Tuesday, July 29, 2014

Pension Problems on Chicago Tonight | WTTW

For the discussion, click on link below:
Pension Problems | Chicago Tonight | WTTW

Every interview, every article, every editorial, and every legislative session about Illinois public pension reform should begin with these statements:

The public pension systems were not and are still not the cause of the state’s budget deficits. The state’s budget deficits were triggered by past policymakers’ corruption, arrogance and irresponsibility and are currently perpetuated by some members of this General Assembly. The state's pension debt and revenue problems need to become our legal and moral emphasis. Breaking a constitutionally-guaranteed contract (or reneging on pension benefits and rights that were earned!) with the state’s public servants is the wrong focus! To reiterate, this flagrant disregard for the State and U.S. Constitutions will not address the State’s incurred unfunded liability or its revenue problems.

For several 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 by stealing money from public employees' pensions. Moreover, in 1995, policymakers created a flawed re-funding schedule, and they have refused to correctly amortize the pension systems’ unfunded liabilities since then.

Instead Illinois policymakers have favored corporate interests rather than the interests of their citizenry and; thus, they have sabotaged the public employees’ retirement plans and the State of Illinois’ future economic solvency through mismanagement and fiscal irresponsibility. State policymakers left us with a fiscal disaster, and so-called “pension reform” or breaking a constitutional contract will not resolve today’s $100 billion unfunded liability.

Instead of protecting public pension rights and benefits, which have a legal basis under Illinois State Law and the U.S. Constitution; 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.


  1. On the whole, I found the discussion to be incomprehensible to anyone who was not vested in the issue. Morrison, to my biased perspective, repeated talking points. He mentioned Detroit more times than a play-by-play announcer for the Tigers. Dan Montgomery was on target (despite my disagreements over 2404 - now moot). But I imagined viewers heading for the bathroom. The story on the design for new urban bikes was more interesting, but made me mad since the design is targeted for young bikers - not old guys like me.

  2. A Defined-Contribution Savings Plan (401k):

    With a defined-contribution savings plan (401k, 403b, 457), only the contributions are defined.

    A defined-contribution savings plan shifts all the responsibilities and all of the risk from the employer to the employee (unless negotiated otherwise); thus, the benefit is not guaranteed for life.

    Nearly 87% of public employees are not eligible for Social Security.

    A benefit is based upon individual investment earnings.

    The employee assumes all funding, investment, inflationary and longevity risks.

    A defined-contribution savings plan does not have the pooled investments, professional asset managers, and shared administrative costs that a defined-benefit pension plan provides.

    There are no survivor or disability benefits and guarantees.

    Though the employee bears no portability risks, accounts are not always rolled over when an employee changes jobs.

    The employer (state) will have to bear the administrative costs of both defined-benefit pension and defined-contribution savings plans when the employee switches over.

    Though not the employees problem, “payments to amortize unfunded liabilities for the defined-benefit pension plan may be accelerated” (NIRS).

    The Governmental Accounting Standards Board “requires [an] acceleration of unfunded liability payments when the defined-benefit pension plan is closed to be recognized on financial statements” (NIRS).

    When changing from a defined-benefit pension plan to a defined-contribution savings plan, “new members do not start with any unfunded obligation” (NIRS).

    “Projected defined-benefit savings contributions for new members are worth more than the projected defined-benefit pension costs for those members” (NIRS).

    “No unfunded obligations [liabilities] for existing members are reduced when new members go into a defined-contribution savings plan” (NIRS).

    “The loss of new members make it difficult to finance the unfunded obligations of the defined-benefit pension plan” (NIRS).

    It is nearly impossible for anyone to save enough money in a 401k to last a lifetime of retirement, except for the wealthy elite.

    Sources: the National Institute on Retirement Security (NIRS), the Teachers Retirement System of Illinois

  3. Defined-Benefit Pension Plan:

    A defined-benefit pension plan is more cost efficient than the defined-contribution savings plan.

    A defined-benefit pension plan offers predictable, guaranteed monthly benefits for life.

    Funds are invested by professional asset managers in a diversified portfolio that follows long-term investment strategies.

    The large-pooled assets reduce asset management and miscellaneous fees.

    A defined-benefit pension plan provides spousal (survivor) financial benefits.

    A defined-benefit pension plan provides disability benefits.

    The state is responsible for funding, investment, inflationary and longevity risks.

    A defined-benefit pension plan is a more effective protection than the defined-contribution savings plan.

    A defined-benefit pension plan provides an employee with self-sufficiency in retirement; it is associated with far fewer households that experience food privation, shelter adversity and health care hardship.

    A defined-benefit pension plan is less expensive for taxpayers than Social Security – a reason why legislators had negotiated for Illinois teachers to not pay into Social Security.

    A defined-benefit pension plan has an economic impact of over $4 billion on Illinois; the effect on Gross Domestic Product is $2.38 billion; jobs that are created: 30,448 (Teachers Retirement System of Illinois, TRS).

    The Teachers Retirement System of Illinois is the 39th largest in the U.S. with 378,288 members (TRS).

    The average investment returns for TRS: 9.3% (over 30 years), 8.8% (over 25 years), 8.3% (over 20 years) (TRS) (2012).

    Defined-benefit pension plans contribute over $100 billion to annual local, state, and federal revenue in the U.S. and provide capital to financial markets (National Institute on Retirement Security, NIRS).

    Sources: the National Institute on Retirement Security (NIRS), the Teachers Retirement System of Illinois

  4. I read the balance sheet from TRS. With the state contribution and continued investment income, TRS looks sustainable to me as 6 billion out and 9 billion in.

  5. Unless the state can change the Federal Social Security Law to allow contributors to Social Security to actually receive that benefit, the conversation is pointless. We have already had benefits diminished by Rostenkowski years ago.