With $100 billion in underfunded pensions and the worst credit rating in the country, Illinois lawmakers recently proposed changes to their state pension system that they claim would save $160 billion over 30 years. According to an article in the New York Times, the proposal includes cost of living cuts for retirees, caps on payments to highly paid workers, and raising the retirement age for some workers while putting them into DC plans.
As many other states and cities struggle with pension costs — like Detroit, which declared bankruptcy, and California, where there might be a statewide ballot initiative to change the state constitution to amend pension benefits — Illinois is being watched very closely as the key battleground. Union officials have voiced concern about backroom discussions and threatened to sue, especially over cuts to cost of living provisions, which they claim could cost pensioners thousands of dollars each year.
Though Illinois’ constitution prohibits pension benefits from being “diminished or impaired,” with the state’s finances at a critical point and huge pension obligations costing cost taxpayers 20 cents of every state tax dollar, the issue will not go away soon, and could have repercussions for many large states and cities.
