Illinois Pension Reform: My address to members of the State Universities Annuitants Association, April 26, 2013

For decades, Illinois policymakers have consistently failed to make the annual required contributions to the state’s pension systems, primarily because they could pay for services and their “pet projects” without raising taxes; in 1995, policymakers created a flawed re-funding schedule, and they have refused to correctly amortize the pension systems’ unfunded liabilities since then. Instead they have favored corporate interests rather than the interests of their citizenry and; thus, they have seriously sabotaged the public employees’ retirement plans and the State of Illinois’ future economic solvency through mismanagement and fiscal irresponsibility. Past state policymakers left us with a fiscal disaster.

Current Illinois policymakers are not trustworthy or competent either. They are equally as reckless in employing the old cost-avoiding tactics as their predecessors. They continue to use an ineffective and “cheaper” actuarial cost method (a projected-unit credit which back loads required contributions) instead of using an entry-age normal cost method for determining pension funding and benefits earned. (According to the Center for State and Local Government Excellence, “This [the entry-age normal cost] method recognizes a larger accumulated pension obligation for active employees than the projected-unit credit [does] and generally requires larger annual contributions”).  

Furthermore, Illinois policymakers continue to issue obligation bonds with the assumption that they will reap high investment returns, and they continue to be concerned more about Bond-Rating agencies than the protections of their public employees’ constitutional guarantees and retirement security.

Instead of protecting public pension rights and benefits, which have a legal basis under Illinois State Law; instead of restructuring the state’s revenue base to pay for the state’s growth in expenditures and its recklessly-accumulated debts and obligations, current policymakers have chosen to diminish the public employees’ constitutional rights and their benefits, even though revenue restructuring and pension debt re-amortization are the best legal and moral solutions.

To defraud a person of his or her guaranteed rights and earned benefits violates a most significant interest in morality and ethics, and in basic legal principles of both the State and U.S. Constitutions that protect every citizen. Politicians’ attempt to find ways to renege on any citizen’s rights and benefits that are earned is a costly and dangerous effrontery and precedent to set in motion.

The significance of any modification of Article XIII, Section 5 of the Illinois Constitution is “the extent to which [public employees] will be deprived of the benefits [they] reasonably expected; the extent to which [public employees] can be adequately compensated for benefits  of which [they] will be deprived; […and] the extent to which the behavior of the [Illinois General Assembly] failing to perform or to offer to perform [or] comports with standards of good faith and fair dealing” (Claude Rohwer & Anthony Skrocki, Contracts in a Nutshell).

Let’s not forget how this economic catastrophe was created. The state’s unfunded liability has increased to approximately $100 billion. Nearly 50 percent of that figure was machinated by Illinois legislators. Today’s fiscal predicament is not the result of a financial problem that was unforeseen at the time of the 1970 Illinois Constitutional Convention. The unfunded liability is a consequence of continual legislative negligence, dishonesty and ineptitude.

II

Recently, University of Illinois president Robert Easter, a member of the Civic Committee of the Commercial Club of Chicago, supported pension reform or, as it is called, Six Simple Steps for reforming the Illinois State Universities Retirement System. Here are four of the six reform steps from the Institute of Government & Public Affairs:

·         University presidents and chancellors agree to change the compounded annual-cost-of living adjustment and link it to the consumer price index (despite a COLA guarantee for Illinois judges as filed in the Jorgensen v. Blagojevich case in 2004);

·         University presidents and chancellors agree to replace the Tier-2 plan for new employees with a hybrid defined–benefit and defined-contribution savings plan (even though a defined-benefit plan is more cost efficient than a defined contributions savings plan, is less expensive for taxpayers than Social Security, offers disability and survivor benefits, and provides a guaranteed monthly benefit for life);

·         University presidents and chancellors agree to increase the employees’ contributions from 8 to 10 percent (which are already one of the highest rates in the country) in exchange for granting the appropriate legal rights to participants to hold the state accountable for its funding commitments  (even though this funding guarantee “can be circumvented if a court finds it significantly imperils broad categories of other funding priorities…” and would “not give employees a separate right to civil action, and only provides permissive authority for the retirement system to sue for payment”) (We Are One, on HB 3411);

·         University presidents and chancellors also agree to shift responsibility for paying a portion of the annual pension cost of SURS to universities and colleges. (Shifting the state’s normal costs to universities and colleges and school districts throughout the state will have negative consequences. According to the Center for Tax and Budget Accountability, “Property tax bases would not be sufficient to absorb any shift in the state’s normal cost for teacher pensions… [Universities, colleges and school districts] are demographically and financially varied, and it would be difficult to impose a uniform normal cost shift on them… While shifting the state’s normal cost obligations may provide some relief to the state’s budget, it will not mitigate the state’s financial obligations…” Furthermore, other negative consequences may include raising students’ tuition and fees, distressing resources and programs, increasing class sizes, eradicating teaching jobs and freezing contractual enhancements for those who remained employed).

These so-called pension reforms jointly diminish and impair the public employees’ contract with the state.

III

So what can we do about this injustice?

A better alternative is to defend and not relinquish any of our rights and benefits. Pension reform does not address the causes of the state’s pension debt and insufficient revenue base. Besides Madigan, Cullerton, Nekritz, Biss, Cross and others have made it quite evident by their proposals that they want the courts to decide…

We can never become complacent in our belief that policymakers, university presidents, chancellors, and even our unions' leadership can be trusted to make ethical and legal decisions for the rest of us. We can never become indifferent to political power and what exorbitant wealth can buy. As Bill Moyers once said, a “democracy is on the auction block, [when it is] subject to the highest bidder.” The Civic Committee of the Commercial Club of Chicago’s “We Mean Business” shows us what money can buy. Media also perpetuate the fallacious reasoning of the Civic Committee, the Civic Federation and the Illinois Policy Institute, and their ilk.

We should know policymakers often pass laws for their own advantage, and we should remember that despite their pledges and duty to keep promises and to uphold both State and U.S. Constitutions, politicians’ criteria for justice include their consideration for what is most expedient for them—their re-election and, for many of them, their corporate connections for lucrative lobbying or other government jobs when they retire.

It is up to us to secure our future by opposing any pension reform and any modifications of contract principles from people who do not honestly represent us. It is our challenge to defend our defined-benefit pension plan with stubborn resolve. It is our primary task to enlist every teacher, fireman, policeman, and state employee in a unification of purpose to protect our rights, as they are guaranteed benefits earned for our life’s labor. This undertaking forestalls our pro-active and continual engagement with members of the Illinois General Assembly and edification of our colleagues and the misinformed public.

Indeed, teachers’ fortitude and knowledge remain our power, and this resilience and “knowledge must [inspire our] action” (Sophocles). Both active and retired teachers are intrinsically bound to one another in this regard. As Martin Luther King once eloquently stated, “We are caught in an inescapable network of mutuality, tied in a single garment of destiny.” Our solidarity is essential.

Let us follow King’s message of “direct action” and unify our efforts to confront the many liars and thieves in the Illinois General Assembly and the powerful interests of the wealthy who support them; let us “arouse the conscience of [our] community” and embolden our colleagues and the legislators who support us.

Our goal is the preservation of legitimate rights and moral concerns, not only for us, but for all workers in Illinois. To oppose unconstitutional pension reform and needless negotiations is to act upon principles that we believe are so valuable, that to do nothing would be an even greater injustice.

-Glen Brown