Saturday, April 14, 2012

A View of the Illinois Public Pension Dilemma, Pt. I

Despite the fact that the State of Illinois entered into an enforceable constitutional contractual relationship (Article XIII, Section 5 of the state’s constitution) in 1970 of which benefits “shall not be diminished or impaired,” the State of Illinois has underfunded the Teachers’ Retirement System (TRS) for decades and has used this money as if it were its own private savings account to pay for its other arrears and special interests.

Teachers have contributed responsibly to their pension fund, currently at 9.4 percent of their annual compensation. Most teachers will not receive Social Security and only a modicum of payment for having worked in the private sector because of the Windfall Elimination Provision that was “enacted as part of the 1983 Social Refinancing Act” and signed into law by union breaker President Ronald Reagan.

Most teachers have worked for lower wages (and without gratuities commonly distributed in the financial private sector) throughout their career for the promise of a guaranteed defined-benefit pension plan; 401 (k) savings accounts will never sustain their retirement beyond a few years. The “earned” and “deferred” compensation of a defined-benefit plan was originally established to keep college-educated people working in a sometimes difficult and stressful job without the higher salary, benefits, and bonuses commonly rewarded to comparably-educated workers in the private sector. It is significant to note that nearly 60 percent of all TRS pension annuitants are paid less than $50 thousand each year; a little more than half of this group (33 percent) is paid less than $20 thousand (TRS).  

To challenge and to attempt to impair a teacher’s constitutionally-guaranteed rights and benefits is an encroachment of their right to human dignity and justice that the state and U.S. laws protect. It is unethical, injudicious and discriminatory for policymakers to default on those promises.  Moreover, to call it a “shared sacrifice,” as Tyrone Fahner of the Civic Committee of the Commercial Club of Chicago claimed at the Fixing Illinois Public Pensions forum on April 9th when “billions of tax dollars [across the nation] have been directed to the rich leaving local government services starved for funds and jobs,” (Pulitzer-Prize Winner David Cay Johnston) is a travesty of justice and blatant hypocrisy.

It is true that at the time of the 1970 Illinois Constitutional Convention, the state’s pension systems were no better funded than they are today (Eric Madiar, Chief Legal Counsel to Illinois Senate President John Cullerton and Parliamentarian of the Illinois Senate). Any dialogue about TRS and other public pension systems being underfunded is misleading because it refers only to the retirement systems’ long-term unfunded liability (the current value of future financial obligations minus available assets).  It is evident that Illinois policymakers, members of the Civic Committee and Civic Federation, and many so-called journalists of the Chicago Tribune and others want to renege on the constitutional guarantee to public employees.

It is also true the unfunded liability of the pension systems grew exponentially because of the state’s inconsistent funding methods, unreliable accounting methods, and “special deals” made by legislators (and sometimes with union and business community stakeholders) that were to be funded with future monies. The scapegoating of public employees (especially teachers), exacerbated by greed and corruption particularly flagrant in the financial sector, exploded into the Great Recession. Of course, this came after eight years of inordinate military spending for two costly wars and deregulation and unprecedented tax cuts for the wealthy by the federal, state and local governments. This tsunami of debt intensified every state’s budget deficits. We can also add fiscal irresponsibility, incompetence, avarice, and corruption to Illinois' financial debacle.

Consider the funding records of these Illinois governors to the Teachers’ Retirement System since 1949. The following is the total employer’s (the state’s) contribution as a percentage of the actuarial requirement (TRS):

·         Adlai Stevenson (1949-53): a steady decline to an approximately 40 percent funding;

·         William Stratton (1953-61): a roller-coaster funding record to approximately 60 percent;

·         Otto Kerner (1961-68): a roller-coaster funding record to approximately 70 percent (Kerner was also imprisoned for conspiracy and perjury);

·         Sam Shapiro (1968-69): a decline in funding to approximately 65 percent;

·         Richard Ogilvie (1969-73): a roller-coaster funding record that was as low as 33 percent to as high as 60 percent;

·         Dan Walker (1973-77): a steady climb of funding to approximately 80 percent (Walker was also imprisoned for bank fraud);

·         James Thompson (1977-91): a roller-coaster funding record from a high of approximately 90 percent then down to 30 percent;

·         James Edgar (1991-99): a roller-coaster funding record down to approximately 25 percent to as high as 70 percent; also signed into law the flawed "Pension Ramp," Public Act 88-593, the funding law that entails larger payments today to pay the pension systems what the state owes;

·         George Ryan (1999-2003): a roller-coaster funding record to approximately 65 percent (Ryan is currently in prison for fraud and racketeering);

·         Rod Blagojevich (2003-09): a roller-coaster funding record down to approximately 35 percent and then as high as 70 percent (Blagojevich is currently in prison for 18 corruption charges);

·         Patrick Quinn (2009- ): though the state has borrowed money to fund the system, it has also shorted TRS (its actuarial requirement) over $3 billion; thus, the state’s debt service continues to grow.

-Glen Brown


  1. Since January 12, 2015, Bruce Rauner and Michael Madigan have created a prolonged budget impasse that is exacerbating the state's financial problems and the pension unfunded liability.

  2. Thanks for the breakdown. I've always wondered who/when started the GPO/WEP and how each govenor has dealt with the payment (or not dealt with it) Thank you

  3. This corruption as government theft is till kept pretty much a secret by major media. In addition, the "divide and conquer" behavior of "Why should citizens be expected to pay for overly generous pensions?" propaganda continues.
    People turn their heads and avert their eyes from me when I mention attacks on my teacher pension and healthcare by Democrats and Republicans in Illinois. Well, the big raids (SS & Medicare) are now being discussed aloud by politicians and the corporate "brain trust" puppets.
    Why do we continue to fight for our delayed earned income? Because we must.