Reeder: Illinois is in a fiscal crisis because of unfunded pension liabilities
Last month, I wrote a column on an idea being pitched by State Rep. Jeanne Ives that contends that state pensions may be illegal contracts because they violate the state constitution.
The Republican from Wheaton contends that during the past several decades lawmakers knowingly underfunded pensions, violating the balanced budget clause of the state constitution.
As I said in my earlier column, I’m skeptical whether the Illinois Supreme Court will buy into the argument. They have been hostile to previous proposals to reduce pensions, noting the state constitution prohibits doing this.
But that doesn’t mean such reductions will never happen. Arizona had a similar non-diminishment clause in its constitution, but last month voters in the Grand Canyon State voted to eliminate this provision from the constitution so cuts can be made.
Are Illinois’ voters likely to someday follow suit? Who knows?
But one thing is certain: Illinois is in a fiscal crisis because of unfunded pension liabilities.
The blame rests squarely on the shoulders of governors and lawmakers – both Republican and Democrat – who made pension promises, but left funding those pledges for future elected officials to figure out.
That, of course, never happened.
Now, we are left with more promises than cash and no easy solutions to solving the problem.
Politicians as divergent as Pat Quinn and Bruce Rauner have called for reducing pension benefits. But I’ve heard no one in public life call for entirely eliminating retirement benefits.
In fact, Ives says she would have no one who is already retired receive a smaller check. Her plan focuses on giving retirees cost of living adjustments equal to the rate of inflation rather than the current level of 3 percent compounding annually. For those who haven’t retired, she would transition them into 401k-type retirement plans.
“Let’s say you have been paying into a pension plan for 20 years, you’d still be able to retire with a pension for those. But the remainder of your time with government, you’d pay into a defined contribution plan,” she said.
Those who worked for local and state government deserve secure retirements. But that doesn’t mean they should be above sharing some of the burden.
It’s not that anyone on the left or the right is delighted by the idea of making cuts.
It’s just that the math doesn’t add up. The state has promised more than it has money to pay.
Governor-elect J.B. Pritzker has proposed amending the constitution to tax some people at a higher rate than others. But he’s mum on just who he would raise taxes on.
The Arizona route to amend the constitution to reduce pension benefits might someday prove to be a more popular route with Illinois voters than voting to amend the constitution in order to raise taxes.
But regardless, amending the constitution is difficult, usually unsuccessful and can’t be voted on for at least two years.
For the time being, Pritzker and lawmakers need to find a way to operate state government within its means. Good luck with that.
While most of the feedback I’ve received on last month’s column has been positive, I received some letters expressing concern. Below are excerpts from a few and my responses:
I showed your article to others where you stated that people are getting more money from their pension than what they paid in and it brought a good laugh. 1. Go see financial planner and ask them how a pension plan and a 401k work, plus what is the goal. 2. Remain a columnist and do not become a financial planner.
– Patrick Tucker
Well, Patrick, of course you should receive more back in retirement than you invested. But career teachers, with more than 30 years of service, who retired after Jan. 1, 2015 receive an average annual pension benefit of $77,100 and an anticipated lifetime payout of $2.4 million. On average, they have contributed $163,000 toward their retirements. That’s a payout far above what most financial planners can guaranteein the private sector. In fact, in the private sector it would take an investment of 10 to 12 times what the average participant has put in to receive the size of return promised by public pensions.
The state of Illinois has robbed teacher pensions for too many years to count. I realize some type of pension reform will probably have to be instituted. However, to attempt to no longer provide pensions to those who have already retired and are no longer in the active work force would be unfair. Young teachers I know are salting away as much money as they possibly can since they do not know what will happen down the road.
– Susan Christian, Erie, Illinois
Susan, I’m glad to hear that teachers are saving more. We all need to take greater responsibility for our retirements. But I have heard no one suggest retirement benefits should be eliminated – just adjusted.
I was a school teacher in the Rockford Public Schools for thirty- five years. I am 69 years old, and I now live on my pension. I was assured that my pension was in our state Constitution, and it could not be revoked. I make $67,000 a year. I do not make over $350,000 a year.
Our state denied me the right of contributing to our Social Security plan because it was "double dipping". Now you want to take away my pension. What do you want me to live on? My nonexistent stock options? My huge savings that I socked away from my high-paying job as an elementary teacher? Please tell me. We are talking about people's lives that you want to ruin now that we are old. Why don't we legalize and tax cannabis to help pay for our pensions? How about a progressive state tax?
– Patricia Bowie Pekarsky, Rockton
Patricia, I’m glad you brought up Social Security. One can’t you receive full Social Security benefits until age 65. (For those of us born after 1960, it will be age 67.) But, according to Teacher Retirement System records you were able to retire at age 55. As for cannabis, legalization may well be a positive move as a matter of personal freedom. But pot isn’t a magic wand to make the state’s financial problems go away. After a few puffs one might think so though. Also, $67,000 is a good pension. Please keep in mind within your county of Winnebago the median householdincome is $49,749. Should those working folks pay higher taxes to support pensions larger than they can ever hope to receive themselves? And unlike those receiving pensions, working families are paying state income taxes. When you retired from Rockford schools in 2005, you earned $69,885. Many folks earning far less have taken responsibility for retirement savings. There are no easy solutions to this mess. It's neither the fault of public employees nor taxpayers. But those are the two groups that will likely be cleaning it up.