RAH M CUTS DEAL TO SAVE LABORERS PENSION FUND
Two months after the Illinois Supreme Court struck down his plan to save two of four city employee pension funds, Mayor Rahm Emanuel agreed Monday to save the smaller of the two funds with a mix of union concessions and revenue generated by a telephone tax increase once earmarked for both funds.
To squeeze through a legal window the Supreme Court cracked open, the agreement with Laborers Locals 1001 and 1092 calls for employees hired on or after Jan. 1, 2017, to become eligible for retirement at 65 in exchange for an 11.5 percent pension contribution.
“They haven’t earned any benefit, so we can change their benefits going forward,” Budget Director Alex Holt said.
Veteran employees hired after Jan. 1, 2011, will have a choice. They can retire at 65 with an 11.5 percent pension contribution or wait until 67 with an 8.5 percent contribution, a 35 percent increase. Emanuel’s now- overturned plan called for a 29 percent increase in employee contributions. The city is still working on a trade- off for employees hired before Jan. 1, 2011.
In exchange for those costsaving concessions, Emanuel has agreed to earmark all of the revenue from a 56 percent increase in Chicago’s telephone tax approved by the City Council in 2014 to shore up a Laborers Pension Fund with $ 1.3 billion in unfunded liabilities due to run out of money in 12 years.
The city’s payments to the fund will increase by “no less than 30 percent a year for the next five years,” under the agreement.
The $ 40million a year generated by the $ 3.90- a- month surcharge applies to both land lines and cellphones and was supposed to be used to cover the city’s first- year contribution to both the Laborers and Municipal Employees Pension Funds.
Now the city will be forced to find another funding source to save a Municipal Employees Pension Fund with $ 9.8 billion in unfunded liabilities due to run out of money in just eight years. Sources said a second telephone tax increase in two years is a possibility.
Talks with union leaders whose members draw their retirement checks from the Municipal Employees Pension Fund are nowhere near agreement.
That’s why those unions tried to send the city a message last week by persuading a suburban lawmaker to introduce a bill that calls for the city to ramp up its contributions to the two funds, without identifying a revenue source.
“It’s always entertaining and annoying to watch them do this shell game playing off one fund against another. That’s not the way to get this resolved. It generates distrust and animosity,” said Clint Krislov, an attorney representing participants in both pension funds.
Mike Rendina, senior adviser to the mayor, said Emanuel is “committed to finding a sustainable path forward for both” pension funds.
The backup plan was made necessary by the Illinois Supreme Court’s decision to overturn the mayor’s initial plan to raise employee contributions by 29 percent and end compounded cost- of- living adjustments for retirees ineligible for Social Security.
Joe Healy, business manager for Laborers Local 1092, said he is confident the new agreement will pass legal muster despite the Illinois Constitution’s ironclad pension protection clause that says pension benefits “may not be diminished or impaired.”
“It’s legal because it doesn’t change any current employee benefits if they don’t want them to be changed,” Healy said.
“For people in physically demanding jobs like most of our members are, it becomes an almost impossible task for someone to dig water mains and clear alleys of garbage and debris until they’re 67. This is an opportunity to lower their retirement age in exchange for slightly higher contribution rates.”
As for the trade- off for pre- 2011 hires, Healy said, “We’ve looked into everything from early retirement packages to a partial payout in exchange for changing their C. O. L. A. from compounded to simple.”
But more senior employees will “retain the ability to keep what they currently have and not have any changes to their benefit structure. . . . It’ll be their choice,” Healy said.