The Illinois Pension Problems... Sustainability, Affordability and Constitutionality: Are They Compatible?
How do we balance sustainability of the public pension system, affordability for the State of Illinois, and constitutionality (Bob Lyons, TRS Trustee)? Legislators realize that the cost of ramping up payments to address the unfunded liability is unaffordable based upon today’s depressing revenue projections. “In 1995, Illinois passed a pension-ramp bill requiring significant, annual increases in the state's contribution to its public employee retirement systems, to make up for a decades long practice of failing to make the full, employer contributions into the system. That is why the pension contribution escalates… each year. It is also why Illinois has a [total] unfunded liability in excess of [$87] billion today [for all five public pensions]” (Center for Tax and Budget Accountability, CTBA).
What can any union leader or anyone else, for that matter, offer the state that will address the increasing service debt, decrease school district contributions and decrease the required state contributions through 2046? According to Buck Consultants (June 2010), total school district contributions will not begin to decrease until 2043, and combined state and federal funds that are required will continue to increase until 2046.
Did Illinois Senate President John Cullerton (above, at the RTAC luncheon on October 6, 2011) lie to a ballroom full of Chicago teacher retirees when he spoke to them six weeks ago — or just leave out an important part of the truth. For months, Cullerton has been telling retired teachers that their pensions are "guaranteed" by the Illinois Constitution, but leaving out the fact that he is the Senate sponsor of SB 512, which will result in the slow death of all defined benefit pension plans for Chicago and Illinois teachers. Under SB 512, younger teachers will be forced into plans which will take their contributions out of the current plans, thereby guaranteeing that within a quarter century, according to actuaries, the defined benefit plans will be out of money. Cullerton's assurance, thus, are hollow, and his speeches are lies because they leave out the "whole truth." Pensioners and union members are beginning to demand that Cullerton and other politicians stop doing the work of the "one percent." Substance photo by George N. Schmidt. Questions to ask: how much do we need to pay of the service debt to keep the teachers’ retirement pension plan and the other four public pension plans solvent, even though the plans have always had an unfunded liability that never comes due at once with fluctuating funding ratios? What proposals are there besides the Civic Committee’s flawed SB 512? Why are some legislators going to vote for a bill that has both obvious and unforeseen consequences for everyone “unless something better comes along?”
Why aren’t there any Nobel-prize winning economists of Illinois in this discussion? Where are the most prominent Illinois lawyers, and why aren't their opinions also being solicited regarding legal ramifications? Why are we hearing only from the Civic Committee of the Commercial Club of Chicago that has much to gain from the passing of SB 512?
Can the IEA negotiate without violating the 1970 pension clause (Article XIII, Section 5)? Did SB 7 ruin the possibility for any good-faith negotiations with state legislators (remember what Jonah Edelman revealed)? Is it because of the belief that once one side gives up something inviolable, the other side will insist for more? Is it because union members pay their dues consistently to ensure that their hard-earned benefits are not decreased, and that public employees, such as teachers, only have one retirement pension and not social security to rely upon?
Can the IEA offer anything by way of negotiation on the issue that “something must be done” about the unfunded liability and the increasing state payments? What would that be? What can teachers possibly give up to solve the financial problems of this state that are the resultant causes of past-and-present greed, corruption and incompetence?
Moreover, is it fair that teachers and other public employees remain the scapegoats for the problems that they did not cause? Indeed, few people care about the moral and ethical appeal that is grounded in such an argument. However, why didn’t the state “consider implementing a new revenue source targeted to repaying pension liabilities that is independent of base revenue streams from income, sales, excise and utility taxes” (CTBA, 2006)? Why didn’t the state consider a broader tax base and/or taxation of services instead of an increase in income taxes?
In approximately 35 years, the passing of SB 1946 last April of 2010 (the current Tier-Two plan that began in January 2011) will most likely assure the demise of the Tier-One defined-benefit plan. Consider that the current proposed and amended SB 512 by freezing benefits in the Tier-One defined-benefit plan (for those who choose a Tier-Two option for its six percent contribution rate, capped final salary, reduced Cost of Living Adjustment (COLA) and full retirement benefits at the age of 67) will also hasten the demise of the Tier-One defined benefit plan. Consider the inevitability that 20% of the members who choose the Tier-Three defined-contribution plan (401K) will also hasten the demise of the Tier-One benefit plan, and this will do nothing to eliminate the unfunded liability that the state is required to pay.
One thing seems certain right now: both current and retired teachers and their families have the most to lose by passing the amended SB 512. Consider that the Tier-One defined-benefit plan depends upon membership contributions for its sustainability, precarious contributions from the State of Illinois and volatile Market investment returns.
What’s next after SB 512? Imagine an amendment to the state constitution that challenges Article XIII, Section 5, a reduction or elimination of the retirees’ COLA and the taxation of their annuity? One final thought: how about state bankruptcy as an option? Just ask our U.S. Senator from Illinois, Mark Kirk, about this possible absurdity.
Comments:
By: Bob Busch
Victory (so far) on SB 512
I was wrong. SB 512 did not pass, yet. The direct attack failed. Now watch our enemies try and outflank us. If the IFT or IEA enter into any negotiations, join any ad-hoc committees or offer in any way to legitimize corporate "pension reform", we have only ourselves and our leaders to blame for failure.
Remember back last Spring, when SB7 was passed, most of us had no idea any of our unions, or presidents, were even in discussions. Then, wham, it is law passed by legislators who said it was approved by the unions. The President of the CTU should be given an Oscar to her reaction when she finally realized she had signed the CTU’s death notice. I only hope our leaders eead anything they sign.
By: Rosemary Schroeder
MY TEACHER PENSION is so little, now take THAT away?
At 82 & 80 yrs old, we live on the $12,000 from teacher's pensions...taught 30 yrs in this state...fought for pension, collective-bargaining, sick days, med insurance, etc back in the 60s. My God, my taxes alone are $15,000 and we can't sell our house!! After saving and working, raising kids, sending THEM to college to do well [one's out of work at 50!]....what in blazes is happening to the people in this country by the 1%, politicians. NO, you are not going to STEAL my retirement money....enough. What is the matter with this country and the rich?
They are from the devil, very mean, heartless — "I've got mine, to hell with you..." attitude..... It is an arrogance of the highest proportion.......our rulers have done well with us slaves and continue so.
By: Joan O'Malley
Unelected people determining outcomes for us
I am outraged that our legislators are relinquishing their responsiblities to the unelected group which has designed and written SB512.
These people have no right to be writing laws which profoundly affect hundreds of other citizens who had NO say in approving their participation.
By: Glen Brown
Illinois Pensions Need a 'Plan' (IEA President)
According to the IEA president, Cinda Klickna, “We need to develop a plan that is constitutional, fair to the participants and will ensure the systems will, for many decades to come, continue to deliver the benefits earned by the participants and retirees. The pension systems must be sustainable.” The teachers of Illinois are anxiously waiting for that plan.