Friday, March 8, 2013

The impacts of the economic crisis and pension plan reform SB 1946 (2010) in Illinois

from the Center for Retirement Research at Boston College:

The plans
…This analysis focuses primarily on three of the large state-administered systems – the Illinois State Employees Retirement System (SERS), Teachers’ Retirement System (TRS), and State Universities Retirement System (SURS) – which make up 75 percent of public pension active membership in the state.

The impact of the economic crisis
As a result of the economic crisis, the amount required to amortize the unfunded liabilities increased dramati­cally for all Illinois plans. For SERS, the required payment jumped from 5 percent to 19 percent of payroll. For TRS, the increase was similar, with the unfunded liability payment [that was primarily caused by a lack of state funding for decades] going from 8 percent to 22 percent of payroll. SURS was hit hardest, with its unfunded liability payment jumping from 3 percent to 22 percent. Al­though much of the increase in costs can be attributed to the drop in asset values, some of the increase was due to a change in assumptions by the plans – a drop in the discount rate and in the assumed payroll growth used in the amortization of the unfunded liabilities. Over the crisis period, the three systems continued to pay 100 percent of their statutory annual required contribution (ARC), although the statutory amount was consistently below the Governmental Accounting Standards Board Actuarially Required Contribution over that period. For the state as a whole, the economic crisis increased the share of state and local budgets devoted to pensions from 5.5 percent to 13.8 percent.

The impact of pension plan reform
In the wake of the financial crisis, Illinois made major cuts to pension benefits for new hires [SB 1946 passed in April 2010]. Benefit changes for all three systems included tightening retirement eligibility requirements, lengthening the vesting period and average salary period, and decreasing the COLA cost-of-living adjustment. For TRS and SURS, these changes reduce the projected employer’s contribution to 0 percent of payroll by 2046. For SERS, the changes reduce the contribution from 14 percent to 5 percent. A key element in the projected pension costs for the SERS, TRS, and SURS will be each plan’s ability to stick with their funding schedules. If the three systems adhere to their cur­rent funding goals –a 90 percent funded ratio by 2045 – and assumed returns are realized, the share of state and local budgets devoted to pensions is projected to drop from 13.8 percent today to 8.3 percent by 2046.

Total state costs
Illinois state government also provides retiree health benefits, which amounted to about 1.6 percent of state and local budgets prior to the crisis, and are projected to grow to 1.8 percent by 2046. When retiree health and pen­sion costs are combined, Illinois’ total retirement benefit costs as a percent of state and local budgets equaled 7.1 percent prior to the crisis, increased to 15.5 percent during the crisis, and are projected to drop to 10.1 percent in 2046...

Center for Retirement Research at Boston College, February 2013

1 comment:

  1. This is what we are up against. Wealth inequality and those who take from ordinary citizens to increase their share of wealth destroy the real economy. Taking benefits from public workers will increase wealth inequality; it's the wrong direction for a healthy democracy: