Who Can Fix State’s Public Pension Crisis? Try H.G. Wells

Read the BGA’s recent three-part investigation: “Sticker Shock: Illinois’ Public Pension Crisis”

The best way to fix to Illinois’ deteriorating public pension system would be to hitch a ride on a time machine that would allow lawmakers to roll back decades of mistakes and mismanagement that produced a system at least $80 billion in the hole and going under fast.

But while the Illinois General Assembly is known to take the occasional flight of fantasy worthy of sci-fi master H.G. Wells, nobody in that legislative body has invented such a device—leaving them to concoct their own solutions to the public pension crisis.

So let’s look at some of the government pension issues and repairs being proposed by lawmakers and whether any have a chance to make it out of the General Assembly and onto the governor’s desk for a bill signing into law.

The Cross Solution…

The 2010 pension reform created a two-tier pension system in Illinois—one tier for current employees, and one for new employees.

Those hired after Jan 1, 2011 get less than their predecessors and are required to work longer to be eligible for a guaranteed state pension. The benefits of the current employees were left untouched and those are the pensions being targeted for a legislative “fix” right now.

Decreasing payouts to current employees for work done from this point forward is the subject of a bill sponsored by Tom Cross, Republican Minority Leader in the Illinois House of Representatives.

While workers would get to keep the pensions they have earned so far, state employees would have three choices in regards to future retirement benefits:

  • CHOICE No. 1: Keep their current benefits, but contribute a significantly larger percentage of their pay to the pension fund.
  • CHOICE No. 2: Take less by joining the defined benefit plan now being offered to new state employees.
  • CHOICE No. 3: Opt out of the defined benefit plan and enter into a defined contribution plan such as a standard 401(k).

Right now, there’s not much open support for the Cross bill from across the House aisle, but there’s not a lot of vocal opposition either.

In this case, a yes vote doesn’t necessarily fall along party lines.

Democratic Speaker Michael J. Madigan appears amenable to the idea of allowing such a measure to pass the House, as long as it does so with significant support from both sides of the political aisle.

But Democrats and downstate Republicans face pressure to oppose changing pensions for existing employees and from the unions who helped get them elected.

Without a doubt, the strongest opposition comes from unions, whose workers are routinely vilified in the press and by public pension reform backers as greedy gold-plated pensioners.

According to the American Federation of State, County, and Municipal Employees, AFSCME, which represents 75,000 public employees in Illinois, public workers earn pensions that average $32,000 per year, and 80 percent do not get social security to fall back on.

Unions argue that their members have been paying into the pension system on time every pay period, as the law requires. In their view, the failure of the state to do the same and the resulting pension crisis is a burden that should not be borne by public workers.

Recently, labor has launched a massive TV commercial campaign highlighting employees’ contributions to public pension plans and chiding politicians for failing to make the state’s annual contributions as required by law.

Even if the Cross bill were to garner the support it needs in the House, it could face almost certain death in the Senate, whose leadership has already determined it’s unconstitutional to change benefits for current employees.

The Madigan Proposal…

The Speaker’s is determined to protect the new pension reform law.  He’s backing a bill that would raise the bar for any  pension increases by adding higher vote-count requirements to the constitution.

At the very least, that requirement would make it harder for unions to scrap the 2010 pension reforms once Madigan decides to leave the General Assembly—a point the Speaker emphasized during a bill hearing last week.

In addition, Speaker Madigan cited several pension abuses that continue to occur at the state and local level.

Among those are “pension sweeteners” like longevity bonuses, where an amount of money is added retroactively to a long-serving employee’s salary for each year of service; and pension spiking, where employees are given large bonuses before they retire to increase the salary their pension is based on.

Let the Courts Decide…

When it comes to cutting public pension obligations, more top state officials are willing to take their chances in court.

State Treasurer Dan Rutherford has made public comments, as has Speaker Madigan, that the question of whether pensions for current employees can be cut under the Illinois Constitution should be decided in court.

One idea heard around the capitol is targeting one of the smaller state pension funds, like the General Assembly Retirement System (GARS), for a constitutional test run. GARS covers Illinois’ retired constitutional office holders and lawmakers.

A recent BGA investigation of GARS found that 27 of the 286 retired office holders—or nine percent—are enjoying annual pensions of more than $100,000. In some cases, retirees draw their pensions while also working in other government-related posts or lucrative private-sector jobs. Thirty retirees, or 10.5 percent, have drawn more than $1 million each so far.

Targeting a small fund is a more manageable debate, and would not impact public workers in the same way as a blanket change to the public pension system, but it would allow the issue to be taken into the courts where we could get guidance once and for all about whether the Illinois Constitution prevents changing benefits for current workers.

But what are the chances of lawmakers acting as sacrificial lambs, cutting their own benefits first to see whether such a change can be applied across the board? Not good.

As the legislative session in Springfield inches toward its official close at the end of May, the hue and cry to reform pensions will be heard from the editorial pages across the state and from civic backers looking to gut and change public pension obligations.

Despite such outrage, lawmakers can again choose to leave pensions unfunded and many related questions unanswered. It’s happened before.

Meanwhile, with no time machine to come to the rescue, the life savings of thousands of public workers—along with the future solvency of the state’s public pensions and Illinois itself—remain in great doubt.



Filed under Pension Reform

5 responses to “Who Can Fix State’s Public Pension Crisis? Try H.G. Wells

  1. The true victims in this catastrophe are the taxpayers. If betrayed public workers want to blame anybody, they should blame the union leaders and politicians they put in power.

  2. Walter Esler

    We did our share. We worked for less than our private sector equivalents because we were promised an equitable pension. Very few government employees made the huge salaries we read about. These fat cats are not being targeted for so-called “pension reform.” Its the rest of us – public servants who spent our lives working in public sector jobs – who are being made into public enemy number one. I think this is unfair.

    Unlike most private sector workers, we government employees had to pay into our pension plans. We paid in our contributions every month – a fixed percentage of our wages – while our private sector counterparts paid nothing. We didn’t know that the government would fail to pay in their share. Our contribution were supposed to be matched, but the politicians decided to cheat.

    America used to be the envy of the rest of the world. No longer. For years government and private sector corporations have been working to outsource private sector jobs, loot pension plans, eliminate health coverage. The American middle class is now only a shadow of its former self. Now we learn that government employees are being targeted.

  3. Pingback: Are Illinois State Lawmakers Getting First Taste of Pension Reform? | BGA Think Tank

  4. jah

    Illinois opted out of social security and for a State pension plan because the General Assembly wanted the option of NOT paying 6% into social security each year as required by federal law. So, our politicians did not pay into the pension plan as they were supposed to for years. They violated what should have been a fiduciary responsibility to pensioners and citizens through the costs of corruption and cronyism. Now they are asking hard working public employees who paid their share into the pension system to pony up for the politicians. The majority of us won’t make more than between 18,000 and 32,000 a year. We are not the big Jim Thompson’s who are triple dipper millionaires who failed to make payments into the system. So, don’t steal from us, when politicians like he already did.

  5. mema

    I think it would be reasonable to start taxing the Illinois pension income for retirees as other income is taxed, that just make sense.

    As far as changing the current employee pensions, that should be avoided since it doesn’t appear to be that thought out what the side effects are or how it will affect the state or the workers.

    @jah, Social Security is actually 6.5%, not 6%.

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