A year after
Jr. retired from the
in 2008, his annual pension jumped by more than 50 percent to $122,334 — far more than he ever earned as Senate president.
Jones' good fortune comes courtesy of legislation he sponsored in 1989. Under that law, members of the General Assembly who worked long enough to hit their limit on pension benefits — a generous 85 percent of their final salary after just 20 years — would get an extra reward.
For every additional year they stayed on, 3 percent of their initial pension would be added to their retirement checks. For Jones, working an extra 16 years netted him a $41,000 pension boost in 2009; he drew $126,004 last year.
The 3 percent deal, available to no one in state government outside of the General Assembly Retirement System, or GARS, is another in a long line of pension provisions written by lawmakers for lawmakers, a Tribune investigation found. It also stands as a glaring example of how the legislature repeatedly passed benefit increases with little or no concern for the costs.
Jones was a direct sponsor of many of these questionable deals. In addition to helping long-serving state lawmakers, the former senator sponsored legislation that allowed Chicago aldermen to receive the most lucrative pensions in city government and gave labor leaders public pensions based on their private salaries.
Jones justified giving the 3 percent perk to himself and his colleagues by noting that they were still contributing money to their pensions after they had served long enough to receive the maximum benefit.
"(F)or those members of the General Assembly right now who ... have maxed out ... they are still contributing to that retirement system," Jones told his colleagues the day the bill passed. "So all this does is give them a little 3 percent on their own money."
Jones' quote implied that lawmakers' pensions were already fully funded. But that is not correct. Jones would have had to double his pension contributions to cover the high benefit he is receiving, records show, even after generous contributions from the state, healthy investment returns and the extra 16 years of payments he put in.
Even more important to the pension system's bottom line was another provision in the same 1989 legislation, one that dramatically increased the annual cost-of-living adjustment, or COLA, for all retirees in the state and Chicago.
It was a subtle change: The COLA formula was switched from simple to compounding interest. At the time, it was expected to cost the state $3.2 billion over the next 40 years. But because consecutive governors and legislatures failed to make payments adequate to cover the increase, the price tag has grown much higher and now accounts for a large portion of the state's $83 billion in unfunded liabilities.
With Illinois' pension system racing toward insolvency, the General Assembly is working feverishly to find a way to shore up the foundering funds before the legislative session ends Thursday. But with elections looming over all General Assembly members, many are skittish about making sweeping changes before the campaign season.
Aside from the political price they stand to pay, legislators have more to lose than nearly any other group caught up in Illinois' pension mess. That's because, along with judges, their benefits are the most lucrative in state government, despite the fact that their positions are part time and many members hold jobs outside of the legislature.
More than a third of all retirees in the legislative pension fund make more money now than they did when they served in government. Ten percent of them receive more than $100,000 in pension payouts every year, benefits that come on top of the free or deeply discounted health insurance that retired lawmakers have long received.
The result is that at a time when the state has $8 billion in unpaid bills and is cutting funding for public schools, health care and other services, Illinois is sending out ever larger retirement checks to former lawmakers. Their pension fund is also the state's worst-funded plan, with just 21 percent of the assets needed to cover what the legislature has promised itself over the years.
and Senate President
played roles in many of the pension perks now on the books but are quick to point out that most of the loopholes that allowed lawmakers to spike their pensions have been closed. The 3 percent perk ended in 2003.
But anyone who was in office before those changes took effect can still benefit. And as lawmakers consider reforms, many of them say it would be unconstitutional to eliminate even the most outrageous pension perks once they've been bestowed.
Take Madigan's case. If he retired this year after roughly 40 years in office, the 1989 law would boost his annual pension from about $81,000 to $131,000 according to current figures from GARS. That's 137 percent of his current salary. Cullerton's pension would go up by roughly $31,000 to $112,000 a year, or 117 percent of what he now earns. Both lawmakers helped advance, and eventually voted for, the legislation that created the perk for longtime lawmakers.
Jones, meanwhile, will be allowed to continue collecting his inflated pension, along with an annual 3 percent compounding COLA, for as long as he lives.
Reached by phone, Jones blamed the current pension crisis on Republican governors who failed to make adequate contributions to the pension funds.
"That's where the problem started, and that's why you have the pension system the way it is," Jones said. "If you take away the COLA and take away the 3 percent (for lawmakers), that's not going to solve the problems."
Madigan declined to be interviewed for this story. In a statement, Cullerton said: "I've made it clear that meaningful and constitutional pension reform is needed to restore financial stability to the state. It is my hope that in the days ahead we will be able to address issues like the compounding COLA. And let me be clear in saying that all along I've believed that lawmakers have to sacrifice too in the changes to the pension system."
When then-Gov. James Thompson signed the 1989 legislation into law, his office sent out a news release taking credit for orchestrating the provision adding the automatic compounding COLA.
"This legislation is the result of several years of work by the Governor's Retirement System Task Force, pension systems and employee unions," said Thompson, who claimed the increases were possible because of a strong economy and the state's commitment to the pension system.
Yet even then, the governor and his allies in the legislature were failing to require high enough contributions from the state or employees to cover the pension promises they were making.
Thompson's press release used a teacher earning a pension of $16,260 a year as an example of the kind of person who would benefit from the COLA increase. But it failed to mention that Thompson would also benefit, along with dozens of lawmakers who voted for the plan — all of whom already were eligible for a better pension than any teacher gets.
For Thompson, it hadn't always been that way. Before 1981, the governor earned a pension through the State Employees Retirement System, known as SERS. The governor thus received the same benefits as other state employees — up to 75 percent of their salary averaged out over four years, with the maximum pension reached after 30 years of service.
That changed during Thompson's second term in office, when the legislature rewrote the pension code to allow the governor into the General Assembly Retirement System. (Currently all elected officials in the executive branch can join the legislative plan.)
Joining GARS allowed Thompson to tap into some of the pension perks legislators had provided themselves over the years. Among them was a provision that periodically opened windows allowing members to transfer pension credits from other government jobs into the more lucrative GARS plan at deep discounts.
Usually, joining a pension plan with higher benefits requires an employee to make up for the larger contributions that would have been paid if they had been in the better plan all along. Those fees include the amount the employer would have put into the fund on their behalf.
But under legislation sponsored by Madigan and then-Senate President Phil Rock in 1989, members of GARS were able to transfer credits without paying the employer's portion of those contributions.
Although Thompson had become Illinois' longest serving governor, he still had accumulated only 14 years of service when he was ready to retire in 1991. So Thompson transferred five years of service from his time at the Cook County state's attorney's office and a year of service under SERS, giving him the 20 years he needed to reach the maximum benefit.
When he made the transfer — one month before he left office, records show — Thompson paid just $31,204, saving more than $56,000 in employer costs he didn't have to pay.
Then on Jan. 14, 1991, his final day in office, the governor signed a bill that made his pension even sweeter. Before that, the salary used to calculate the governor's GARS pension could not exceed the paycheck of the highest-paid member of the General Assembly, or about $39,000 at the time.
The new law allowed the governor to use his own highest salary, $93,265, to calculate his payout. That gave him a final pension of roughly $80,000. He was just 55 years old.
When that change took effect, Thompson had already transferred his pension credits based on a salary of $38,000. Had the transfer been based on his true $93,000 salary, and had he been required to cover the employer costs, he would have been required to pay far more into the system.
Twenty years later, thanks to the compounding COLA that he signed into law back in 1989, Thompson's annual pension has grown to more than $131,000. To date, the former governor has received more from GARS than any other annuitant, having collected more than $2 million since he retired.
Thompson declined to be interviewed for this story.
'Something for everybody'
"The pension bill has something for everybody, folks. It's been designed in such a way that everybody's got something in here." That's how Sen. Calvin Schuneman, R-Prophetstown, summed up the legislation that he and his colleagues were about to vote on in 1989.
What started as a bill correcting the punctuation of a single provision in the state's massive pension code had grown in a matter of weeks to a sprawling piece of legislation that changed or added more than 100 provisions.
Many of them were inserted by a committee of 10 legislators, five from each chamber, who were supposed to iron out differences between the House and Senate versions of the legislation. The centerpiece of the package was a provision that gave nearly all retirees in the state a boost by dramatically increasing the cost of living adjustment.
Under the old law, the state provided a 3 percent COLA to retirees. The increase was calculated using simple interest, meaning it was always based on the original pension amount. The new legislation changed that formula to compounding interest, meaning each year's calculation would include the prior years' increases.
The longer a retiree lives, the larger the gap between the costs of simple and compounding COLAs. A person whose first annual pension was $100,000 would receive $209,377 after 25 years with an automatic compounding COLA, or 16 percent more than if the adjustment were based on simple interest.
Spread over decades and among tens of thousands of retirees who are living longer, the automatic compounding COLA is now one of the main drivers of Illinois' growing pension debt.
It's also among the rarest benefits found in public pension funds. A survey of 126 public pension plans in all 50 states and the District of Columbia, released this year by National Association of State Retirement Administrators, found that just 15 plans outside of Illinois provide automatic compounding COLAs.
The year after the new COLA went into effect, the state boosted its contributions to the pension system by $67 million to $540.5 million. Twenty-three years later, the contributions have grown to $4.2 billion, a nearly 700 percent increase. Yet the state's pension debt has swelled from $8 billion to $83 billion since 1990.
"The major cost of this bill is in the 3 percent compounding," the lawmaker from Prophetstown told his colleagues right before the 1989 bill passed. "Now if this is what we want to do, let's go do it, because it's sure fun to give away these benefits. But someday, you know, we're going to have to pay the price."
The bill passed that night included another provision that received scant attention at the time: the one allowing lawmakers to receive an extra 3 percent of their initial pension for each year they stayed in office beyond 20 years.
Today Jones still says the "accrual" provision for longtime lawmakers was fair, noting that legislators were required to pay 11 percent of their salary into the system even after they had reached their maximum pension benefit.
"I understood what it did," he said. "You're still paying a large percentage of your salary, and you get nothing for it."
Jones also blamed the state's pension problems on Republican governors who allowed the state to fall short of meeting its financial obligations to the pension funds.
But such comments are misleading, according to an analysis of Jones' pension documents by Mitch Serota, an independent actuary and adjunct professor of business at Kenosha, Wis.-based Carthage College who is also a member of the national Actuarial Standards Board.
Even if the state had continually made its full contributions, Jones was never required to pay enough into the pension fund to cover his benefits, Serota said. That means taxpayers pick up the difference.
In fact, during his 36 years in the legislature, Jones would have had to nearly double his pension contributions to fully fund what he now receives.
"It's nuts," Serota said of the extra 3 percent added to legislative pensions. "Federal laws simply don't allow comparable retirement benefits in the private sector. The perk for lawmakers exacerbated already serious problems in the way the plan was designed, problems that doomed it from the beginning."