Late last year, Illinois governor Pat Quinn signed a bill overhauling the current process for how pensioners receive their funds.
Before enacting this law, retirees would receive a yearly 3% increase to their stipends in line with inflation and the increased cost of living.
These will be reduced come the 1st of June.
However, many groups such as the Illinois Retired Teachers Association, the Illinois State Employees Association and the Retired State Employees Association, have filed lawsuits against the ruling, stating that the changes are a violation of the state’s Constitution.
The lawsuits are based on a line from the Illinois Constitution, which positions pension funds as “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
Teething problems
Around the world, pension reforms have become one of the developing world’s most troublesome dilemmas – and especially worrying to countries with a growing elderly population depending on a shrinking workforce.
Reforms are often met with condemnation by retirees, the working population and unions alike – including the response to the Polish Government’s recent proposals; alternatively branded as a “pension swindle,” “nationalisation of private assets,” and a move “worthy of Lenin or Stalin.”
The pension reform signed into law by Governor Pat Quinn in Illinois has been the cause of a similar kind of outrage.
Eastern Illinois University President Bill Perry has stated the reform will be “financially devastating” to both those currently taking their pension and future retirees.
In addition, Perry notes it will be detrimental to the future hiring of employees.
Perry’s worked example shows how a state employee earning USD 100,000 a year after a 20-year career will earn around USD 600,000 less over the duration of their career.
In response to the changes, his faculty’s senate has endorsed the implementation of a “progressive state income tax.”
Seen as a resolution to the impending crisis, four further leading public universities also want to adopt the tax.
Whilst Perry has stated this a viable option, it will not counter the loss of trust in the Government witnessed after the changes to the pension reform – and what has been seen as a violation of the constitution.
State of affairs
As the worst-funded U.S. state pension system, Illinois has broken years of political gridlock to counter its deficit.
The pension reform news has come after the recent unveiling of plans to sell USD 1 billion of the states’ tax-exempt general obligations in February – a move intended to save USD 160 billion over the next three decades.
It is the second such deal to try and bolster the system and finance capital projects.
Last year, Illinois was the lowest-graded American state by the top three rating companies. It ranked only four steps above ‘junk.’
About John Cassidy
