000 transition bonus and there would be no salary increase – for the vacancy or the overtime package.
  • An increase of $3,000 in the salary, no additional vacation days and an overtime payment at 37.5 hours for the salary package.
  • Ultimately, a $2,000 salary increase and two weeks of vacation additionally and a $2,000 transition bonus for a vacation package

6. Amortization Periods Will Change As Well

Chicago’s pension reform would extend the amortization periods of the fund’s pension debt. Therefore, under this reform, the amortization periods regarding the debt of the fund’s pensions would be extended to 15 years – from 2040 to 2055.

What are your thoughts on this subject? Leave a comment below.

June 15, 2016 · Tim Kevan · Comments Closed
Posted in: Uncategorized