Illinois state pension and retirement plans are in dire straits. The only way to fix the problems is with plan changes.
Michigan did that in 2012. And in a 6-0 decision yesterday, the Detroit Free Press reported the Michigan Supreme Court, rejected arguments from unions, and upheld the 2012 state law requiring teachers to put more of their pay toward their pension plans or face cuts to benefits.
The Michigan Supreme Court, rejecting arguments from unions, has upheld a 2012 state law requiring teachers and other school employees to put more of their pay toward their pension plans or face cuts to benefits such as post-retirement health care.
The law, backed by Gov. Rick Snyder and the Republican-controlled Legislature, was intended to cut an estimated $45-billion unfunded liability in the Michigan Public School Employees Retirement System by more than $15 billion.
The American Federation of Teachers and the Michigan Education Association unions argued the law impaired contracts and amounted to uncompensated takings of pension benefits.
But both the Michigan Supreme Court and the appeals court said the law doesn’t violate a Michigan constitutional provision protecting earned pension benefits, because only future benefits are affected. Also, unlike an earlier law that mandated 3% contributions toward health care, the 2012 law provides an opt-out provision, the court said.
Good News For Illinois
What passes constitutional muster in Michigan may not do so in Illinois, but the unanimous ruling provides a model for what may work elsewhere. This is good news for all cash-strapped states.
Health insurance for active state workers and retirees is being targeted for big savings in Gov. Bruce Rauner’s budget plan.
“By bringing health care benefits more in line with those received by the taxpayers who pay for them, we save an additional $700 million,” Rauner said Wednesday in his budget speech.
His budget also calls for an end to state subsidies to the health insurance programs for retired downstate teachers and community college workers.
Governor Rauner is on the right path. Benefits must be cut. For starters, Illinois needs to move all employees going forward into 401K type plans. Next, Illinois needs to address spiraling costs for those in defined benefit plans.
Michigan passed one law the Michigan Supreme Court rejected, and a second one in 2012 law that was upheld unanimously. Illinois would be wise to pursue changes that are likely to be upheld in court. We now have at least one model that works.
For more on problems in Illinois and what to do about them, please see …
- Shockingly Bad Fiscal Health of Chicago (and the Financial Engineering Chicago Uses to Hide that Fact)
- Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!
Illinois desperately needs to address the root of its fiscal problems: untenable pension benefits and promises.
Massive proposed tax hikes are not the answer. Tax hikes will do nothing but make already uncompetitive Illinois even more uncompetitive.
Mike “Mish” Shedlock