Sunday, April 15, 2012

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

What would happen if the current proposals for pension reform are passed? Some of the proposals from Governor Quinn’s pension committee include the following: public employees should contribute more for continuing in the Tier I defined-benefit pension plan; there should be a 401 (k) defined-contribution savings option; there should be the formation of a capped salary with an attached hybrid plan option (401 k) for current teachers; the retirement age should be raised for full benefits;  the state’s “normal costs” (they do not include the service debt) for the Teachers’ Retirement System and the State University Retirement System should be shifted to local school districts; the Cost-of-Living-Adjustment (COLA) should be reduced for current teachers (and possibly for retired teachers, if it is judged “constitutional”); there should be a reduced calculation of the anticipated average for the TRS investment returns; and teachers currently in the Tier II plan (because of SB 1946) should merit a decreased contribution rate. These proposals are supposedly contingent upon policymakers guaranteeing the statutorily-required contributions to the public pension systems. Really!?

·         For every one-percent increase in the contribution rate by current teachers, approximately $100 million will be collected. Currently, the State of Illinois “owes $43.5 billion to the Teachers’ Retirement System in accordance with the payment schedule mandated by current law… The cumulative unfunded liability for all five state-sponsored systems currently stands at $83 billion” and will increase every year (the Center for Tax and Budget Accountability, April 2012).

·         The cost of mandatory social security for teachers opting out of the defined-benefit plan would be substantially higher than the costs for teachers remaining in the defined-benefit pension plan.  These costs would inevitably reduce funds available for education programs and other services; local government costs would also increase because of the Federal Insurance Contributions Act (FICA tax).  “A wage or salaried employee [would] pay only half of the FICA bill, 6.2 percent for Social Security plus 1.45 percent for Medicare… [The] employer [would] contribute the other half” (What is FICA?).

·         Migration into a Tier III, defined-contribution savings plan will accelerate the state’s obligation to pay down the unfunded liability. The defined-contribution savings plan will reduce membership contributions to the TRS and jeopardize retirement security for those teachers. If members in the defined-contribution savings plan receive Social Security and the state does not pay it, every school district would have to contribute 6.2 percent per teacher. The state will also have to pay down the TRS $43.5 billion unfunded liability more quickly as a result of any movement into the Tier III defined-contribution savings plan option.

·         If Illinois policymakers pass a bill to shift its responsibility of paying the “normal costs” to the local school districts, many school districts will not be able to afford to pay these costs, even if they are “phased in for a few years.”  What will be the probable effects? In cash-strapped school districts, of which there are many, teachers will not receive increases in their salaries; many teachers will lose their jobs; student programs will be reduced or eliminated; class sizes will increase; it will be more difficult to recruit, as well as retain and attract, the best teaching candidates without offering an equitable and solvent defined-benefit plan (Education Sector Policy Briefs).

·         “A shift would create a new and large financial requirement for school districts, which would be difficult for many to meet. Moreover, Illinois ranks last in terms of state spending on K-12 education, and school districts are already relying heavily on local property taxes. Shifting the state’s normal cost obligation onto school districts would only mean that an even higher proportion of school districts’ revenue would come from property taxes” (the Center for Tax and Budget Accountability, March 2012).

What would be some other outcomes of these proposals? The public school system in Illinois will be jeopardized; the public school teacher’s dignity and guaranteed retirement security will be imperiled, and their students’ right to be taught by the very best teachers available in Illinois will be at risk. The passing of a few of these aforementioned proposals will create a dispossessed class of teachers in Illinois and guarantee that many of the best, potential teaching candidates will not consider working in the State of Illinois. 

It is noteworthy that the exploitation of governmental policies, that are often written or subsidized by the Civic Committee of the Commercial Club of Chicago, creates a financial deprivation for the vast majority of people in the State of Illinois. Each new tax break for the wealthy, for instance, means less money to run the state’s government and; thus, it requires policymakers to get money elsewhere or to cut essential services (Of course, the Chicago Tribune, the Civic Committee and its obverse Illinois Is Broke website, and others will continue to blame the teachers’ pension for cuts to services).  Despotic governmental policies will not revive the Illinois economy and produce jobs. They will have, however, a negative economic impact on the state’s economy because retirees and most other middle-class taxpayers will be forced to reduce their spending.  

Consider that of the nearly 88,000 retired teachers in TRS, there are approximately 52,000 pensions below $50 thousand; more than 17,000 of them are less than $20 thousand (TRS).  These people do not receive Social Security and, if they do, it is minimal. To further reduce the COLA for these people would lead to the impoverishment and destruction of their right to self-preservation.  Reflect upon the fact that a “simple” COLA will not be sufficient for keeping pace with inflation for current teachers when they retire, and that members of the Civic Committee, Civic Federation and General Assembly will never have this concern. 

It is incongruous that nothing in these proposals will address the revenue problem in the State of Illinois or its self-induced debt problems. What will be most certain if these proposals are passed are costly lawsuits at the taxpayers’ expense to defend what is explicitly stated in the Illinois Constitution’s Article XIII – General Provisions, Section 5. Pension and Retirement Rights: “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,” and in Article I – Bill of Rights, Section 16. Ex Post Facto Laws and Impairing Contracts: “No ex post facto law, or law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed,” and in the Constitution of the United States of America, Article I, Section 10: “No State shall… pass any ex post facto Law, or Law impairing the Obligation of Contracts…” 

-Glen Brown

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