Law makes local governments announce pre-retirement pay bumps
It’s been a not-so-secret secret in Illinois for decades, and state lawmakers are trying to drag the infamous “pension spike” into the sunlight – at least among local governments.
A law signed by the governor last week requires local governments to disclose at a public meeting any pay raises for employees about to retire. The new law doesn’t apply to employees in collective bargaining units.
Gov. Bruce Rauner signed House Bill 5684 into law on July 28. The bill was introduced by Rep. Peter Breen, R-Lombard, and supported by a handful of both Republicans and Democrats. It received only three “no” votes in the House and zero “no” votes in the Senate.
Under the state’s rules for municipal pensions, a retiree’s benefit calculation is based in large part on her or his salary. There are many tactics to inflate the salary used for that calculation, like taking early payouts for unused vacation time or getting a salary bump just before retiring.
Breen, the sponsor of the new law, says he and many other state lawmakers previously served in local government, where they saw pension spiking but often couldn’t stop it because of existing contracts.
“People have been complaining about it for years,” he said, “but no one was able to find a solution to it.”
In 2012, the City of Springfield came under fire from the Illinois Department of Insurance for letting police officers increase their pensionable salary by retiring within a week of their birthday or work anniversary, when their pay was 5 percent higher. William McCarty, director of the city’s Office of Budget and Management, says that practice was negotiated out of existence a few years ago.
Last year, the city council voted to stop paying out early for unused vacation time, a practice which inflated the pensionable salary of employees about to retire. A group of employees and unions sued, and Sangamon County Associate Judge Christopher Perrin dismissed the lawsuit in the city’s favor. The case is currently on appeal, but McCarty says the deadline for any city employee to take advantage of that perk passed at the end of May.
Illinois lawmakers have tried in the past to prevent pension spiking, with limited success.
In 2005, Illinois lawmakers took aim at school districts by requiring them to pay a penalty to the state for any raises over 6 percent given to a teacher just before retirement. The 2005 law had little effect, according to a 2013 Chicago Tribune investigation which found that school districts continued giving teachers preretirement raises and simply paid the penalties.
The new law signed last week requires municipal governments to disclose at a public meeting that an employee who has given notice of intent to retire is about to receive a raise or lump sum payment over 6 percent. The law requires local governments to announce the employee’s name, the reason for and amount of the raise or payment, how it would affect the employee’s pension and how it would affect the local government’s liability to the pension system.
The law builds on an existing state law which limits how much of an employee’s pay raises in their last three months of employment can count toward retirement. Under the 1963 law, employees could still use early vacation buyouts or pre-retirement raises to up their pensions four months before retirement. The new law builds on the existing one by requiring disclosure of such payments between three months and 12 months before an employee’s retirement.
The law only applies to employees who began working after 2011 and who are not subject to a collective bargaining agreement, meaning union employees are exempt. Breen says the bill isn’t aimed at unions, but rather at members of management who are in a position to negotiate “sweetheart deals.”
The bill originally called for a ban on such pre-retirement raises over 6 percent from being used to calculate a retiree’s pension. John Cameron, a Springfield lobbyist for AFSCME Council 31, said he opposed the original version of the bill in a Senate hearing because the union believed it would have been unconstitutional. The state constitution prohibits impairment or diminishment of a public employee’s pension benefits, and the Illinois Supreme Court has strongly rebuked attempts at limiting existing benefits.
Cameron says AFSCME doesn’t oppose the version of the bill which became law, but he called it a waste of public resources and “Kabuki politics.”
“Given the serious threat our overall pension system faces and the need for real serious reform,” Cameron said, “the kind of politics we saw this session – with ‘press release’ bills that can’t be enforced or are blatantly unconstitutional – it all seems like a misguided approach for our elected politicians to follow.”
Breen notes that his bill got support from both sides of the aisle, despite the contentious atmosphere in the Statehouse over the budget.
“It shows you that even for problems we think are intractable,” he said, “if we work through to the real heart of the problem, we can address it.”
