CTA financial crisis arises due to the open promises made in their pension plan
Ameya Pawar argues that elected officials have not done their job in funding the CTA pension plan throughout time. These promised benefits were brought out by the government; therefore it would be unreasonable to blame the retirees and union members for the evolving Chicago Public Transit problems.
The first problem stems on what actions the city of Chicago should take in order to regain ground. Pawar explains how money is being distributed ineffectively, while half of the property tax payer’s money goes toward service debt and service pensions. Obviously, the money is scarce and Pawar argues that in order to free up some money, the service must be sustainable and efficient. By improving the system, it will allow money to go toward the pension. It is unethical to increase fares on a system that clearly doesn’t work anymore. The main priority should be getting labor and union workers on board through an improved system, while avoiding the taking away of benefits from individuals who have bought into the plan. This is a government problem, so therefore why are the residents of Chicago being penalized with increased fares and union workers with cut benefits?
According to the CTA Retiree Health Care Trust (RCHT), as of 2006, the CTA Retirement Plan was only 30% funded at this time. This suggests that retirees were only receiving 30% of coverage on expenses toward health care and pension payments. Through time, the CTA retiree health care plan was seen as extremely generous when compared to other public or private employers. Holding many uncommon characteristics of formerly known pensions, the CTA offered plans that were free for retirees that included a fixed premium rate for dependent coverage regardless of the number of dependents being covered in the first place. Increased health care costs caused the retirement plan to plummet, providing an even larger portion of funding for future health care costs. Changes were needed to make the design more practical.
The Illinois legislative approached the problem by passing two laws in 2006 and 2008. The first public act called for the CTA to separate the funding for retiree health care benefits from the funding for pension payments. The second public act passed in 2008 modified section 22-1018 of the Illinois Pension Code, as well as section 3-2.3 of the Illinois State Auditing Act. Some of the changes are as follows:
- The CTA Retiree Health Care Trust (RHCT) must be independent in providing health care benefits to retirees, their dependents and survivors. Also, the Trust must be run by a board including three union representatives picked by the CTA. The RHCT is expected to assume responsibility after January of 2009.
- To be eligible for a retiree health care coverage, the CTA employee must be 55 years of age and have at least ten years of service before that individual can decide to retire.
- Once the RHCT declares financial responsibility for retiree health care after July of 2009, then the program can not offer any plan that includes co-insurance levels higher than 90% coverage for in-network services and 70% for out-of-network services.
- The retiree health care benefit program must be reviewed annually to determine if there are sufficient funds to cover future responsibilities. If the current funds happen to be insufficient, then contribution increases (increased premiums) and benefits decrease (reduced coverage) to help balance the shortage within a ten year span.
- The total contributions received from participants, including all retirees, dependents and survivors, cannot exceed 45% of RHCT expenses in the prior plan year.
- Active employees will be required to contribute at least 3% of their salary to the RHCT after January of 2008.
The CTA retiree health care trust plan was established in May of 2008 and was first funded with about $529 million dollars from CTA’s pension obligation bonds. It also receives money from the following:
1. Retiree/ dependent/ survivor premium contributions: As of July 2009, the RHCT began collecting premium contributions from retirees for their coverage, while before the retirees’ only use to pay the premiums for their dependents.
2. Payroll deductions from active CTA employees: By January of 2008, all active CTA employees had a 3% cut to their gross salary.
3. Investment Returns. The trust fund balance will be invested and the income from those investments, including all of the net losses and expenses, will be returned to the fund.
The CTA RHCT was said to take full responsibility for the funding, payment and administration of health care benefits for the CTA retirees, dependents and survivors as of July 2009. While they say they are committed to offering their expertise for the best benefits for their employees, CTA still suffers problems in the present year of 2011.
By: Gia Donofrio