Pensions: An Argument Regarding Sustainability

·         Legislators’ decision to change the teachers’ pension is based upon Novy-Marx and Joshua Rauh’s analysis, among others, that uses the Financial Accounting Standards Board’s (FASB) fiscal guidelines (for private sector plans) rather than the Government Accounting Standards Board’s (GASB) financial criteria used for public pensions (Manhattan Institute for Policy Research).

·         Unfunded liabilities are “the gap between existing plan assets and the present value of benefits accrued by plan participants.”  FASB calculates unfunded liabilities using a “riskless discount rate” tied to Treasury obligations rather than a diversification of investments used by GASB.

·         A “riskless rate” yields less than 4%; a diversified approach, using private securities, would yield 8-9% over the long-term. Using a private-sector ‘discount rate’ adds billions of dollars to the unfunded liabilities total (Manhattan Institute for Policy Research, April 2010).

·         The size of unfunded liabilities “does not give a full view” of the State’s pension fund. Unfunded liabilities are amortized over 40 years in Illinois; using a “riskless rate” to calculate fund liabilities does not reflect the amount that the State and local governments need to deposit in their pension funds (Center on Budget and Policy Priorities).

·         Pension funds should be “based on a blend of expected rate of return on a fund’s existing and expected assets and the rate of return on high-quality municipal bonds” (Center on Budget and Policy Priorities).

·         As markets and economy improve, so do the assets in the pension funds.  “Since June 30, 2009, a date in which many recent studies on the financial condition of State pension trusts are based, investment returns have rebounded sharply – nearly 25% higher since then” (National Association of State Retirement Administrators, NASRA).  

·         Note: “State and local government pensions are not paid from general operating revenues but, rather, from trusts to which retirees and their employers contributed” (NASRA).

·         “State and local retirement trusts accumulate and pay out assets over decades, and as such, have an extended investment horizon” (NASRA).

·         Legislators who claim that the pension system is “unsustainable” most likely have used outdated information, “particularly at the low-point of the market recovery [June 2009]” (NASRA).

·         Legislators need to examine and analyze the long-term investment strategies of public pensions using GASB standards and not the short-term FASB guidelines that are tied to Treasury Bonds; they also need to use current available data for their policy decisions!

The TRS Pension Is Sustainable

• The numbers to focus on are the amounts TRS pays out in pensions and benefits in a year. During the last fiscal year, TRS paid out $3.9 billion in benefits, but collected $6.8 billion in revenue, more than enough to meet current obligations (Will Lovett, Illinois Education Association). 

• The total value of TRS assets continues to improve. At the end of FY 2009, the TRS fund held $28.5 billion. At the end of FY 2010, the TRS fund held $31.3 billion. It currently holds $37.3 billion. That’s a 23.6 percent increase in less than two years (IEA).

·         “First six months of the fiscal year (July 1, 2010), the rate of return on TRS investments was 15.8 percent… Since 1982, however, the average rate of return is 9.83 percent…

·         It’s important to note that TRS and its investments and contributions from its membership will continue to accrue principal and interest over the remainder of a teacher’s life as long as unused equity exists…

·         [Nearly 75 percent of TRS is funded through TRS investments and membership contributions; the state contributes approximately 25 percent] (Bob Lyons, TRS Trustee).

·         In March, TRS received its full statutory contribution from Illinois for fiscal year 2011…

·         Any dialogue about TRS and other public pension systems being ‘underfunded’ is misleading because it refers only to the retirement system’s long-term ‘unfunded liability’…

·         TRS has always carried an unfunded liability: an unfunded liability is the payments that will be made to both retired and active teachers in the future, subtracted from TRS’s total assets…

·         TRS currently has total liabilities of $77 billion and an unfunded liability of $39.8 billion. While the media frets about the unfunded liability, the total amount is never due all at once…

·         Why is the unfunded liability a concern for the State? [Because no matter what financial guidelines are used, the higher that number gets], the higher the State’s annual contribution to TRS and the other pension funds must be” (Topics & Report, TRS, Spring 2011).

Other factors indicative of TRS pension plan’s health

·         “The length of the funding amortization period

·         Required current and future contribution rates

·         [TRS’s] demographics and actuarial assumptions

·         The sustainability of [TRS’s] design and governance structure

·         The fiscal health of [TRS] and its commitment to continue to fund its pension [along with the State’s commitment to fully fund the pension in the future]” (NASRA).

Should We Blame the Teachers' and Other Public Employees' Pensions for the State's Budget Disaster?

What is the purpose for publishing a list of Teacher Retirement System’s recipients who receive over $100,000 a year (a small fraction of the total retirees) when, in fact, the average TRS recipient receives a pension of approximately $43,000 a year? Is it an attempt to deceive the public through a faulty cause-and-effect understanding of the State’s budget deficit? “Despite oft-repeated claims to the contrary, the primary cause of the state’s pension funding woes have very little, if anything, to do with the [minority of] overgenerous benefits, high employee head counts or inflated costs,” (The Center for Tax and Budget Accountability).  

Should we remain indifferent to the continuous allegations, fallacious arguments, and attempts to change the public employees’ constitutionally guaranteed benefits and rights by law firms, organizations, individuals and legislators such as Sidley Austin LLP; The Civic Committee of the Commercial Club of Chicago, the Civic Federation, National Taxpayers United of Illinois, Pension Fairness for Illinois Communities, Pension Tsunami, the Illinois Policy Institute, the Chicago Tribune; and people such as Joshua Rauh, Robert Novy-Marx, R. Eden Martin, Jim Tobin, Senator Chris Lauzen, Representative Michael Madigan, Representative Tom Cross and others?

Is it wrong to enrage part of the public and to deceptively place the culpability elsewhere? Does it seem fair and reasonable to exacerbate some people’s blind and misdirected anger by fallaciously claiming that the pension systems are the cause for the State’s chronic budget deficit?  Is it because some people do not want teachers and other public employees to have a pension? 

Consider this: the teachers’ pension was originally established to keep college-educated people working in a difficult and stressful job without the higher salary, benefits, and bonuses commonly rewarded to comparably-educated workers in the private sector. Jim Mosman of the National Council on Teacher Retirement states: “Teacher defined-benefit pensions are smart, effective tools to help keep teacher recruitment and retention costs as low as possible, providing modest, dependable retirement security at about half the cost to taxpayers of other pension models” (National Institute on Retirement Security). 

According to the National Institute on Retirement Security, “The over $175 billion in annual benefit distributions from pension trusts are a critical source of economic stimulus to communities throughout the nation and act as an economic stabilizer in difficult financial times. Recent studies have documented public retirement system pension distributions annually generate over $29 billion in federal tax revenue, more than $21 billion in annual state and local government tax revenue, and a total economic impact of more than $358 billion” (Pensionomics: Measuring the Economic Impact of State and Local Pension Plans). 

Why are teachers’ pensions the blame for the State’s financial quagmire when Illinois legislators have consistently failed to fully fund the Teachers Retirement System for decades but, instead, have diverted its “constitutional and obligatory” contributions to other “operating expenses” and “special” interests? TRS has depended mostly upon income from its own responsible investments and its contributions from its membership throughout these years.  “The majority of these trust fund monies – 72 percent for the period from 1982 to 2008 – are made up of employees’ contributions and investment earnings” (US Bureau of the Census, “State and Local Government Employee Retirement Systems”). 

Consider that Illinois has not paid its annual pension bill in full for decades and has used reverse compounding as well: “A pension plan's obligations are determined in part by the expected investment return on its assets. In the case of Illinois, that is 8.5%. So for every dollar not added to assets in time, the state is effectively borrowing from the [TRS] pension plan at 8.5% interest” (Business Week).

How many billions of dollars has the State of Illinois saved by not paying what the teachers’ pensions should have rightfully received?  According to Bob Lyons, a TRS Board Trustee, “It is a number that could be debated, but our staff determined that since 1953, the State has saved $14,842,226,632 by not paying what the actuaries calculated we should have received.  We have been the State’s credit card.”  

What is the blame for the State’s budget disaster? The State’s antiquated revenue system.  “The State’s failure to make its required employer contributions to the five pension systems can be traced to one, simple cause: a state fiscal system that is so poorly designed for decades failed to generate enough revenue growth to both maintain service levels from one year to the next and cover the state’s actuarially-required employer contribution to its five pension systems” (Charles N. Wheeler III, Director of the Public Affairs Reporting program at the University of Illinois Springfield).  

-Glen Brown

An Implicit Goal of Some Illinois Legislators Is to Ultimately Destroy the Teachers’ Pension and the Teaching Profession

Teachers were stunned last spring when Senate Bill 1946 passed in less than 12 hours. “It is estimated that [the Teachers’ Retirement System’s new] Tier-Two benefits will be 30 percent less than benefits for Tier-One teachers, if the final average salary and creditable service time for both are equal” (Illinois Education Association, IEA). 

Furthermore, teachers retiring with “10 years of service credits under [the] Tier Two [plan] would actually earn more benefits from Social Security” (IEA). Besides other egregious changes to the teachers’ pension, with the creation of a Second-Tier, teachers hired after January 2011 cannot receive their pension benefits until they are 67 years old: this would be the highest retirement age in the nation!
  
What could be the effects if Senate Bill 105 proposed by Senator Chris Lauzen, et. al. and HB 149 proposed by Representative Tom Cross, and other pension bills are passed in the future? Even without discussing the third incongruous part of this fire-breathing Chimera, which also includes a Tier-Three Defined-Contribution option, presumably, many young teachers will not continue to work in Illinois or lose their desire to teach.  

Students across Illinois will be deprived of receiving an excellent education from the best teachers available, and they will become the unintended victims of this legislative charade. Teachers in the Tier One pension plan will also lose an essential financial resource needed for pension sustainability -- perhaps the unstated objective for those legislators who want to challenge the Pension Protection Clause. What's more, the “best and brightest” teacher candidates will not major in education. These young aspirants will find other professions that value their passion and competency. 

There will be a teachers' shortage in Illinois (and elsewhere) if attacks on teachers' pensions and their profession continue. The teaching profession, as we know it, will be in jeopardy in the future.  

-Glen Brown

“Blowin’ in the Wind”

(Bob Dylan’s protest song asked each of us nine questions. Here's nine questions about Illinois pension systems):

Can the pressures of a State’s budget deficit morally justify the destruction of a retiree’s promised pension after he or she contributed to it for 32+ years? 

Why are the public employees’ pensions the blame for the State’s financial difficulties when the State has consistently failed to pay its portion for decades by choosing to divert its “constitutional and obligatory” contributions to other “operating expenses” and “special” interest groups?

Why are some legislators (and wealthy businessmen) willing to sacrifice public employees and retirees through fallacious reasoning and indifferent greed?

How is it a “Shared Sacrifice” when some governors can roll back the billionaire’s and millionaire’s taxes and then lacerate a State’s school budget and then (attempt to) diminish a public employee’s pension and benefits?

Is it true that the State-funded pensions are less expensive for Illinois taxpayers than Social Security?

Is it true that Illinois taxpayers have saved hundreds of millions of dollars per year by not paying Social Security payroll taxes for active employees in the five-State-managed plans?

Is it true that disbursements from retirees of the State and local government have a significant and enormous impact on jobs, incomes, tax revenues, and industries across the State of Illinois?

Is it true that Defined Pension Plans represent a moderately small share of overall State spending in Illinois, except perhaps when the State attempts to pay back what it owes to its public pension systems?

Could it be that besides the oligarchic relationship among some legislators, corporations and their investment firms are also behind the “push” for Defined Contribution Savings Plans because they will net billions of dollars as a result?

Euclid and Barbie

       

                 
"Math class is tough"

                           --Barbie
 

Sure it doesn’t add up:

countless camping and skiing trips with Ken,

swimming and skating parties without danger,

dancing and shopping engagements

with Midge and Skipper

like an infinite summer vacation.
Nothing here hints at a dull math class

for integral Barbie and her complex playmates!

Even her curvaceous body

proves mathematically impossible.
She’s an isosceles bimbo

with the whole greater than the sum of her parts.

Just bend her at an obtuse angle,

press her into her pink Porsche

and watch her scud across miles of linoleum

or catapult down the stairs.

You’ll know that her appeal

is an equation of Euclidean beauty and speed.

She doesn’t need school.

She was created to multiply

fantasy by freedom in every young girl’s mind.
Why be upset when Barbie says,

Math class is tough?

You can always add for her –

the numberless accessories

to her expression of the American dream.

“Euclid and Barbie” was originally published with a different title in South Coast Poetry Journal, 1993.

“Euclid and Barbie” was also published with a different title in an anthology entitled “A Taste of Poetry, Chicago Style” in 1996.

Dear Senator Ronald Sandack

Thank you, Senator Sandack, for taking the time to meet and talk with me regarding the teachers’ pensions, even though I do not live in your district. It was a pleasure to make your acquaintance.  As you are well aware through my e-mails to you, public pensions and the State’s budget deficit are extremely important issues to me and to thousands of teachers across Illinois.

Please allow me to reiterate and to partly revise what I had stated in a previous letter to you and to other legislators: I believe that both active and retired teachers and the state of Illinois have “an enforceable contractual relationship” (Article XIII, Section 5, The Constitution of the State of Illinois) that originates when teachers first begin contributing to the pension system (The decision of the Illinois Supreme Court case, Felt v. Board of Trustees…1985); I believe that any state cannot pass a law “impairing the obligations of contracts” such as ours (Article I, Section 10, The Constitution of the United States of America). 

I want to believe in a just system, in the rule of law and in promises to keep. I want to believe that these attacks on teachers’ pensions are not some ugly political games played by legislators who know that they have everything to gain by ignoring the antedated court cases regarding the Pension Clause so they can inevitably say to their voters “that they at least have tried to challenge its constitutionality by sending it through the court systems.”  I want to believe that there is no “Shell” bill or a late amendment to an existing bill that will blind-side all of us the way SB 1946 did when it passed the House and Senate on March 24, 2010 in less than 24 hours.  In other words, I want to believe that there will be no attempt to pass a “law impairing the obligations of contracts” (Article I, Section 16, The Constitution of the State of Illinois) and that the legislators of Illinois will make an ethical decision to create the needed revenue to meet the State’s constitutional obligations without jeopardizing the futures of thousands of teachers and their families, though that belief is contingent upon whether the elected officials of Illinois will be responsible, moral, intrepid, and just and uphold both the Constitution of the State of Illinois and the Constitution of the United States of America.

Let me close with these personal questions for you: do you want to become one of the senators who helped save the teachers’ pension from a flagrant injustice, or one of the senators who destroyed every teacher’s promised future?  Do you want to become a “former senator” who abandoned and ruined the lives of our children’s greatest resources, their teachers, or a senator who is credited with safeguarding public education in Illinois by protecting and honoring a most important commitment that was made to one of our children’s most important influences?  I am looking forward to hearing from you again, and I hope I may also, as you said to me in our meeting, “address a committee of legislators” in Springfield on May 4^th.

Sincerely, 

Glen Brown

THE TRS PENSION: “NOTHING BUT THE FACTS”

“The teachers’ pension was originally established to keep college-educated people working in a difficult and stressful job without the higher salary, benefits, and bonuses commonly rewarded to comparably-educated workers in the private sector”                                  (Bob Lyons, TRS Board Trustee).

State and Local Government Pensions

“Retirement systems remain a small portion of state and local government budgets” (National Association of State Retirement Administrators (NASRA).

“Public pension plans are not in crisis… State and local government retirees do not draw down their pensions all at once” (NASRA).

“Public employees share in the financing of their pension, which in many cases is in lieu of Social Security” (NASRA).

“Pension dollars help the economy of every jurisdiction” (NASRA).

“Long-term investment returns of public funds continue to exceed expectations” (NASRA).

“State and local government retirement systems do not require, nor are they seeking, federal financial assistance” (NASRA).

The Illinois Pension Clause and the Courts

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired” (Article XIII, Section 5 of the Illinois State Constitution).  

In other words, “The Pension Clause not only makes a public employee’s participation in a pension system an enforceable contractual relationship, but also constitutionally protects the pension benefit rights contained in the Illinois Pension Code when an employee joins a pension system, including employee contribution rates”  (from the Abstract for “IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS?” AN ANALYSIS OF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION by Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate).

The decision of the Illinois Supreme Court case, McNamee v. State of Illinois (1996): “The Illinois Supreme Court ‘consistently invalidated amendments to the Pension Code where the result is to diminish benefits’ to which State employees acquired a vested right when they entered the pension system” (former Appellate Court Justice, Gino DiVito, in a letter on behalf of Governor Quinn, April 13, 2010).

Illinois Pension Specifics

*There are 87,961 retired teachers in Illinois (November 2010).

*Teachers and administrators contribute 9.4% of salary every year of employment.

*Eighteen pensions (0.02%) are between $200,000 and $250,000, [all retired administrators].

*One hundred-and-fifty-three pensions (0.17%) are between $150,000 and $200,000, [primarily administrators].

*There are 1,985 pensions (2.26%) that are between $100,000 and $150,000, [mostly administrators].

*There are 33,885 pensions (38.52%) that are between $50,000 and $100,000.

*There are 51,920 pensions (59.03%) below $50,000 (IEA).

*Of those 51,920 pensions, 17,269 are less than $20,000.

*The average statewide TRS monthly annuity after 29 years teaching is $3,565.

*TRS members DO NOT receive Social Security benefits for their years as an educator. Their sole retirement is their TRS.

*The state saves billions by not having to pay into Social Security, which private employers must do; teachers also pay a monthly premium for their healthcare (TRS).

----------------------------------------------------------------------------------------------------

“Teacher defined-benefit pensions are smart, effective tools to help keep teacher recruitment and retention costs as low as possible, providing modest, dependable retirement security at about half the cost to taxpayers of other pension models” (Jim Mosman of the National Council on Teacher Retirement, National Institute on Retirement Security).

Defined Benefit Plan (TRS)                                 Defined Contribution Plan (401K, etc.)                                 

Guaranteed benefits                                                 Benefits based on investment earnings
Lifetime benefits                                           Benefits end when account is exhausted
Survivor and disability benefits part of the plan         Not part of the plan
Encourages stable workforce                                   Allows for portable assets
Investment fees paid by retirement system               Investment fees paid by member

 (Illinois Federation of Teachers)

 The Source of the Problem in Illinois

ü  Illinois has not paid its annual pension bill in full for decades but has used reverse compounding: “A pension plan's obligations are determined in part by the expected investment return on its assets. In the case of Illinois, that is 8.5%. So for every dollar not added to assets in time, the state is effectively borrowing from the [TRS] pension plan at 8.5% interest” (Business Week).

ü  “For this current fiscal year, $700 million of the State’s payment to TRS represents “normal cost,” the amount determined by the actuaries necessary to fund the pensions of current teachers. [In addition,] over $1.4 billion was required to make up for what Illinois did not put into the fund in the past”

(Bob Lyons, TRS Board Trustee).

ü  TRS has depended mostly upon income from its own responsible investments and its contributions from its membership throughout these years:  “The majority of these trust fund monies – 72 percent for the period from 1982 to 2008 – are made up of employees’ contributions and investment earnings”

(US Bureau of the Census, “State and Local Government Employee Retirement Systems”). 

ü  “Indeed, at the time of the 1970 Illinois Constitutional Convention, the State pension systems were no better funded than they are today”

(from the Abstract for “IS WELCHING ON PUBLIC PENSION PROMISES…”).

ü  “The State’s failure to make its required employer contributions to the five pension systems can be traced to one, simple cause: a state fiscal system that is so poorly designed for decades failed to generate enough revenue growth to both maintain service levels from one year to the next and cover the state’s actuarially-required employer contribution to its five pension systems” (Charles N. Wheeler III, Director of the Public Affairs Reporting program at the U of I, Springfield).

Conclusion: “If the Teachers’ Retirement System and the other four pension funds had received the required funds from the State of Illinois, then the systems could have invested the funds and grown the assets, so that today’s total unfunded liability of over $85 billion would instead be a small fraction of that amount. Then pension funding would be a non-issue in Illinois” (Bob Lyons, TRS Trustee).

(More info: http://www.ieanea.org/media/Myths-and-Facts-About-Our-State-Funded-Pensions-2010.pdf)

A Dialogue Between Teacher & Senator

Dear Senator Ronald Sandack:

Do your parents or grandparents live with the assurance of a pension?  I believe that you would not steal that promise from them if they did.  I also believe that you understand the importance of trust among individuals and the pension systems into which they have elected to participate.   However, there are some ugly facts I fail to understand.

I do not understand why the state of Illinois has underfunded its contributions to The Teachers’ Retirement System for decades and has used this money as if it were its own private savings account.  I do not understand why our elected officials have not competently and responsibly managed the retirement systems to which they were entrusted but fund other special-interest and on-going programs and services instead.  I do not understand how our past-and-present state officials have failed to generate enough revenue to meet the state’s fiscal obligations; nor do I understand how “pension borrowing” and “pension holidays” are fair to retiring teachers who believed they would have a promised and sound financial future.  Is it not true that “the level of [teacher] benefits is modest, comparable to national averages of public employee retirement systems…? The cost of benefits is not only in line with other states, it’s less than the private sector” (Anders Lindall, American Federation of State, County and Municipal Employees Council 31). 

Furthermore, I do not understand how public officials running for Illinois office can make promises that they will not keep once elected.  I do not understand how many of our public officials in both the House and Senate, and who have never taught in a school, can pass a bill for a Two-Tier Pension System without the input of Illinois educational leaders and discussion of the absurd, inevitable, and adverse effects it will have on Illinois students and teachers alike.  “The $80 billion of debt the state owes for pension benefits already earned remains unchanged by this bill” (Steve Preckwinkle, The State Journal-Register, April 4, 2010).  Lastly, I do not understand why the teachers’ pension is being blamed for years of state fiscal irresponsibility, incompetence, and corruption. 

I taught in public schools for 35 years.  My pension is all I have to live on now.  Like other teachers, I never missed a contribution to my state retirement plan.  I never received any bonuses either, and my school district never matched my contributions to my 403b.  Like other teachers, my Social Security benefits are next to nothing.  Incidentally, “Illinois taxpayers save more than $700 million per year by not paying Social Security payroll taxes for 78 percent of all active employees in the five state-managed plans, including all public school teachers” (Preckwinkle).

I believe that teacher retirees and the state of Illinois have “an enforceable contractual relationship” (Article XIII, Section 5, The Constitution of the State of Illinois);  I believe that any state cannot pass a law “impairing the obligations of contracts” such as ours (Article I, Section 10, The Constitution of the United States of America). 

I want to believe in a just system, in the rule of law and in promises to keep. I want to believe that there will be no attempt to pass a “law impairing the obligations of contracts” (Article I, Section 16, The Constitution of the State of Illinois); I want to believe that the state of Illinois will make an ethical decision to create the needed revenue and meet its obligations without jeopardizing the futures of thousands of teachers, and that belief is contingent upon whether the elected officials of Illinois will be competent, responsible, honorable, intrepid, and just.

Sincerely,
Glen Brown 

Dear Senator Ronald Sandack:
You are too young to remember this song by Simon & Garfunkel; nevertheless, the first few lines are: "Why don't you write me/ I'm out in the jungle/ I'm hungry to hear you..."

Do you think there should be Taxation of Retirement Income and changes in other pension benefits even though there are many Appellate and some Supreme Court cases that have ruled that “pension benefit rights [for public employees] cannot be diminished or impaired by the legislature”?  Explain.


Sincerely,
Glen Brown

Dear Glen:

There needs to be reasonable changes to our public pensions as they are now totally unsustainable and insolvent by any definition of the term. Go-forward benefit changes, reasonable ones, for new days worked does not impair nor diminish past earned benefits. Benefits already earned for past services certainly should not, and cannot, be lessened.

Presently, I do not favor taxing retirement benefits but that may become necessary if reasonable changes are not implemented to our public pension systems. Constantly taxing our residents is not a reasonable solution-- plan changes, again reasonable ones, must occur. Thanks for writing.

Ron

Dear Ronald Sandack,

But what are you basing your beliefs on?  Isn’t media evidence incomplete, biased, and fallacious?  Do they include the recent recoveries in equities, for example?  Isn’t there significant data contrary to the belief that public pension plans are in a crisis?  Despite the State’s underfunding of the pensions, TRS, for instance, is doing all right because of contributions from its members and its investment strategy of long-term diversification.  We know that its unfunded liabilities have also fluctuated throughout its history.

Rauh’s report has been proven wrong.  What do the Government Finance Officers Association, the Governmental Accounting Standards Board, and the National Association of State Retirement Administrators say about his findings? Most of the misinformation out there about “the public pension crisis” is slanted and out of context.  Shouldn’t the research come from actuarial science and public finance journals where the information is properly scrutinized by experts and not by charlatans?  Isn’t one of the assumptions about this crisis that governments will fund only earned benefits?  Is it realistic that state and local governments will contribute nothing to amortize past pension liabilities? 

Are some people assuming that the costs of defined-contribution savings plans will be lower than defined-benefit plans? Wouldn’t the transition costs be exorbitant? What about the “Pension Clause” and all the antedated court cases that upheld it? Wouldn’t this litigation be useless as well?  Do you really believe that the current public pensions are more expensive than the private sector?  Explain.

Why go after public employees anyway?  Doesn’t that seem unjust to you? Do you believe that the current benefit structure is the primary contributor to the current pension crisis, or is the main culprit the State’s inability to fund its pension systems according to actuarial principals?  What should be done about this without threatening teachers and other public employees?  Consider this: aren’t retirement systems a small portion of State and local government budgets?  And doesn’t the money paid to retirees come out of pension trust fund assets and not out of the general operating revenues?  Aren’t the public employees an important source of economic stimulus to communities across the State because of these benefit distributions?  Teachers do not and cannot receive Social Security.  Consider Social Security and its costs for Illinois taxpayers: is a State-Funded pension more expensive for Illinois taxpayers to afford than Social Security?

Indeed, we have a State budget deficit because of an antiquated revenue system; because of wasteful spending, tax breaks to special interest groups, deregulation and the encouragement of State debt. We also have a budget deficit because of a previous Market downturn and loss of revenue due to the recession, unemployment, property devaluation, foreclosures, and bankruptcies.  We know why TRS and other State pensions are unfunded: past General Assemblies and governors have not honored the 1970 constitutional obligation to fully pay the money owed to the TRS pension but use that money instead as a “private savings account” and that the real problem is not benefit levels, which are found to be average nationally, but the debt accrued and lack of state revenue. 

Nevertheless, we also know that unfunded liabilities would be a serious problem if all State and local employees retired simultaneously, but that is not going to happen.  What is going to happen is that State employees will continue to contribute to their pensions and there will be a growth in assets because of long-term investments, even though legislators will probably continue to default on their promise to fully fund these pensions and continue their attacks on public employees' and retirees' benefits and rights.

Teachers and other public employees are tired of being scapegoats for the financial mess created by the private sector and past legislators.

Sincerely,

Glen Brown

Glen:

Yours is a voluminous treatise-like response which I am happy to reply to face-to-face. I have spent considerable time and effort to think through all aspects of the public pension situation in Illinois. I am happy to share my thoughts...and hear yours. Call my legislative assistant Barb Finn (number below) and we'll talk at my Dist. Office when I am not in Springfield about good policy development in the public pension arena. Regards.

Ron