(Bloomberg) — The Illinois House of Representatives approved a bill designed to repair the nation’s worst-funded pension system by raising contribution levels for state employees and delaying the retirement age.
The measure, approved today 62 to 51 in the Democrat- dominated chamber, faces an uncertain future in the Senate, which is preparing its own approach to resolving a $97 billion liability. With annual retirement costs projected to grow by more than $900 million in next year’s budget, lawmakers in both chambers approved different bills in March to rein in expenses.
House Speaker Michael Madigan, a Chicago Democrat, proposed this latest measure making employees contribute two percentage points more of their incomes. Annual cost-of-living increases would be restricted, pensionable income capped and younger employees required to work until 67.
“It’s time to do the right thing, the responsible thing, to provide for a pension system that protects investments and gives security without bankrupting our state,” said Representative Elaine Nekritz, a Northbrook Democrat and a co- sponsor.
The municipal-bond market rewarded the vote as yields on Illinois debt dropped after the measure passed. A taxable pension-obligation bond sold in June 2003 and maturing in June 2033 traded at a yield as low as 4.98% after the bill was approved, down from 5.14% in the minutes before the vote concluded, according to data compiled by Bloomberg.
The measure is meant to stabilize in 30 years the five funds that cover teachers, university employees, judges, legislators and state employees.
“If I’m a state worker, if I’m a teacher, a university worker, I have every right to be mad as hell,” said House Republican Leader Tom Cross, referring to the state’s history of underfunding pensions. “We have no choice. We have to move forward today.”
Democratic Governor Pat Quinn applauded the vote in a statement, saying Illinois “is closer than ever to addressing a decades-long problem that is plaguing our economy, our bond rating and the future of our children.”
As lawmakers enter the final month of their budget session, the chambers are at odds over pensions. Senate President John Cullerton favors giving employees a choice between currently scheduled payments or preserving state-paid health insurance after retiring. Raising contribution levels would violate the Illinois Constitution and wouldn’t survive a legal challenge, the Chicago Democrat said.
The pension deficit increases by $17 million a day, including obligations to current and future retirees. Illinois has the lowest-graded credit of any U.S. state by Moody’s Investors Service and Standard & Poor’s partly because of the unfunded retirement plans. Moody’s, S&P and Fitch Ratings all have a negative outlook for the state.
Illinois is paying for years of mismanagement and political gridlock, with only 39% of assets needed to cover projected obligations for five major groups of employees, according to the Civic Federation, a Chicago-based nonprofit research group.
On March 12, the state settled with the U.S. Securities and Exchange Commission over charges it misled investors from 2005 to 2009 about retirement shortfalls.
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