Pension reform in Illinois got a rare legislative victory when the General Assembly moved to close loopholes that allowed labor leaders to land six-figure public pensions based on their much higher union salaries.
The measure, which deals with abuses exposed by the Tribune and WGN-TV, affects a small number of city workers on leaves of absence to work for their unions, and it passed with little dissent.
Now the narrow change is being challenged in court. A lawsuit spearheaded by the Chicago Teachers Union this month seeks to overturn the law, and the union’s leaders are making it clear they will aggressively counter any push to solve the pension crisis on the backs of public-sector workers.
“I would disagree with the characterization that it’s a reform,” said CTU Vice President Jesse Sharkey. “There is a lot of politics being played, and part of that has to do with looking for people to blame.”
CTU leaders say reforms to the pension system should include additional revenues to shore up the funds, not just benefit reductions.
Under the new law, CPS teachers who go on leave to work for the union will be barred from participating in the public pension plan, which means they no longer can get deals that have long been a staple of the system.
For example, CTU President Karen Lewis, who makes about $148,000, can collect a public school teachers pension worth as much as 75 percent of her union salary averaged over four years.
Even though she hasn’t worked for CPS in more than two years, the teachers pension fund bills the district for contributions on her behalf as if she were still earning $82,000 a year as a high school science teacher. The union covers additional contributions required to make up the difference between that salary and her union paycheck.
It’s the same deal former CTU President Marilyn Stewart received. When she was ousted by Lewis’ caucus in the 2010 union elections, Stewart retired from the district, and now she collects a $150,000 teacher’s pension — more than double what she had made as a schoolteacher six years earlier.
Future CTU presidents would be affected by the measure, forcing them to rely on retirement benefits provided by the union. But Lewis and Stewart are still eligible for the public pensions, which have long been a perk of those jobs.
More than affecting the pensions of union leaders, however, the law also slashes pension benefits for low-level union employees who receive two retirement packages for the same time period of work, one from the city and the other from their union.
The lawsuit, filed by the CTU, laborers’ Local 1001 and Local 9 of the electrical workers’ union in Cook County Chancery Court on Oct. 9, alleges those measures violate the Illinois Constitution by diminishing pension benefits for public workers who already had retired.
“The law was the law,” Lewis said. “Then to change it and go back retroactively, take people’s pension, is problematic for us because that’s not constitutional.”
Sharkey said the union is open to adjusting benefits for workers, but not before the city puts additional, guaranteed revenue streams into the system.
“We think the Legislature got it wrong and went too far. That’s why we filed the suit,” Sharkey said. “It was a law that ended up catching the minnows in a net intended for the whales.”
Last year, the Tribune and WGN-TV detailed dozens of examples of labor leaders who took extended leaves of absence, in some cases up to two decades or more, then retired from their old city jobs and collected public pensions based on their much higher union salaries.
Many of those union officials collected a second or even a third pension from their unions for the same period of work, even though a law on the books was supposed to prevent that from happening.
House Republican Leader Tom Cross of Oswego, who sponsored the new law, said provisions in the bill do not violate the state constitution’s prohibition against diminishing retirement benefits because it merely clarifies the original intent of the pension code. By allowing union employees to collect multiple pensions for one job, the funds misinterpreted the law, he said.
“To be blunt, they were gaming the system,” he said. “Where someone now comes along and says, ‘We interpreted this a lot more aggressively than the General Assembly originally intended, and so we’re going to collect two pensions for essentially doing one job.’ Where’s the fairness to the taxpayer?”
The pension mess, its implications for taxpayers and its impact on government budgets has politicians in Chicago and throughout Illinois struggling for answers.
Already bracing for a $1 billion budget deficit, Chicago Public Schools’ pension payments are expected to jump by about $540 million next year. The teachers pension plan has less than 60 percent of the assets needed to pay benefits promised to current and future retirees, according to its last annual report.
The rest of the city’s funds are in even worse shape, with Chicago’s police and fire pension payments alone expected to jump $700 million in 2015.
Mayor Rahm Emanuel hopes to extricate Chicago taxpayers from the growing pension tab and preserve the funds for city workers by reducing benefits for current and future retirees. Among other things, he has proposed increasing the retirement age and pausing automatic cost-of-living adjustments until the city can dig the funds out of the hole.
In a statement emailed to the Tribune and WGN-TV, Emanuel spokeswoman Kathleen Strand said that any additional revenue for the system will not come from taxpayers.
“As Mayor Emanuel has said repeatedly, he will not ask taxpayers to pay more into a broken system. We must address the pension crisis head-on, as fixing the system is critical to ensure security for both city retirees and taxpayers. He is committed to working with our representatives in Springfield to achieve the meaningful pension reform our residents expect and deserve.”
Emanuel told state legislators in May that without reducing benefits that are being paid out, “Chicago’s economy and the quality of life will falter.”
The state also faces massive pension shortfalls, which are expected to reach $93 billion next year. Aside from drastically cutting services or allowing the funds to run out of money, the only options to fix the pension problems are to raise more revenue, cut benefits for retirees and active workers or a combination of the two.
Despite high hopes that a comprehensive pension overhaul would pass during the last legislative session, it never happened. Instead, Cross sponsored a much narrower bill that sought to prevent labor leaders from landing large public pensions on top of retirement benefits from their unions for the same period of work.
Under the new law, CPS teachers who go on leave to work for the union are barred from receiving credit in the public plan during the time they are away. City workers can continue to receive pension credits in the laborers’ and municipal plans, but their pensions would no longer be based on their union salaries. Instead they would be calculated using their old city paychecks, adjusted for inflation.
The law also seeks to claw back money that went to those who collected pensions from their unions as well as the city for the same period of work. The lawsuit alleges that even union members who received 401(k)-type benefits from the union could be affected.
Among them is Rochelle Carmichael, a former school library assistant who earned about $42,000 a year before leaving the district in 1995 to work for the teachers union after more than 27 years at CPS. Carmichael wasn’t a teacher, so she earned pension credits through the taxpayer-supported municipal pension fund.
In addition to salary increases that brought her pay to $89,000 annually, Carmichael received contributions from the CTU toward a 401(k)-type retirement account while earning credit in the public pension. That means she was collecting two retirement packages for the same period of work.
In 2002, at age 58, she started receiving a city pension of roughly $65,000. She worked another seven years for the union before actually retiring, however.
Carmichael’s pension — now about $91,000 a year thanks to annual cost-of-living adjustments — could be slashed by about 60 percent, according to the lawsuit.
The reason: Under the new law, her time at the union should not have counted toward her public pension because she received retirement benefits from the CTU during that time.
CTU officials say workers are being punished for failures on the part of the city and the state to adequately fund the pension system.
Under Mayor Richard M. Daley, for example, the city made no contributions to the teachers pension plan for a decade. That alone cost the plan $2 billion and helped drive its funding ratio down from roughly 100 percent in 2000 to less than 60 percent today. As pension payments started to grow, Daley’s administration went back to Springfield in 2010 to get another pension break worth hundreds of millions of dollars.
That deal is supposed to expire in 2014, which is fueling pressure to overhaul the system. Teachers union officials say the new law sends the wrong message, and workers will not sit idle while their pensions come under attack.
“It’s like being invited to dinner and finding out that you’re the only thing on the menu,” Sharkey said.
WGN producer Marsha Bartel and WGN-TV reporter Mark Suppelsa contributed.
Twitter @JasonGrotto
